Costco versus Walmart, Round 2

Lots of good and interesting comments to my post on Health and Beauty Aids: Walmart versus Costco, Kirkland Brand versus Equate Brand -- Which is the Best Deal? where I compared costs for similar items between Walmart and Costco. (In the end, the costs were pretty similar.) I'll be commenting on many of the thoughts left by readers on the issue, and here's the one I wanted to address today:

What it comes down to is the business model. Costco puts firm caps on how much they sell their products for over the supply price. I think it's something like 14% for national brands and 15% for Kirkland branded products. Wal-Mart sells their products for as much as they can make while still being cheaper than their direct competition (such as grocery stores and Target).

Personally, I would buy a product at Costco rather than Wal-Mart even if it cost more at Costco for two reasons:

1. Unbeatable customer service. Costco has never let me down. Wal-Mart usually does.

2. Business Model. Costco's business model is friendly to customers, employees, suppliers, and even competitors. Wal-Mart's business model is friendly to those consumers who care only about the price of an item and to China, but very unfriendly to local small business, suppliers, and to the employees.

My thoughts:

1. Whatever their business models, both of these companies are out to make money. Let's not lose that focus by thinking one company is more "noble" than the other.

2. I'd agree that Costco has great customer service. It's one of the reasons I shop there quite often.

3. I don't find Walmart's customer service much different than Costco's. They both take anything back as long as you have the receipt. They both lack in help if you're looking for someone to ask about something. I'd give Costco a slight nod on their check-out people, but that's about it for me.

4. I'm not sure how Costco's business model is friendlier to customers, suppliers, and competitors. I'd be interested in seeing something on this (like an article by an established news agency.) I have seen pieces on how well Costco treats its employees, so I'd have to agree with that point.

5. I'm not so willing to give Walmart a bad rap on many of the "issues" stated above. Let's take the objections one-by-one:

• Price: Yep, I care about price. And I don't want to pay for a bunch of fancy displays and decor (designed to get me to buy things, BTW), and I really don't see anything wrong with this. Is it wrong to want a good price?

• China: A hot-button for sure. Yes, Walmart buys a lot from China. Don't you think Kmart does too? What about Target? Costco? Do they only buy items from the U.S.?

• Unfriendly to local small business: It's called competition. They're not supposed to be friendly. Local small businesses who figure out better ways to serve their customers beat Walmart. The others don't. That's the way things work in a capitalist system.

• Unfriendly to suppliers: Look at it this way, if I go to negotiate prices with Procter and Gamble, Sony, GE, and on and on (name any mega-company you like), I'd have no hope. Walmart does this for me. So am I upset if Walmart beats up P&G (which I hold stock in BTW) to keep my toothpaste, laundry detergent, and shampoo prices low? Not in the least.

• Unfriendly to employees: Don't Walmart employees have the right and freedom to work elsewhere? If they are so terrible, why would anyone work there?

Don't get me wrong, I love Costco and shop there quite frequently (I was just there this past weekend -- BTW, I recommend their bakery pot pies -- yummy), and I don't mean for my comments on Walmart to imply that I think it's better than Costco (I'd rate them "equal" on my own, personal scale.) But I disagree with the supposition that Walmart is an evil entity.  Walmart does what all businesses do -- it provides a service that many people want to take advantage of. And when I look at the issues presented above objectively, I just don't see an Evil Empire.

I'm sure this isn't a popular opinion, so let the Walmart and FMF bashing begin in the comments below. ;-)

Comments

[NA]

Yay - someone else who doesn't think Walmart is an Evil Empire. I love love love Walmart, but I also love when people boycott it when they think there's something wrong with it. Consumer choice, woohoo.

I think it's interesting that people think that wealth/capitalism is a sum-zero game. Walmart buys from China, which helps a lot of Chinese people....AND it helps us. If Walmart didn't buy from China, we'd pay higher wages to US people, but that would drive prices up, so both low-wage Chinese workers (which get a better wage from Walmart then they probably do from other opportunities), and the average consumer would suffer.

Also, trade brings everyone together. I love it. I don't ever mind calling up customer service and I'm routed to India - I want everyone to be connected.

Bastiat (google him; he's awesome, especially the Candlestick Makers' Petition) once said, "When goods don't cross borders, troops will." Think about that and the patterns of trade and war.

/political rant :) Life isn't all puppies and butterflies, but we're overall better off with Walmarts.

[Foobarista]

In our area, Costco is more likely to have employees who speak comprehensible English. My (Chinese) wife is most appreciative - she has a hard time with broken English or heavy accents.

The local Walmart is pretty much an English-free zone. That said, we still go there to buy stuff that isn't easy to get at Costco.

[savvysaver]

I choose to shop at locally owned establishments, be them hardware stores, restaurants, grocery stores, etc. because money spent locally tends to stay in the community. If the grocery store owner makes some money, he employs a local accountant, a local attorney, and pays local property taxes. When WalMark makes money, it leaves the community.

I also think smaller businesses tend to have better environments for their employees, as well as better customer service. When Home Depot starts letting me bring my dog into the store and run a tab, I will change my mind.

And I find WalMart, et al, depressing. Their stores are gross, their products crappy, and their buildings and lots look bleak.

[GHoosdum]

I don't disagree with you that both companies are out to make money. I simply prefer Costco's way of doing so over Wal-Mart's way. Wal-Mart strikes me as disingenuous in their "always low prices" campaign, while Costco seems very up-front about their ways of doing things. To your point of returns, Costco has allowed me to return many items without a receipt, and they don't put time limits on returns (except for computers) like most companies do. Nor am I saying that Costco is lovey-dovey with suppliers (they actually cancelled a contract with a vendor who was giving Sam's Club lower prices) but they don't force their suppliers to offshore their manufacturing efforts just to shave a few cents off the prices as Wal-Mart does. As for friendly to competition, Costco actually partners with local businesses, while Wal-Mart does its best to force them to close their doors. Case in point: the optician at my local Costco actually works there part time, and has his own local separate practice. The optician at the Super Wal-Mart near my place of work is an employee of Wal-Mart and she has been used as a lever to drive business away from the local eye doctors and into Wal-Mart... all in the name of low prices, of course. However, the consumers decide to go to Wal-Mart rather than anywhere else, so I'm not saying that it's Wal-Mart that is to blame for this situation. People have the power not to shop there. Low price is not the be-all end-all of a shopping experience. Service and quality rate a lot higher in my book than does price. I get both at Costco, and I don't often get either at Wal-Mart.

I recommend giving a look at "The Wal-Mart Effect" by Charles Fishman. The author explains what I tried to say in the post you quoted a lot more effectively than I can. The book is not entirely critical of the company, but it does tell the truth - and does so a lot more effectively than most of the books I've seen that were written simply to bash the company. The book also made Jim Wier, the "man who said No to Wal-Mart," into one of my personal heroes.

[Eric S.]

I'm wondering why you've been doing an apples-oranges comparison like this. The direct comparison would be Costco to Sam's Club.

- Eric.

[KLP]

Costco v. Wal-Mart: How They Stack Up

Global Workforce
Wal-Mart: 1.6 million associates
Costco: 113,000 employees

U.S. Workforce
Wal-Mart: 1.2 million
Costco: 83,600

U.S. Union Members
Wal-Mart: 0
Costco: 15,000

U.S. Stores
Wal-Mart: 3,600
Costco: 336

Net Profits (2004)
Wal-Mart: $10.5 billion
Costco: $882 million

CEO Salary + Bonus (2004)
Wal-Mart: $5.3 million
Costco: $350,000

Average Pay
Wal-Mart: $9.68/hour
Costco: $16/hour

Health Plan Costs
Wal-Mart: Associates pay 34% of premiums + deductible ($350-$1,000)
Costco: Comprehensive; employees pay 5-8% of premiums

Employees Covered By Company Health Insurance
Wal-Mart: 48%
Costco: 82%

Employee Turnover (estimate)
Wal-Mart: 50%
Costco: 24%

Sources: Wal-Mart, Costco, Business Week, Forbes.com

I have more to say on this subject, but I'm out of time tonight!

[FMF]

Eric -- Yes, both Sam's and Costco are club stores, but that doesn't meant that Walmart and Costco don't compete. They certainly do -- with a very similar product mix (as detailed in my original post). They also compete with Target, Kmart, grocery chains, and other retailers in various product categories.

I selected these two because I regularly shop at them both (usually one right after the other), know them well, and they are located within a mile of each other in my city.

No Wal-Mart bashing from me. Wal-Mart bashers are usually snobs with a ridiculous notion of how the world should work. They seem to think everybody is entitled to a huge salary and benefits, regardless of the level or amount of work they do. My guess is that people who think Wal-Mart is that bad actually have a very low opinion, not of the company, but of the kind of people who work and shop there. Proles! That's all we are. We don't know what's good for us, or we'd spend a few more dollars to shop in the stores that smell less like the unwashed!

[GHoosdum]

Anonymous, your statement seems to be self-contradictory: "They seem to think everybody is entitled to a huge salary and benefits, regardless of the level or amount of work they do. My guess is that people who think Wal-Mart is that bad actually have a very low opinion, not of the company, but of the kind of people who work and shop there." Why would the "Wal-Mart bashers" think everyone is entitled to a huge salary if they had no respect for the people who worked at Wal-Mart? This makes no sense to me.

Furthermore, I think everyone is going to have different reasons for the choices that they make. Grouping all "Wal-Mart bashers" into the same (flawed) reasoning scheme is simply not accurate.

[William Tanksley]

GHoosdum, I don't think that having respect for someone implies, requires, or contraindicates that I believe they should have a high salary. Earlier in my life I deserved a low wage, yet at all times I had respect for myself.

My friends' experience:

Getting a job at Walmart is a LOT easier than getting one at Costco. Walmart provides a lot more varied jobs and job descriptions, suitable for a lot more stations in life. Costco is also VERY low mobility; the initial pay is _excellent_, but raises are very small. Walmart's got low starting pay, but a lot more raises and responsibility increases.

In other words, low pay doesn't automatically mean a bad thing. In this case, it means opportunity for people who currently can't get anything more; and Walmart is faithful to keep that up.

I love Costco's return policy; but Sam's Club's return policy is supposed to be even better (they have a "200% policy", where for certain types of item they'll take the returned item, give your money back, AND replace the item).

Disclaimer: I'm a Costco member, a Walmart shopper, and will remain a Costco member because of all the excellent things I bought there for which I wish to maintain the return policy.

One more thing: one of the above posts claimed that Walmart forced a supplier to buy from China in order to lower costs a few pennies. That may possibly be true; I seriously doubt it as stated (did Walmart actually specify that China had to be involved?), but I do know that Walmart has one policy that would serve as the basis in fact for that story. The policy is that unlike most other chain stores, Walmart doesn't "take bribes" for shelf space -- in most chain stores, including groceries, the supplier offers the chain money for desirable shelf space, but Walmart does not take suppliers money directly; instead they ask the supplier to cut the unit price of their goods.

-Billy

[motherinlaw]

There's little comparison to shopping Costco to Sam's in Utah County Utah. Costco has the friendliest customer service, the greeters and checkouts are tops...Sam's club, the greeters stare down at the cart and take forever to let you get by..supposing that you are trying to get by with something that you didn't pay for...if you aren't guilty of it, you will most certainly feel like you are. Don't waste your money with Sam's in Provo, go to Costco where the greeters are friendly and don't treat you like a criminal...and the employees are a higher caliber, they speak english well and the store is much cleaner, nicer and set up much smoother..Sam's club is dirty the bathrooms are horrible, the greeters are rude and are the slowest ever..as for the other employees they are probably all paid less than Costco employees and are worked into the ground by the looks of them. Shame on Sam's Club...and Yeah to Costco.

[Lashonda]

Thanks for the site. I was actually trying to decide if a Costco membership would be cost effective.

I have to disagree with some of your walmart comments. Walmart does treat employees poorly on a pretty consistent basis. I've known several employees, including a sister-in-law who worked at their home office for some years. You asked why would they continue to work there. In the cases of those I'm acquainted with, it's because there's not a lot in the area and the hours fit what they needed at the time. The walmart company makes it very apparant to it's employees that they are expendable. I agree, employees could go elswhere but that's not an attribute I admire in a company (having worked for company's like that before).

As for Walmart negotiating for a lower price...I'm ALL for it. However, something else the corporation does is force pricing "floors" on name brands, so that they don't compete with their store brands in price.

In the end everyone makes up his/her own mind. I just wanted to share my thoughts.

[madmilker]

People in America need to realize jus what got America in this shape...cheap... yes so-call cheap items from a foreign land.

quote*Wal-Mart firmly believes in local procurement. We recognize that by purchasing quality products, we can generate more job opportunities, support local manufacturing and boost economic development. Over 95% of the merchandise in our stores in China is sourced locally. We have established partnerships with nearly 20,000 suppliers in China. *end quote!

Now! if there be 182 country's making items for the world to buy and they have only 5% of the pie in China...duh! This company makes the nice people of China support their currency(yuan) by keeping it in their country working for the people there.... but with the yuan going up in value and the US dollar going down...all the foreign items that the American consumer buys thinking it is cheap has went up in price.

People...its all about the currency and to keep a currency strong you got to keep it floating around the country you live in so it can work for you. For the past 12 years all them US dollars are being shipped overseas to a foreign bank and with the American worker not making anything for the foreigner to buy the "we the people" have to turn to the "second" largest employer in America(Uncle Sam) to sell "we the people" debt in order to get all them dollars back!

50 years ago a foreigner would had given their left nut for a US dollar or a Hershey's chocolate bar and today the same foreigner has got Uncle Sam and the American consumer by both all the while Hershey is moving the chocolate factory to Mexico. Wake up! America and think "MADE IN AMERICA."