Megan McArdle explains why the facile comparison of the two big US retail firms does not make as much sense as people think:
One simply cannot have a discussion about Walmart’s wages without someone bringing up Costco. It seems to be de rigeur, like tipping your waiter, calling your mother on her birthday, and never starting your thank you notes with the words “Thank you”. So lets get it out of the way before the supper gong goes.
[. . .]
Costco has a more highly paid labor force — but that labor force also brings in a lot more money. Costco’s labor force, paid $19 an hour, brings in three times as much revenue as a Walmart workforce paid somewhere between 50-60% of that. (There’s a bit of messiness to all these calculations, because of course both firms have employees who don’t work in stores — but that’s the majority of their workforce, so I’m going to assume that the differences come out in the wash.)
This is not because Costco treats its workers better, and therefore gets fantastic productivity out of them, though this is what you would think if you listened to very sincere union activists on NPR. Rather, it’s because their business model is inherently higher-productivity. A typical Costco store has around 4,000 SKUs, most of which are stacked on pallets so that you can be your own stockboy. A Walmart has 140,000 SKUs, which have to be tediously sorted, replaced on shelves, reordered, delivered, and so forth. People tend to radically underestimate the costs imposed by complexity, because the management problems do not simply add up; they multiply.
One way to think about this is Thanksgiving dinner: how come you, who are capable of getting a meal on the table 364 nights of the year, suddenly find yourself burning things, forgetting the creamed onions in the microwave, and bringing the mashed potatoes to the table a half an hour late? Because when you’re cooking sixteen things instead of four, it is not the same as cooking four four-item meals. There are all sorts of complex interactions involving things like heating times and oven space, and adding more people to the problem, while probably necessary, itself multiplies the complexities.
