Costco ‘has taken a high road’ when it comes to unionization: Economist

UCLA Professor and Economist Chris Tilly and Center for American Progress Senior Director of Employment Policy Karla Walter join Yahoo Finance Live to discuss Costco's labor policy and the impact of the Teamsters Union reaching a contract with the company.

Video transcript

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- Well, Costco may be Yahoo Finance's 2022 Company of the Year, but its smaller retail rivals, like Sam's Club and BJ's Wholesale Club, are giving the wholesale giant and some customers something to think about. Brooke DiPalma checked out all three and is here to share what she found. Brooke, are we talking about pricing or is it more about the membership?

BROOKE DIPALMA: Well, Akiko, it's really about the feel overall. And surprisingly, when I entered each three, there was a bit of a different feel at each. Now, when you walk in here, similar high ceilings, bulk item offerings. But it's a different approach at each of the three. BJ's and Sam's Club really touting that holiday feel, with toys lined to my right. Then you have more random, spontaneous items, like air fryers and cots to my left.

But Costco sticking to what it always has with that luxury feel as soon as you walk in. Now, admittedly, I did not have a membership at any of the three. But they still did let me walk around.

And if you take a look at pricing, Akiko, that is one of the main differences that I found. Of course, Costco known for that $60 per year membership, also offering a higher executive membership for $120 with a 2% annual award, as well as, in addition to that, a services discount. Of course, a lot of them have optometry, hearing aid centers, and that tire services centers. Sam's Club, that's about $50 for the main award, Gold Star Membership $110, and BJ's coming in between the two, $50 for-- $55 for main, as well as a Perk Rewards Membership that equates to $110.

Now, it's important to note here, this past year, as inflation takes a toll and they're seeing higher volume in each of them, Sam's Club took protocol to then raise their price in August. And Costco, important to note here, they increase price memberships about every five years. So we might be expecting another price membership hike in 2023.

Now, all three tout gas stations at their locations. Costco has the most locations, then followed by Sam's Club and BJ's. So Costco, of course, our Company of the Year here, with the most local locations of all three wholesale retailers.

- And I know that certainly helps with the pinch of the higher gas prices for a lot of people. Brooke DiPalma, thank you so much. And, of course, what really powers Costco is its employees. And recently, we've seen the Teamsters Union say it had ratified a national contract with the company.

Joining us now on the implications is Karla Walter, Center for American Progress Employment Policy senior director of employment policy, and Chris Tilley, economist and professor of urban planning at UCLA. Thank you both for joining us. So, Karla, I first want to start with you and talk about the importance of what we've seen in terms of this union movement and how Costco has really managed this.

KARLA WALTER: Yeah, so I think we've seen the recent announcement between the Teamsters and the company that they've reached an agreement that will cover 18,000 of its workers nationwide. And this is a big deal. It is a coast-to-coast agreement. The new contract was negotiated.

It is important to note that while Costco has long had the strategy of when its workers do well, the company does well as well, this is an agreement that came where unions-- an agreement were unions and the company came to the table and negotiated together and got to something good for workers that the workers ultimately ratified. But this is in stark contrast from what we've seen from a lot of its competitors, who really, even in the face of increased organizing and union activity, are still pursuing a low-wage strategy.

- Chris, it's worth pointing out that Costco has had to manage unions partly because they acquired a lot of stores with unions when they had that acquisition of Price Club way back when. They have managed to be able to keep the employees happy, maintain a smaller footprint of unionization in their stores. But I wonder how much of that pressure is increasing as we see some competitors, like a Sam's Club, like a Walmart, up their benefits, up their prices to be more-- a little more competitive?

CHRIS TILLEY: Well, I think that there's two sources of pressure. One is, in fact, that competitor pressure. But as Karla was saying, Costco has taken a high road where its competitors have taken a low road. And that approach has worked and will continue to work in many ways.

Nonetheless, there's also a source of pressure because as inflation goes up, workers' expenses go up. And Costco has to keep pace with that. That's what happened with these negotiations, is that Costco offered a settlement that workers turned down, 93% in August, and threatened to go on strike. And so I think that's the other source of pressure. And that's going to continue, both because inflation is continuing and because right now the worker shortage is continuing.

- Chris, how much of this has to do with the model that Costco operates on? I've heard others say that, look, even though Costco has been very friendly to employees historically, part of that is also because so much of their revenue is reliant on membership, instead of a company like Amazon, which is about item-by-item, the speed at which it's delivered. That really ups the pressure for employees.

CHRIS TILLEY: Well, first of all, when you're talking about Amazon, you have to realize that, in fact, the Amazon Web Services is subsidizing the whole retail operation. So in many ways, Amazon is operating retail at a loss and using the cloud services to subsidize it.

But yes, Costco does have a different model. It aims for a somewhat higher-income customer. It does have the membership fees. It has the treasure hunt and the luxury look that your reporter was talking about.

And that's never going to be the entire market. But it's an important part of the market. And Costco has continued to grow.

- And when we talk about things like customer experience, a lot of that trickles down to the people that you do meet on the front lines, the people who work there, Karla. How do you think that's going to play into the greater retail story going forward?

KARLA WALTER: Well, I think that there is truly this fact that there is a recognition that at Costco that this is a sales job. And so if you have workers on the floor who stick around longer-- and ultimately if you invest in workers, they do stick around longer-- they will understand what they're doing and understand the job of selling.

And I think, though, looking more broadly, it's important to show that Costco's success really debunks the myth that there's something innate about frontline service work that makes it low wage. Some of our largest employers in the US are these service, frontline service jobs, employ these workers in these frontline service jobs. And there is nothing necessarily about those jobs that make them low wage. It is about power in the workplace. And it is about employer choices. And so I think that the Costco model is an important comparator, particularly as we see workers exercising their power to put pressure on these other employers to do better.

- Karla, really quickly, when you look at how the Teamsters negotiation played out with the Costco workers over the summer, there was a threat of a stoppage at some point before the Teamsters ultimately accepted the offer that was given here. And I wonder if there are any lessons to be learned from that negotiation for some other retailers in the space or others, like Starbucks, who are getting a lot of push back from their employees right now.

KARLA WALTER: Well, I think it shows that labor negotiations are a negotiation. But when you put workers, when workers are truly at the table, you can get to an ultimately to a success story. And I think we see, though, that there is truly-- when we talk about Starbucks, when we talk about Amazon, employers are choosing to fight tooth and nail. And in today's labor market, that is truly a problem for them.