President Obama Loves Costco, Should You?

President Obama is impressed by many features of Costco. Should you be impressed for the same reasons? Should you be impressed enough to consider an investment in the company?

Feb 4, 2014 at 5:45PM

Between his State of the Union Speech and deciding on the potential deportation of Justin Bieber (based on a petition exceeding the required 100,000 names for presidential consideration), President Obama made a stop at a Costco Wholesale (NASDAQ:COST) store in Maryland. This shouldn't be shocking considering Costco executives have contributed to the Obama campaign in the past. 

However, despite political ties, Costco's business plan goes along with President Obama's beliefs in regards to employee pay. President Obama is impressed that Costco is capable of paying its employees more than the average big-box retailer, such as Wal-Mart Stores (NYSE:WMT) or Target (NYSE:TGT). He's also impressed by Costco's low turnover rate and superior morale. On the other hand, President Obama might be missing out on one key component to all of this. 

Higher pay possible
Costco might pay its employees more than Wal-Mart and Target pay their workers, but this relates to Costco's business plan. According to Bloomberg, thanks to approximately half as many employees being required per square foot than traditional big-box retailers, Costco is capable of higher labor productivity.

Costco pays the average worker $20.89 per hour. According to Wal-Mart, its average full-time worker earns $12.67 per hour. If you include part-time workers, then the average sales floor worker makes $8.89 per hour, and the average cashier earns $8.64 per hour ( At Target, the average pay for a sales floor worker is $8.36 per hour, and the average pay for a cashier is $8.14 per hour ( 

Wal-Mart and Target offer everyday low prices. Wal-Mart uses this approach to attract low- to middle-income consumers, whereas Target uses this strategy to attract middle- to high-income consumers looking for bargains. However, Costco still attracts a higher-income clientele than Wal-Mart and Target, partially because it requires an annual membership fee (often $55). Costco warehouses also tend to be located in relatively higher-income areas.  

Is Costco more impressive than Wal-Mart and Target in regards to pay, company culture, and overall treatment of employees? Yes. But Wal-Mart and Target don't have much wiggle room when it comes to raising employee pay. If Wal-Mart and/or Target went this route, it would lead to increased prices, which would defeat the purpose of the business model. 

Another perspective
While Wal-Mart and Target can't pay their employees like Costco does and survive, small pay increases would be possible. Wal-Mart and Target sport profit margins of 3.6% and approximately 3.3%, respectively. Therefore, slight cuts into these margins would still allow for profitable growth. Of course, this would hurt stock prices, which is just one reason it's not likely.  

The Foolish takeaway
While there are justifiable reasons why Wal-Mart and Target can't pay their employees the same as Costco pays its workers -- it would lead to increased pricing on merchandise and declining traffic and sales -- the bottom line is that Costco has a better business model for the current economic environment. That being the case, Costco is likely to offer a better investment opportunity.

So, yes, you should be impressed by Costco. It's capable of growing in a challenging consumer environment, all the while treating its employees exceptionally well, which leads to a strong company culture and increased productivity. It's a positive cycle. Please do your own research prior to making any investment decisions. 

Build wealth with this life-altering stock
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers