Ned Resnikoff has a piece today about high wage retailers, this presumably on the heels of the widely-circulated National Journal piece about the same thing. Both pieces point out that there are high-wage retail firms that are profitable and seem to do pretty well. I was curious as to how much more or less profitable they are relative to their low-wage competitors, and so I endeavored to find out.
Ycharts has a succinct rundown of quarterly profit margins for companies from the last 4 years or so. I average those margins to get the numbers used for comparison here. Walmart’s average profit margin over that period was 3.54%. Costco’s average profit margin was 1.68%, which is less than half of Walmart’s. Trader Joe’s and QuikTrip are not publicly-traded companies, and so profit margin numbers like that are not available, not that I could find at least.
I am not one to say the goal should be high profit margins, obviously. But one of the undercurrents of this wave of coverage is that higher wages are good for the businesses themselves. Now “good for the business” is a somewhat confusing term. The “business” is not an actual being that things can be “good for.” It would seem that, at least in the Costco v. Walmart comparison (this being the most popular one of this sort and the one I have data for), higher wages are apparently not great for the shareholders of the business, seeing as the profits are lower. Of course this is a very superficial analysis on my end because it is hard to know as a total outsider what would happen to Costco if it cut its wages to be in line with Walmart. Maybe the decline in quality would be so bad that shoppers would flee in droves. Still though, the higher wage retailer has substantially lower profits than the lower wage one. So there does appear to be some difference to the bottom line for owners.
While I am at it, I might as well address a particular bit of weird rhetoric I have been seeing about this topic recently. Some writers and organizations have been making a big deal of Costco coming out in support of a higher minimum wage. Not to be too cynical here, but isn’t it clearly in Costco’s self-interest to come out in support of a minimum wage hike? If Costco is paying above the proposed minimum wage level already, increasing the minimum wage would not affect them at all, but it would impose significant costs on their competitors. Supporting policies that leave your business untouched but dump costs on your competitors is hardly some sort of magnanimous gesture.