Costco is the latest retailer announcing a hike in its minimum starting hourly pay, boosting wages $1.50 to $13, the first such raise in nine years.
That number is well above the federal minimum wage of $7.25 and approaches the highest minimum wages set by some cities in recent years. Wal-Mart last year said it would raise its minimum wage to $10 for most of its employees, and retailers from Gap Inc. to TJX in recent years have bumped up their wages as well.
Costco executives Wednesday said they review their pay scale each March and institute wage increases for the top end of its scale, which some two-thirds of its employees receive. This is the first time in nine years that it has also raised its starting pay at the lower end of its scale.
The move shows a few things about retail in general and Costco in particular.
Generally, retailers are finding that, in a better economy, many workers can be pickier about their pay and working conditions. And as consumers demand better service and as retailers institute more complex supply chain logistics that include the store as both a sender and a receiver, they need better trained, better skilled workers.
Wal-Mart, the nation’s largest retailer, shocked many with the announcement last year that it would raise its hourly pay. Still, its $10 minimum wage doesn’t approach the minimums that are passing in some areas of the U.S., or the $15 an hour for which many Wal-Mart store workers have lobbied.
Retailers like Target and T.J. Maxx parent TJX followed Wal-Mart in announcing minimum pay raises. Gap Inc. announced the year previously that it would bump its hourly minimum to $10. Ikea made the bold move of tying its hourly pay to a location-based living wage calculator.
But the gold standard of hourly pay and benefits remains Costco, a retailer that consistently reports happy workers, lower turnover and financial success, even in a bumpy economy (though it missed expectations in its latest quarter). That Costco pays its workers well is no coincidence, many experts say.
Massachusetts Institute of Technology researcher and retail expert Zeynep Ton studied Costco, Trader Joe’s, QuikTrip (a U.S. chain of convenience stores with gas stations) and Mercadona (Spain’s largest supermarket chain) and said the results of those four retail companies defy the traditional argument that retailers have to raise prices—or lose money—in order to pay higher wages. Rather, they treat the money spent on workers as a strategic investment and design operational systems that enable their workers to be more productive. That allows all four to pay better than their competitors while also offering low prices and pleasing shareholders, Ton said.
“They have high productivity, great customer service, healthy growth, and excellent returns to their investors,” Ton wrote in Forbes. “They compete head-on with companies that spend far less on their employees, and they win.”
Columbia University business school professor of retail studies Mark Cohen put it more bluntly. “Costco keeps making money because they load those aisles with really high value merchandise and pay their associates a lot of money,” Cohen told Retail Dive last year. “And Costco’s associates are helpful and informed, as opposed to nasty, hostile or absent.”