235. Embrace All-Win, High-Hourly Wages (like Costco)

In the News: “$15 Living Wage” v Amazon and Costco Strategies

The “$15-hour living wage” movement will continue. It will: buy votes; liquidate jobs; and boost McDonald’s prices more than the new, net wages. Although many voters are weak at system-thinking math, Amazon and Costco are not.

Last fall, Amazon bragged that they were leading the way to the magic “$15/hour” at all locations along with benefits and skills training. AMZ did not mention that:  a) they needed to hire a lot of folks fast. b) They are trying to charm democrats who want to break-them up for being evil. And, c) their $200-400mm automated warehouses can be shut down if they do get unions.

(Newsflash: Has AMZ worked workers too hard in Bessemer, AL where a unionization vote is underway?)    

But, why did Costco just announce a new minimum wage of $16/hour (with good benefits)? No surprise: they have had the highest wage scale within retail America since their founding. How exactly do they sell commodities at a 13% margin; pay great; and still financially thrive? Best-service pay logic!  

Like Amazon: Costco 1) pays the most to 2) hire the best work ethic to 3) get best, service quality execution that 4) wins best customer loyalty and growth. Plus: they 5) cross-train to deliver more services with 6) an inclusive culture and 7) daily contact with happy customers. The financial results:  

  1. 157% margin dollars per head
  2. For 141% of the average compensation for an area job niche
  3. 6% annual turnover rate (v 30 to 60%) for retail in general
  4. .12% theft/shrinkage (a retail best)
  5. Best customer retention/growth.
  6. And, a great ROI.

Distributor Options:

  1. Pay average comp to get average work ethic and service quality. Then, be a price-taker that gets weak: profits, growth and innovative-change ability.  
  2. Or: measure and grow gross-profit dollars/head to afford higher wages by working smarter.

The roadmap for doing #2?

  1. For a warm-up: go read my blogs 48 and 170.
  2. And, for a full-journey recipe: skim my “Core Renewal Roadmap”.

Pursuing penny-wise, service mediocracy won’t allow you to both excel and make the digital changes that your best suppliers and customers are expecting. Choosing the status quo is more risky than experimenting towards Costco, Service-Excellence math!

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