Costco (NASDAQ: COST), is the largest membership warehouse club chain in the United States. As of July 2009 it is the third largest retailer in the United States, where it originated, and the ninth largest in the world.[1][2] As of October 2007, Costco is the largest retailer of fine wine in the world.
This article discusses employee retention as a strategy. Retaining employees means lower training costs and a familiar well established workforce. Retention requires keeping employees happy, which has other benefits as well. Costco is know for paying well, and the amount of merchandise stolen by Costco employees is only 13% of the industry average. That is a huge savings for shareholders primarily due to Costco's positive employee relations.
One major issue though, is what to do when you have to have layoffs.
"There is no reason that companies cannot retain and/or rebuild favor among employees," Challenger says. "We see countless examples of companies that are able to go through significant downsizings and those remaining, as well as those who were let go, still have positive feelings about the employer. It comes down to how people are treated. If they believe that the company is being fair and honest, they will endure downsizings, salary freezes, cuts in benefits, and no bonuses."
Be fair and honest. I think that is always good advice. Good pay and benefits can, in many industries, be a win-win situation. Employees get more of what they want, and by minimizing turnover, customers get better service and shareholders get more profits.
Costco’s industry-leading Customer Engagement rates can be attributed the fact that the warehouse retailer successfully and consistently provides an exceptional shopping experience for Costco customers, who return not only for Costco’s retail deals, but also because they feel emotionally connected to the brand. As a recent Business Wire article on the MEC report stated, “creating a superior retail experience is based on the ability to forge an emotional connection between the customer and the employee… customers report more positive shopping experiences if the employee they interacted with made the shopping experience fun and went above and beyond to meet their needs.”
In other words, the customer’s emotional experience is crucial, and often matters even more than factors like price, location, or other functional benefits. Just how does Costco foster emotionally satisfying retail experiences? They begin with their employees. As PeopleMetrics’ Executive Vice President, Kate Feather, pointed out in the article mentioned above, “The key for retailers is to ensure they’re fostering an emotional connection between their employees and customers. To do this you must start with employees. If retailers take care of their employees, employees will take care of their customers.”
In his book The Must-Have Customer, Robert Gordman compares employee relations at Costco and its biggest competitor, Sam’s Club. He writes, “When Costco finds the right people, they pay them 35 percent more than Sam’s. And 82 percent of Costco employees are covered by the company’s health plan, versus only 47 percent at Sam’s. Not surprisingly, Costco beats Sam’s on every measure of productivity and has a turnover rate that’s less than a third of Sam’s.”
On top of this economic ebb and flow
and its effect on employee turnover and
retention, there is also the likelihood of a
severe labor shortage in the U.S. by 2010.
According to a 2000 Bureau of Labor
Statistics study, there could be a shortage
of four million workers by 2006, and by
2010 there could be 10 million more jobs
available than there are employees to fill
them in the U.S. A labor shortage of
those dimensions will cause the cost of
acquiring new employees to skyrocket,
and it will make having an effective
employee retention strategy critical to the
success of any business.
Putting a retention strategy in place
today not only can head off potential
problems later on, but provide almost
immediate benefits in terms of sales and
customer satisfaction.
The Hidden Costs of Turnover
Many top executives secretly like
turnover. That’s why so many businesses
tolerate double-digit turnover rates every
year. These executives believe that
turnover saves money by keeping the
average employee on the low end of the
pay scale. The longer an employee stays,
the more they will earn. It’s easy to harbor
this point of view because it’s often
difficult to truly measure the cost of
turnover over time.
In fact, the dollars-and-cents cost of
turnover differs from industry to industry
and company to company—it can range
from a couple of thousand dollars to tens
of thousands of dollars per employee
lost—but in almost every case, the cost
will be much more than the typical
employer imagines.
Compensation is undoubtedly a factor,
particularly in highly competitive markets.
A comparative analysis of wages and
financial performance for Wal-Mart
Stores Inc. and Costco Wholesale Corp.
by Business Week magazine, for instance,
found that the higher wage approach
adopted by Costco has resulted in a workforce
that is more loyal and more productive.
In fact, not only are Costco employees
more highly paid, but while Sam’s Club
and Costco produce about the same
revenues—$35 billion and $34 billion,
respectively—Costco accomplishes this
with one-third fewer employees. Business
Week asserts that “Costco [has] one of the
most productive and loyal workforces in
all of retailing. Only 6 percent of employees
leave after the first year, compared with 21
percent at Wal-Mart.” And that “saves
tons, since Wal-Mart says it costs $2,500
per worker just to test, interview, and
train a new hire.”
Comparisons like this are one of the
reasons that most employers blame
employee turnover on compensation and
benefits issues, while the truth is that
most employees leave over dissatisfaction
with factors other than pay.
Noncash incentives may be more
effective and less costly than increasing
compensation or offering cash incentives
to promote retention. According to the
American Productivity and Quality
Center in Houston and the American
Compensation Association, it takes an
increase of 5 to 8 percent of an employee’s
salary to change his behavior.
However, using noncash incentives,
behavior can be influenced at a cost of
only 4 percent of the employee’s salary.
Performance-Based Retention
Many companies focus on retention
by addressing critical work-life issues such
as day care, health care, elder care, vacations,
flextime, sabbaticals, and charitable
work. However, addressing work life issues
alone doesn’t necessarily align employee
retention with critical organizational goals.
It’s not enough to have satisfied employees;
success comes from having satisfied
employees motivated to continually
improve performance.
While some former Price Club locations in California and the northeastern United States are staffed by Teamsters,[48] the majority of Costco locations are not unionized. The non-union locations have revisions to their Costco Employee Agreement every three years concurrent with union contract ratifications in locations with collective bargaining agreements. Similar to a union contract, the Employee Agreement sets forth such things as benefits, compensations, wages, disciplinary procedures, paid holidays, bonuses, and seniority. As of March 2011, non-supervisory hourly wages ranged from $11.00 to $21.00 in the United States, $11.00 to $22.15 in Canada, and £6.28 to £10.00 in the United Kingdom. In the US, eighty-five percent of Costco's workers have health insurance, compared with less than fifty percent at Walmart and Target.[49]
Product-demonstration (e.g., food samples) employees work for an outside company. In the western U.S., the company is called Warehouse Demo Services, Kirkland, Washington.[50] Costco also uses Club Demonstration Services, based in San Diego, California.[51] In Canada, demonstrations are done exclusively by Professional Warehouse Demonstrations
This article discusses employee retention as a strategy. Retaining employees means lower training costs and a familiar well established workforce. Retention requires keeping employees happy, which has other benefits as well. Costco is know for paying well, and the amount of merchandise stolen by Costco employees is only 13% of the industry average. That is a huge savings for shareholders primarily due to Costco's positive employee relations.
One major issue though, is what to do when you have to have layoffs.
"There is no reason that companies cannot retain and/or rebuild favor among employees," Challenger says. "We see countless examples of companies that are able to go through significant downsizings and those remaining, as well as those who were let go, still have positive feelings about the employer. It comes down to how people are treated. If they believe that the company is being fair and honest, they will endure downsizings, salary freezes, cuts in benefits, and no bonuses."
Be fair and honest. I think that is always good advice. Good pay and benefits can, in many industries, be a win-win situation. Employees get more of what they want, and by minimizing turnover, customers get better service and shareholders get more profits.
Costco’s industry-leading Customer Engagement rates can be attributed the fact that the warehouse retailer successfully and consistently provides an exceptional shopping experience for Costco customers, who return not only for Costco’s retail deals, but also because they feel emotionally connected to the brand. As a recent Business Wire article on the MEC report stated, “creating a superior retail experience is based on the ability to forge an emotional connection between the customer and the employee… customers report more positive shopping experiences if the employee they interacted with made the shopping experience fun and went above and beyond to meet their needs.”
In other words, the customer’s emotional experience is crucial, and often matters even more than factors like price, location, or other functional benefits. Just how does Costco foster emotionally satisfying retail experiences? They begin with their employees. As PeopleMetrics’ Executive Vice President, Kate Feather, pointed out in the article mentioned above, “The key for retailers is to ensure they’re fostering an emotional connection between their employees and customers. To do this you must start with employees. If retailers take care of their employees, employees will take care of their customers.”
In his book The Must-Have Customer, Robert Gordman compares employee relations at Costco and its biggest competitor, Sam’s Club. He writes, “When Costco finds the right people, they pay them 35 percent more than Sam’s. And 82 percent of Costco employees are covered by the company’s health plan, versus only 47 percent at Sam’s. Not surprisingly, Costco beats Sam’s on every measure of productivity and has a turnover rate that’s less than a third of Sam’s.”
On top of this economic ebb and flow
and its effect on employee turnover and
retention, there is also the likelihood of a
severe labor shortage in the U.S. by 2010.
According to a 2000 Bureau of Labor
Statistics study, there could be a shortage
of four million workers by 2006, and by
2010 there could be 10 million more jobs
available than there are employees to fill
them in the U.S. A labor shortage of
those dimensions will cause the cost of
acquiring new employees to skyrocket,
and it will make having an effective
employee retention strategy critical to the
success of any business.
Putting a retention strategy in place
today not only can head off potential
problems later on, but provide almost
immediate benefits in terms of sales and
customer satisfaction.
The Hidden Costs of Turnover
Many top executives secretly like
turnover. That’s why so many businesses
tolerate double-digit turnover rates every
year. These executives believe that
turnover saves money by keeping the
average employee on the low end of the
pay scale. The longer an employee stays,
the more they will earn. It’s easy to harbor
this point of view because it’s often
difficult to truly measure the cost of
turnover over time.
In fact, the dollars-and-cents cost of
turnover differs from industry to industry
and company to company—it can range
from a couple of thousand dollars to tens
of thousands of dollars per employee
lost—but in almost every case, the cost
will be much more than the typical
employer imagines.
Compensation is undoubtedly a factor,
particularly in highly competitive markets.
A comparative analysis of wages and
financial performance for Wal-Mart
Stores Inc. and Costco Wholesale Corp.
by Business Week magazine, for instance,
found that the higher wage approach
adopted by Costco has resulted in a workforce
that is more loyal and more productive.
In fact, not only are Costco employees
more highly paid, but while Sam’s Club
and Costco produce about the same
revenues—$35 billion and $34 billion,
respectively—Costco accomplishes this
with one-third fewer employees. Business
Week asserts that “Costco [has] one of the
most productive and loyal workforces in
all of retailing. Only 6 percent of employees
leave after the first year, compared with 21
percent at Wal-Mart.” And that “saves
tons, since Wal-Mart says it costs $2,500
per worker just to test, interview, and
train a new hire.”
Comparisons like this are one of the
reasons that most employers blame
employee turnover on compensation and
benefits issues, while the truth is that
most employees leave over dissatisfaction
with factors other than pay.
Noncash incentives may be more
effective and less costly than increasing
compensation or offering cash incentives
to promote retention. According to the
American Productivity and Quality
Center in Houston and the American
Compensation Association, it takes an
increase of 5 to 8 percent of an employee’s
salary to change his behavior.
However, using noncash incentives,
behavior can be influenced at a cost of
only 4 percent of the employee’s salary.
Performance-Based Retention
Many companies focus on retention
by addressing critical work-life issues such
as day care, health care, elder care, vacations,
flextime, sabbaticals, and charitable
work. However, addressing work life issues
alone doesn’t necessarily align employee
retention with critical organizational goals.
It’s not enough to have satisfied employees;
success comes from having satisfied
employees motivated to continually
improve performance.
While some former Price Club locations in California and the northeastern United States are staffed by Teamsters,[48] the majority of Costco locations are not unionized. The non-union locations have revisions to their Costco Employee Agreement every three years concurrent with union contract ratifications in locations with collective bargaining agreements. Similar to a union contract, the Employee Agreement sets forth such things as benefits, compensations, wages, disciplinary procedures, paid holidays, bonuses, and seniority. As of March 2011, non-supervisory hourly wages ranged from $11.00 to $21.00 in the United States, $11.00 to $22.15 in Canada, and £6.28 to £10.00 in the United Kingdom. In the US, eighty-five percent of Costco's workers have health insurance, compared with less than fifty percent at Walmart and Target.[49]
Product-demonstration (e.g., food samples) employees work for an outside company. In the western U.S., the company is called Warehouse Demo Services, Kirkland, Washington.[50] Costco also uses Club Demonstration Services, based in San Diego, California.[51] In Canada, demonstrations are done exclusively by Professional Warehouse Demonstrations