Costco's entry-level workers will soon make $13 per hour

Costco announced that it will raise employees' wages this month, which may be a response to competitors like Wal-Mart that have also raised their wages.

Mike Blake/Reuters/File
A Costco shopping cart is shown at a Costco Wholesale store in Carlsbad, Calif., September 11, 2013. The big box store announced on Thursday that the company will increase minimum wages for entry-level employees to $13 or more.

One of the largest big-box chains in the United States has announced it will be raising its employees’ base wages, for the first time since 2007.

During a meeting with investors on Thursday, Costco said that it will be raising its employees’ wages from $11.50 or $12 per hour to at least $13 or $13.50 per hour.

Costco wages have long been among the highest in the retail industry, which typically amounts to less than $10 per hour. But Costco’s move on wage increases comes at a time when other large private companies are also choosing to raise their wages, and labor turnover is high. Costco may be making this move in order to maintain its competitive edge.

In February, Wal-Mart implemented a new $10 an hour wage for all entry-level positions, the latest step in a scheduled increase that began in April of 2015. In total, the retail chain is investing approximately $2.7 billion in its employees, including a training program and better options for career growth.

Raising wages is good for business at Wal-Mart, Costco, and other retailers that have decided to follow suit, because employees often use increased earnings to purchase goods at those same retailers. Higher wages could also help to improve staff retention at a time when employee turnover is especially high across the retail industry.

Craig Rowley, global leader of retail practice at Hay Group, told The Associated Press that he estimates the turnover rate for part-time workers in retail has risen from 50 percent during the Great Recession to 67 percent. Wage increases benefit retail’s lower-income workers by giving them more spending power, but with the economy improving, many are on the hunt for jobs that pay even better.

It’s hard to know how much the wage increase will boost sales for Costco. Wal-Mart has seen its sales pick up slightly as customers find their experience in its stores also improves, but it has also had to close 154 stores in the United States, the majority of those in poor and rural communities that have relied on the chain’s contributions to their local economies.

Richard Galanti, Costco’s chief financial officer, projects that the company’s earnings will experience a very minor negative impact from raising wages. Sales rose by 3 percent in its approximately 490 US locations even as overall profits fell by 9 percent, owing primarily to rising costs. The cost of merchandise rose to $24.5 billion, and Costco’s other costs rose to $2.8 billion.

Mr. Galanti wants to offer top salaries for every position, but said in the investor meeting that entry-level jobs are especially hard.

"You're on your feet, you're lifting cases, you're pushing carts at these entry-level jobs," he said. "And so we thought it was time to do it."

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