Wal-Mart Stores Inc. has its sights set on Costco. To that end, it plans to “rightsize” its underperforming Sam’s Club stores by laying off 2,300 employees. This number is split evenly between assistant manager and hourly positions. There were previously six different assistant managers in the fresh goods department. After the layoffs, there will be three senior managers to oversee a cafe and bakery section, a meat and deli block, and a grocery and produce segment. Some hourly employees such as telephone attendants will be replaced by automation.
Wal-Mart Stores Inc. is looking to double its revenue at its Sam’s Clubs. The goal is to turn it into a $100 billion from a $56 billion business so that Wal-Mart Stores Inc. will be able to better compete with Costco Warehouse. Currently, Wal-mart has 630 Sam’s Club stores that earned, in the third quarter of 2013, $14.1 billion in sales. This figure accounted for around 12 percent of Wal-Mart Inc.’s total sales, which was $114.9 billion. Wal-Mart plans to open 15 new Sam’s Clubs this year.
The competition, which has been called the anti-Wal-Mart, is run a little differently. For example, the average pay of a Costco employee is $17 an hour, which is 42 percent higher than an employee makes at average at Sam’s Club. Costco also has an excellent health plan. By contrast, last Thanksgiving Wal-Mart asked its low-wage associates to donate food to other, ostensibly even worse off, low-wage associates. Many Wal-Mart workers rely on food stamps, a situation that has caused some to dub the company a corporate welfare queen.
Financial analysts of Costco, on the other hand, have noted that being an employee or customer at Costco is better than being one of their shareholders. Costco co-founder and former CEO Jim Sinegal expressed an utter lack of concern when asked about the criticisms he had received from Wall Street analysts for prioritizing employees and customers over pleasing shareholders. Sinegal added that investors may want higher profit margins, but that his interest was in building a company that was still around in 50 or 60 years. As to investor profits, a 2012 CNBC documentary pointed out that Costco’s stock value had increased five thousand percent from 1985 to 2012, when Sinegal retired.
But Costco has been feeling the heat for several years as Wal-Mart began to aggressively cut their prices at Sam’s Club. Costco has had to pare its profit margins, already thin to begin with, even further. And Wal-mart is able to use its buying power to keep the pressure on. As a counter-measure, Sinegal would often warn his suppliers not to give better prices to other retailers. When a Wal-Mart invoice was accidentally sent to Costco by a frozen-food supplier, Sinegal found out Wal-Mart was getting a better price. That supplier lost Costco’s business.
Whether or not other Costco’s other suppliers have complied with Sinegal’s demands is unknown. What is known Wal-Mart’s expertise in retail hegemony. Wal-Mart is the largest retailer in the world. It has approximately 10,000 stores under 55 different names that are located in 15 countries. Wal-Mart has taken on several companies with varying degrees of success, including Target, Netflix, and now Amazon. As Wal-Mart continues to employ its practice of using its purchasing power to shut out and kill off its competitors, the question becomes where it will all end. At some point, the warning goes, Wal-Mart will be the only choice. It is safe to assume that at that point, Wal-Mart will not be as interested in offering customers the best price.
By Donna Westlund