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The Los Angeles Times reported over the weekend that Costco Wholesale Corp. continues to fly in the face of conventional wisdom in the retailing business that one of the key ways to become competitive - especially with Wal-Mart - is to reduce labor costs.

Costco CEO Jim Sinegal told the paper, "We pay better than the supermarkets, and we pay much better than Wal-Mart. That's not altruism. It's good business." Sinegal, the LAT notes,
"likes to boast of his company's relatively high pay and benefits for its 92,000 employees" - and that the company's labor costs represent seven percent of sales, lower than Wal-Mart's 12 percent and lower than the supermarket average of 16 percent.

The company is able to do this, the LAT reports, because it has higher levels of productivity and lower levels of employee turnover - which means that the company can spend less on training new employees, savings that go right to Costco's bottom line.

"I don't see what's wrong," Sinegal tells the LAT, "with an employee earning enough to be able to buy a house or having a health plan for the family.

"We're trying to build a company that will be here 50 years from now."
KC's View:
It seems to us that one of the differences between Costco and a lot of other retailer companies is that many retailers view their employees as "costs," and Costco looks at its people as an investment.

That's an enormous difference.

Frankly, too many chains engage high-priced consultants to come up with names like "team members" or "associates" for their employees - and then treat them like they are anything but. It isn’t like Costco is hiring brain surgeons to work the checkout line…but it is hiring people who are friendly, engaged and competent.

The fact is, we have the ability to shop for food at three stores with a high-level commitment to creating an environment in which their people put the company's best foot forward: Costco, Trader Joe's, and Stew Leonard's. And here's the thing - there's also a Wal-Mart that is across the street from Costco and down the road from Trader Joe's…and it cannot hold a candle to these three companies when it comes to engaged, friendly, knowledgeable personnel. (That's not a knock on Wal-Mart. It's just a simple fact that flies in the face of its reputation.)