• Jini Kong

Walmart is copying one of Costco's winning strategies — and it's working

Business Insider

Walmart is becoming a better place to shop because it started paying employees more.

For many years, the company was plagued by widespread complaints about poor customer service at its stores.

That was until last year when Walmart, under pressure from investors following several quarters of same-store sales declines, decided to invest billions of dollars in wage increases and training for workers.

Specifically, Walmart committed to investing $2.7 billion over two years in higher wages, scheduling improvements, and employee training, following in the footsteps of companies like Costco.

Walmart's efforts so far have translated into a pay raise of about 16% to $13.69 per hour for non-managerial full-time employees, The New York Times reports.

In the meantime, widespread issues in Walmart stores such as empty shelves and cleanliness have significantly improved.

Three out of four Walmart stores now meet the company's own customer service standards, according to the Times. A couple years ago, just 16% of its stores met those goals.

It turns out that paying people more may have made them better employees.

Walmart is paying employees more. David McNew/Getty Images

"Associates are feeling a little bit more engaged," Walmart US President Greg Foran told reporters earlier this year.

The company is even seeing sales and traffic improvements.

Walmart recently reported its eighth consecutive quarter of same-store sales increases in the US. In the most recent quarter, Walmart's US same-store sales rose 1.6%, driven by a 1.2% increase in traffic.

The changes aren't going unnoticed by customers.

"Our customer satisfaction scores continue to improve," Walmart CEO Doug McMillon said on an earnings call in August.

Walmart has said it's raising wages because "it's the right thing to do," however one recent pay hike appears to be the result of President Obama's new overtime rule, which takes effect December 1.

The rule requires employers to pay overtime to salaried workers earning less than $47,500 a year. Last week, Walmart announced that it would raise starting salaries from $45,000 to $48,500 annually for full-time employees.

Shoppers look at merchandise at a Walmart store in Secaucus, New Jersey Thomson Reuters

The strategy of investing more in training and career development has proven to be massively successful for companies like Costco, which gets high ratings from both employees and customers.

Costco's minimum wage is no less than $13 an hour, which is among the highest starting salaries in the retail industry. By comparison, the federal minimum wage is $7.25 per hour.

Walmart's investments have brought its starting wages to $10 an hour, according to the company.

At Costco employees also get to advance quickly. It takes about four years for employees to reach the top of Costco's hourly pay scale, according to Bloomberg.

Labor groups argue however that Walmart and others still have a long way to go in improving pay and working conditions for their employees.

Joe Raedle / Staff / Getty Images

The union-backed group Making Change At Walmart has been pushing Walmart to raise its minimum wage to $15 per hour.

The group claims that not all Walmart's workers are making a minimum of $10, as the company claims.

"We continue to hear from Walmart workers who have been making less than $10 for months," Making Change At Walmart spokeswoman Jess Levin said last month.

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