But are we also looking at the thousands of businesses that pay their employees terrible wages, but go out of business?

Businesses are complex systems that defy the search for simple explanations. That won't stop humans from trying, though. We all love the idea that there is some simple Eureka! idea that explains everything.

In this specific case you're talking about wages as if all other things are equal. All other things being equal, if we pay employees more, we lose business to lower-cost competitors that pay employees less.

This is like saying that if all other things are equal, a restaurant that pays more for its ingredients will lose business to competitors that pay less.

Of course, as managers, our entire reason for existence is to make sure that all other things are not equal. If we pay more for ingredients, we have to build our business around turning those more expensive ingredients into a better customer experience and perception of value.

And the same goes for paying more in wages. It's our business as managers to turn that into value. If we can't, are the wages the problem? Or is our mismanagement the problem?

Looking at the comments about shopping at Sears, I am not seeing a lot of "Everything about Sears was great except things cost a few cents more." I'm seeing anecdote after anecdote about how poorly it was managed.

Under the circumstances, if I wanted to cut wages at Sears, I would have started with their managers. If they're going to manage the thing into the ground, why pay them more than you'd pay an intern in an MBA program?

Wouldn't "worse customer service" be the change that allowed other retailers to eat Sears' lunch, then? You say Sears' clientele were not willing to pay a premium for whatever extra Sears was offering, but by your own words they haven't actually offered anything premium for a long time.

More expensive and better is a viable value prop; more expensive and worse is not.

Sears catered to the giant American middle class, and while I'm sure that mismanagement was a huge part of its demise, I also think the declining spending power of the American middle class also contributed.

Well, isn’t that one also true? There are limits and exceptions, obviously, but yeah, I’m pretty sure there is a strong correlation between the cost (cheapness) of ingredients and total sales.

Amazon and WalMart are good examples of this. They don't just cut one cost and wait for the money to flow in. They build their entire business around leveraging low-cost, in ways that are extraordinarily difficult to copy.

It's not as simple as, "Pay less wages, cut prices by a few cents, but keep doing everything else the same," any more than running a fast food restaurant is about buying cheaper ingredients and "passing the savings along to diners."

Is it? Paying employees well isn't what killed Sears. Sears has been a ghost town for years, and anyone who's been in one in the past 20 years can probably tell you why. The customer experience simply sucks. Help is hard to find, checkout is slow, their warranties are garbage and a pain to exercise, and their once-great store brands have been either penny-pinched into mediocrity or sold off.

For me, this is it in a nutshell. I worked next door (as in a 30 foot walk) from a Sears and popped in to quickly grab a couple things in a 30 minute gap between meetings. In 10 minutes, I had what I wanted, and got in line to checkout. I was the 6th person in line...and eventually put my stuff down and walked out because I still hadn't managed to check out 20 minutes later. There was only one employee handling checkout, and that employee was moving at a slower-than-glacial pace. Even though several other employees were milling around the various departments, no one came over to help.

There are a lot of reasons Sears failed, but for me, making the most painful part of the process the part WHERE I GIVE THEM MONEY, was the last straw.

Another example of a low wage industry where paying employees more doesn't work in the grand scheme are hotels. People like to stay in newer, renovated, upscale hotels. Well if one hotel pays more than it has to, then it's owners save less capital with which they can purchase other land and build a new hotel on, or to renovate an existing one. So the hotel owners that pay the employees as little as possible and work them as much as possible end up with more money to invest in new builds or renovations, and customers end up going to those hotels, while the hotel that paid its employees well will lose business.

Unfortunately, good customer service only goes so far, especially when your clientele can barely afford it and they readily chose to forego it to save money.

Sears used to be like Trader Joe's: customer service was great, the best products were the house brands, and if you weren't satisfied, you walked back in and got a new one or a refund.

Then Sears' new management went off in pursuit of higher profits and killed everything.

Trader Joes are usually located in areas that have higher income and more young people. They do offer good customer service, but I also don't think Trader Joes could cater to as many people as Sears', and Sears stores and inventory seem much more costly to operate.

Huh? The parent commenter was just describing how poor the service was at Sears stores.

Edit: Wow I didn’t realize Costco’s profit margin was higher than Whole Foods, Wal Mart and almost a full percent above Kroger’s.

A couple of factors act as a "filter" that makes Costco less worthwhile for lower income shoppers:

- Buying in bulk requires a bunch of cash up front, which not everyone has.

- Buying in bulk normally works best for families, and individuals with families have higher average incomes than those that don't.

- Costco stocks almost exclusively mid- to high-quality food and products. Shoppers may be able to have a lower grocery bill by buying lower-quality store-brand products elsewhere.

There are obviously individual exceptions, but these factors drive up the average income of a Costco shopper.

Also, for new parents: you can easily save the cost of the membership on diapers and wipes for the year or so your child wears them.

They always have a car parked in front or by the customer service center to advertise their auto purchase program. It has almost always been a Lexus, but for the past few months the one near me is a Maserati. I think this may be their signal on who their ideal customer is. Yet my parents used it to buy a Subaru and it was a good deal.

The concept is that when you decide against buying the $1,000 thing, the $50 thing seems a good comprise. If all you had were $10 things, the $50 thing would seem to be 'too much'.

You missed a big one in many areas: buying in bulk requires facilities for storing inventory.

Shopping at Costco is often a wise financial decision, and hence people who shop at Costco tend to be the type of people who make wise financial decisions, and the net result of making wise financial decisions is a higher net worth.

Costco serves the upper class.

There's relative poverty in the US still. Currency still has relative purchasing power. Saying a person living below the US poverty line should be put in the same class (upper class) as Jeff Bezos seems disingenuous as best.

Comparing the poor of a rich nation to everyone else is an apples to oranges comparison. The poop still struggle hard in the US.

If you are poor to the point of relying on public assistance to meet basic needs, an extra $60 up front even if it will pay off over a year means foregoing other essential expenses now.

But the bigger cost in many parts of the country is the space needed for inventory to maximize the benefit of bulk purchasing. Sure it works well for my family, but we live in a decent sized suburban home with an second refrigerator, and a storage closet converted for additional pantry space.

You can also tag along with someone else that has a membership if they’re willing to offer you their time.

https://www.fool.com/investing/2017/05/05/how-costco-wholesa...

> If you examine the company's sales, it brought in $56.59 billion in net sales with a merchandise cost of $50.21 billion and sales expenses of $5.92 billion.

I don't think that sales expenses would vary much depending on how many members were buying products.

I'm sure above certain threshold, which is probably low, raising wages doesn't make employees do their job any better.

In other words, unless you pay your workers literally peanuts, they will do the same job more or less.

This is a known study

> In other words, unless you pay your workers literally peanuts, they will do the same job more or less.

Welp, nope, this deviates from the study; The "drive" study suggests that wages need to satisfy their needs, give them cushion, be at or above their peers.

For the most part, "happiness" in the U.S.A. starts at 50% more than the average salary ($50k).

I worked for a company in high school whose philosophy was to pay 150% of the local average for retail/foodservice work. They did this because they worked you 2-3x harder, and their operational framework was able to turn that into money.

Many places are designed to be on some scale of mediocrity because it's hard to the excellent. I ran into a Walmart cashier who couldn't identify broccoli the other day. That's evidence that a warm body that doesn't walk off with the till is what they hire for.

Is it fair to lump Costco in with these other companies as an example of places where consumers don't mind paying higher margins?

From a quick google search on gross profit margins:

- Costco: 13%

- Nordstrom: 38%

- Apple: 38%

- Costco: 33%

Costco's is also likely skewed due to their house brand where they likely make a much higher margin than the name brands

But the point is that if Walmart or Sams club wanted to raise their wages to match Costco, it would hurt their business because their customers can't afford it.