Walmart vs Costco: different approach, same result?
Walmart is by far the world’s biggest retailer and Costco is the third biggest. Both of the retailers strive to offer everyday low prices for customers. Both of the companies are operating on a similar profit margin level (2,4% vs 2,6%).
However, the approach of the companies is very different. Walmart is significantly bigger in revenue (almost three times) and puts a higher operating margin on the products it sells (24,8% vs 12,9%). Despite the more lucrative financials, Costco operates a very efficient model getting the best productivity out of its square feet (+211% more sales per square feet) and people.
While Costco’s employees generate +180% more revenue per employee than Walmart, Costco does pay its employees well.
Selling, General & Administrative (SG&A) costs, which consist mainly of salaries, are significantly smaller for Costco than for Walmart.
An employee costs 27% more for Costco than for Walmart.
Costco founder Jim Sinegal has argued for a long time that taking care of its people is an important part of its efficiency.
“If you hire good people, give them good jobs, and pay them good wages, generally something good is going to happen.”