Will Costco’s new $15 minimum wage hurt or benefit the chain?
Last June, Costco raised its hourly base wage by a buck to $14. Last week, the company jacked base pay up again to $15.
According to The Seattle Times, minimum pay increased from $14 to $15 for stockers and other “service assistants” and from $14.50 to $15.50 for cashiers and other “service clerks.” Approximately 90 percent of Costco’s employees are hourly workers, and the average pay is $23.
On the warehouse club’s quarterly conference call with analysts last Thursday, Richard Galanti, Costco CFO, also announced wage increases for supervisors and the introduction of paid parental leave for all hourly workers as part of a new three-year “employee agreement.”
Collectively, the new wage hikes will negatively impact the company’s SG&A expense by three to four basis points over the next four quarters. That’s on top of the ongoing seven to eight basis point impact of last year’s wage increase that will anniversary on June 11.
Despite the wage pressures, Costco was able to reduce its SG&A as a percent of sales in its latest quarter by two basis points. Earnings in the period rose 26.8 percent, well above Wall Street’s consensus target, as comps in the U.S. jumped 7.2 percent.
Last June’s pay hike was partly designed to share some of the savings from the federal tax reform with Costco’s more than 130,000 U.S. employees. The company is increasing wages at a time when unemployment remains at its lowest rate since the late 1960s. The arrival of newer on-demand businesses such as Uber as well as improved pay from traditional retailers has heightened competition for workers.
Amazon, Target and Walmart have all raised minimum wages in the U.S. over the last year — Walmart is currently at $11 and Amazon, $15. Target is at $12 and set to hit $15 next year.
Costco remains ranked nationally as one of the top retail employers, with its pay and benefits often called out. A new survey from Glassdoor shows the warehouse club ranking eighth among Gen Z employees. Still, The Seattle Times found a few employees at its Seattle corporate headquarter grumbling that the pay increases have been behind local cost of living increases.
- Costco Wholesale Corporation Reports Second Quarter And Year-To-Date Operating Results For Fiscal 2019 And February Sales Results – Costco
- Costco Wholesale Corporation (COST) Q2 2019 Earnings Conference Call Transcript – Motley Fool
- High-earning Costco offers another wage increase — at least for some of its workers – The Seattle Times
- Costco joins Amazon with $15 minimum wage, putting pressure on Target and Best Buy – Minneapolis Star Tribune
- Costco workers get a raise and the retailer gets more good press – RetailWire
- The Next Generation of Talent: Where Gen Z Wants to Work – Glassdoor
DISCUSSION QUESTIONS: Do you think it is important for Costco to remain a step above its competitors in terms of compensation and benefits? What role have employee relations played in Costco’s success?