Costco's Competitors

Almost everyone has heard of the membership warehouse retailer, Costco Wholesale, whether or not you actually choose to shop there. You can find one of their warehouses in over 400 locations around the United States, as well as an additional 200 warehouses in Canada, Mexico, Australia, the United Kingdom, and parts of Asia. Although they are not quite as instantly recognizable as their main competitor, Sam’s Club of Wal-Mart Inc., Costco has attracted somewhat of a cult following due to their unusual business operations. In many financial comparisons, Costco seems to beat out all of their industry competitors. Even in the recent economic downtown, Costco still posted growth in their stock, as well as higher than industry average profits. So

Wal-mart may be able to save some money through depriving their employees, but the employee loyalty shown by Costco’s employees more than makes up for that difference. Atypical benefits for Costco’s employees include above average hourly wages, comprehensive health insurance coverage after 6 months, above average 401(k) matching, and mandated 86% of top position hires from within, although the real percentage ends up being 98%. Consequently, employees at Costco are much happier than their peers. Employee turnover for Costco is 17% per year, while Sam’s Club is 44% per year, close to the industry average. As Cascio explains, a conservative estimate of the full cost to replace an hourly employee at Costco or Sam’s Club is 60% of an employee’s yearly salary. At Costco, this is a cost of $21,216 per employee; at Wal-mart, this is a cost of $12,617. When you put these figures together, you realize that Costco saves almost $368 million each year in employee turnover costs. That is a staggering amount of lost profit. Yet, it is not just turnover that proves the worth of Costco’s exceptional employee treatment. Costco’s employees appear to be more productive than their competitors. In 2005, while Sam’s Club generated $37.1 billion in US Sales, Costco generated $43.05 billion with 38% fewer employees (Cascio, 35). Imagine if they had the same numbers of employees! Additionally, Costco’s employees sell $886 of sales

In his article “Stakeholder Theory of the Modern Corporation”, he proposes that a corporation’s stakeholders actually include far more than the shareholders. Rather, this list includes employees, the community, suppliers, consumers, etc.; anyone who is necessary to the survival of the firm. He even asserts that groups that may not be considered essential to a firm’s survival, such as competitors, governments, neighbors, etc. may also be considered stakeholders. Freeman then lays down his list of ground rules for a company’s operations, which can be summarized as act in the best interests of all stakeholders, not just your shareholders. But why should we listen to Freeman? I would argue that Costco is a shining example of why the Stakeholder Theory is a sound model of business operations. Costco does a wonderful job of acting in the best interests of many stakeholders that their competitors ignore, particularly in the area of their consumers. Costco is cutthroat with their suppliers, dropping anyone that may give competitors a lower price, or forcing Starbucks to drop their prices in order to continue selling at Costco warehouses (Cascio, 32). Yet a lecture by Gary Kotzen just a few months ago explained how Costco has been an eco-friendly partner for over 20 years, and “was instrumental in improving the quality of coffee by paying more for beans long before the issue of ‘Fair