Like the stock market, commodities, or property, one can overpay for a goods or service but will never underpay in a market.
Costco and Sams Club are two well known warehouse retailers. Each own about 50% of the market. There is often at least one of each in every town. In order to truly compete, each company must have a differentiation strategy.
The Costco strategy intends to sell more volume to wealthier customers through consistent value and high quality products. The company implements this in the following ways :
-carry fewer items (about 4000 unique items)
-attract wealthier customers ($75k avg family income)
-sell more items per employee (attract and retain higher caliber talent)
The Sams Club strategy is to use the Wal-Mart distribution network to sell the largest variety at the least cost. Sams implements this strategy by :
-targeting the largest customer segment (~$37k avg family income)
-100,000+ SKUs
-hiring more employees per square foot at lower compensation packages
Looking back at the economics of the labor model, if Sams pays a wage that is too low, there won't be any available labor (supply) at that price. If Sams pays a wage slightly lower, the only available labor will be incompatible with the reliability and service required for their target customers. Sams Club will have to raise its compensation package when there is no more qualified labor to provide the service level desired.
If Sams matched the Costco wages, possible effects include :
-not enough labor supply at that wage for that job
-incompatibility of customers and customer service
-would be forced to hire less people and expect the productivity level of Costco employees
My professor's analysis of the true cost of lower wages is a great angle. Enjoy!
Prof. Wayne Cascio is famous for his Costco / Sam's analysis and HBR publishing.
http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?ml_action=get-article&articleID=F0612D&ml_page=1&ml_subscriber=true
Wal-Mart's revenue is $351B, a large fraction of the U.S. GDP ($13T). Everyone shops there, but noone admits it! the real Wal-Mart effect
Wages. Labor is only worth what someone will pay for it.
In every job, one can attain any wage; the question is what are you willing to provide your employer in exchange. Higher wages economically mean a leaner staff. Ask any employee if they would like to eliminate their job so everyone else can work harder and earn .25 more per hour. Or ask a Sam's group of employees what additional responsibilities, loyalties, extra hours, and more responsibilities would they offer for a $3 per hour increase. There won't be a lot of volunteers. Costco and Sam's employees are not interchangeable. Costco hires a level of qualification and professional that provides another level of service to a wealthier target customer. Sam's club cannot get that level of qualification by paying existing employees more. Its ideal that Wal-Mart has flexible jobs for any level of need, every position need not be a career. This is an economy and it works. It doesn't need our help nor legislation.
I will look for measures of the economic damage caused by increasing the minimum wage. Food servers now make $300 per night; way more than I make for a lot more qualifications and responsibilities.
3 comments:
i would never shop there if they treat their employees bad! walmart sucks and they demean everybody. i would pass a law to prevent them from exploiting people and communities
I don't understand what Walmart does to their employees that is so bad. If the pay is too low, then people shouldn't work there. Find a different job (at Costco). No one is forcing them to work there.
that is a good point. I like to see both sides.
A. free labor chooses the jobs that Wal-Mart offers
B. some feel that Wal-Mart's economics is so dominant that it forces communities to be flooded with bad jobs and the consumer price pressure forces products to be made in foreign countries at the expense of overpaid US jobs.
Interestingly we are studying Coca-Cola's treatment of employees. They annual revenues of $13B and still need to bust up unions and exploit Columbian workers by hiring paramilitary to kill top union leaders.
http://killercoke.org
http://cokefacts.org
So don't drink coke either. They are disgusting corporate models for letting this issue get so out-of-hand and hiding behind laws instead of ethics.
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