Costco faces a problem bigger than retail theft and inflation

Costco has a reputation for treating its employees well and has generally paid higher wages than its retail rivals do.

No protests were needed to get the warehouse club to pay $15 an hour as the chain hit that level as its minimum pay in 2019.

In general, Costco (COST) has been an industry leader when it comes to wages and it has viewed keeping its employees happy as a worthy investment that pays off. Former Chief Financial Officer Richard Galanti, who stepped down in March after nearly 40 years with the company, talked about during the company’s first-quarter earnings call.

“We look at the wages in a vacuum, and we want to do as much as we can for our employees,” he said. “And — and certainly, you know, there were several increases starting with the front-line-worker premium during the initial year of covid. We kept half of that in there, which you know, we kept one of those $2 an hour in there, which was like $400 million a year. Again, we’ve also benefited from stronger sales and productivity, so we were able to afford that.”

Paying employees well has helped the company retain workers. Galanti said that Costco constantly reviews wages.

“We look at them independently, and we’ll continue to do that. And to the extent inflationary pressures are down, that means there’s probably a little less inflationary pressure on wages,” he added.

“But [over] half of our employees are top of scale, and they’re getting increases, irrespective of some of the extra things we’ve talked about every March. And then, as you go from a new employee over the first 9,000 or 10,000 hours, you’re getting constant increases that are more — significantly more,” he added.

Despite that progressive approach to wages, Costco has faced a backlash from employees in some markets.

Costco has traditionally done a good job when it comes to retaining workers. Image source: Brooks Kraft LLC/Corbis via Getty Images

Costco has a growing union problem

Costco has an “A” rating on Comparably’s tracking of companies’ retention of workers.

“Costco is in the top 10% of similar-sized companies in its ability to retain quality employees. 58% of employees would not leave Costco if they were offered a job for more money while 68% are excited to go to work each day,” Comparably said.

The chain also ranked No. 1 compared with its competitors, which include Walmart, Amazon, Best Buy and Target.

That has not protected the chain from a movement to unionize.

“Costco workers in Norfolk, Va., voted overwhelmingly yesterday to join Teamsters Local 822, marking the union’s first organizing victory at the wholesale retailer in two decades,” according to a statement from the Teamsters union. “The 238-worker group seeks strong representation to address years of concerns and improve working conditions.”

That was an isolated case when it happened in January, but now another Costco location has joined the Teamsters.

Costco workers join Teamsters union

Adding a union to the mix could increase costs for Costco. The company now has a another location that has joined the Teamsters union.

“More than 150 Costco drivers in Sumner, Wash., voted overwhelmingly yesterday to join Teamsters Local 174, becoming the first-ever group of workers at a Costco Distribution Center to organize with the Teamsters,” the union said in a news release.

“They are seeking strong representation to address years of workplace concerns under the backing of a Teamsters contract. Key issues include wages, retirement, and a lack of seniority and grievance procedure.”

The union took significant shots at the company in sharing the news that another location has joined.

“Costco isn’t the company it once was. The culture has shifted dramatically the past few years. Management told us they heard our concerns, but they weren’t listening. We were tired of being ignored,” said Paul Lowrie, a three-year driver at Costco and new Teamster. “My fellow drivers and I knew that the only way to reclaim control of our future and make things better was by joining the Teamsters.”