I wrote about this last spring in regard to Wal-Mart and Costco. Upper-middle-class people who live in urban areas — which is to say, the sort of people who tend to write about the wage differential between the two stores — tend to think of them as close substitutes, because they’re both giant stores where you occasionally go to buy something more cheaply than you can in a neighborhood grocery or hardware store. However, for most of Wal-Mart’s customer base, that’s where the resemblance ends. Costco really is a store where affluent, high-socioeconomic status households occasionally buy huge quantities of goods on the cheap: That’s Costco’s business strategy (which is why its stores are pretty much found in affluent near-in suburbs). Wal-Mart, however, is mostly a store where low-income people do their everyday shopping.
In other words, Trader Joe’s and Costco are the specialty grocer and warehouse club for an affluent, educated college demographic. They woo this crowd with a stripped-down array of high quality stock-keeping units, and high-quality customer service. The high wages produce the high levels of customer service, and the small number of products are what allow them to pay the high wages. Fewer products to handle (and restock) lowers the labor intensity of your operation. In the case of Trader Joe’s, it also dramatically decreases the amount of space you need for your supermarket … which in turn is why their revenue per square foot is so high. (Costco solves this problem by leaving the stuff on pallets, so that you can be your own stockboy).
Both these strategies work in part because very few people expect to do all their shopping at Trader Joe’s, and no one expects to do all their shopping at Costco. They don’t need to be comprehensive. Supermarkets, and Wal-Mart, have to devote a lot of shelf space, and labor, to products that don’t turn over that often.
That’s not the only reason that the Trader Joe’s/Costco model wouldn’t work for Wal-Mart. For one thing, it’s no accident that the high-wage favorites cited by activists tend to serve the affluent; lower income households can’t afford to pay extra for top-notch service. If it really matters to you whether you pay 50 cents a loaf less for generic bread, you’re not going to go to the specialty store where the organic produce is super-cheap and the clerk gave a cookie to your kid. Every time I write about Wal-Mart (or McDonald’s, or [insert store here]), several people will e-mail, or tweet, or come into the comments to say they’d be happy to pay 25 percent more for their Big Mac or their Wal-Mart goods if it means that the workers are well paid. I have taken to asking them how often they go to Wal-Mart or McDonald’s. So far, no one has reported going as often as once a week; the modal answer is a sudden disappearance from the conversation. If I had to guess, I’d estimate that most of the people making such statements go to Wal-Mart or McDonald’s only on road trips.
August 28, 2013
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