Key Takeaways:
Costco's bet on high wages and generous benefits has created a wave of millionaire hourly workers — and kept turnover near 7 percent.
Tony Barzar, a 60-year-old Costco cashier in Tucson, Arizona, has accumulated over $1 million in his 401(k) after four decades with the retailer.
"Many thousands" of Costco's US hourly workers have over $1 million in their 401(k) accounts, Chief Financial Officer Gary Millerchip said.
Barzar earns $32.90 an hour, the maximum wage Costco recently boosted from $31.90. His Costco-sponsored health plan charges a $15 co-pay for regular visits and $25 for specialty care, well below national averages. The company's turnover after one year stands at about 7 percent, a fraction of the retail industry average, Costco executives said.
Costco's strategy of paying above-market wages and benefits aims to reduce training costs and improve customer service. McKinsey estimated in a 2023 study that losing a front-line retail employee costs an average of $10,000 per worker. Retailers with the top quartile of employee-satisfaction scores were more than twice as likely to rank in the top quartile for customer satisfaction, the consulting firm found.
A Career Built on Retention
Barzar started at the Tucson warehouse in 1986, gathering carts in the parking lot for $5.85 an hour — nearly double the $3.00 he earned at a local grocery store. After stints as a morning stocker and door greeter, he became a cashier at about $10 an hour. He has declined offers to become a supervisor, preferring direct contact with shoppers.
In 2009, Barzar and his family bought a three-bedroom, two-bath house with a pool. They have traveled to Europe twice over the past decade. When his wife was diagnosed with stage 3 brain cancer, his Costco insurance covered the full cost of three brain surgeries, and he took paid leave for nearly a year.
Costco has created "culture coach" roles for long-tenured hourly workers like Barzar to mentor newer employees without being their supervisor. The retailer also added an extra week of vacation for workers with at least 30 years of service.
The Trade-Off of Generosity
The strategy has a downside: some experienced employees retire earlier than Costco would like, leaning on their significant savings. When a long-term worker leaves, the average wage at a warehouse declines, which helps profits "but it comes at the expense of experience," said Travis Maze, general manager of the Tucson warehouse.
Costco's annual sales have grown for nearly two decades. Its stock has risen more than 2,000 percent from a low of about $40 a share in 2008 to around $953.
The company's investment in workers means employees stay for a long time, then retire, but "you have a pipeline of employees coming behind that group that also are building that level of experience," Millerchip said. It is also cheaper long term, he added.
This article is for informational purposes only and does not constitute investment advice.
