Based on the variety of products sold in Costco (NASDAQ:COST), Target (NYSE:TGT), and Wal-Mart (NYSE:WMT), a customer would have a difficult time telling one apart from another. But when the products are set aside, one thing does, in fact, separate Wal-Mart, Target, and Costco from one another – the happiness of their employees.
Some customers sense the differences in employee attitude when shopping at one retailer versus another; other customers do not. The news, however, tells the obvious truth: Wal-Mart employees are not happy with their low wages and are striking to change this. In fact, the largest worker revolt in Wal-Mart's 50 year history has just occurred, resulting in over 50 arrests. Target employees, on the other hand, have never voiced their concerns as publicly. This seems strange given that wages between the two companies are similar. Is there something else going on that explains this divergence?
Target versus Wal-Mart
Long ago at the turn of the century, a retailer known as the Dayton Dry Goods Corporation opened its doors in 1902. The founders may not have known it then, but that simple store would grow to become a great American brand – Target. In 1962, the first Target store opened its doors to the public, along with the first Wal-Mart store. Over the course of its history, Target has continued to improve its business model, company culture, pricing strategy, and interior store appearance. Its biggest competition has long been Wal-Mart, followed by other big box retailers like Costco and Kmart. However, when it comes to employee happiness, Wal-Mart is the least of their concerns.
Higher wages don't create employee happiness
Believe it or not, hourly sales associates and cashiers at Target actually make less on average than Wal-Mart employees holding the same position. For instance, Target sales associate team members make an average of $8.34 per hour, whereas sales associates at Wal-Mart make an average of $8.86 per hour. In addition, cashiers at Target make $0.41 less per hour than Wal-Mart cashiers, who earn on average $8.51 per hour. Cashiers at Costco make the most, earning an average of $15.06 per hour, with most non-management roles earning on average $12 to $18 per hour. Based on this information, Target's employees should be rioting, not Wal-Mart employees. So why haven't they?
Target's happy employees
Target's employees are overall content in several ways. Some investors may not know that Target actually won CareerBliss's Leap award in 2011, beating 250,000 other organizations. Employees rated their organization in several areas such as work-life balance, employee benefits, relationship between co-workers and bosses, job resources, daily tasks, company culture, work environment, career opportunities and advancement, compensation, and many others. Target's employees gave the company high ratings in all categories. In fact, Target actually improved its employee happiness by 12%. Unlike at Wal-Mart, Target associates seemingly care less about compensation and more about their work environment and its perks.
Happiness at its best
Target and Costco believe that a happy work environment leads to better customer service, and ultimately, profits for the company. Furthermore, both retailers treat their employees as a long-term investment rather than a gamble. For Costco, minimizing employee compensation is not what's important to the company's growth; rather, minimizing employee turnover and maximizing employee loyalty, productivity, and knowledge of customer service excellence is the key to success.
The award goes to Costco
Costco's employees are actually the happiest of these three companies. Not only do they enjoy their jobs, but they also enjoy how well the company treats them. Costco treats its employees as individuals and believes that everyone has the ability to learn new skills and make decisions. Costco's generous wages and benefits packages are definitely a fantastic advantage to being an employee there. Even though Costco employees earn more per hour than Wal-Mart employees, Costco employees pay about 12% in out of pocket premium for benefits such as insurance, whereas Wal-Mart employees pay 40% out of pocket. That's quite a difference! While Wal-Mart is in the hot seat with its workforce, Costco employees aren't going anywhere anytime soon.
The outcome for Wal-Mart employees
Wal-Mart executives are not planning on raising their hourly associates' wages anytime in the near future unless forced to by Congress. The company has announced that it plans on promoting 160,000 employees over the next year. For now, Wal-Mart's hourly associates can only hope to receive more hours back in their pocket as the holiday season approaches. Gaining hours back on the clock may settle the strike for a short time, giving Wal-Mart executives additional time to devise a better solution to their employees' complaints of being paid "poverty wages." Foolish investors should note that in the long term, Target and Costco are likely to benefit from their employee-friendly methods, especially when compared to Wal-Mart. Consumers are becoming increasingly conscious of how organizations stand on social issues, and this could prove a deciding factor in which of these retailers wins out over the long term.
Fool contributor Natalie O'Reilly 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.