Economics and WalMart


A real life view of the numbers
Tim Worstall tallies the answers.

Worth having a look at the two annual reports, don't you think? WalMart and Costco -- there you go -- audited 2005 accounts. Now, I'm playing a few minor games with these numbers: I'm not adjusting for certain subsidaries, minority interests and so on, I'm rounding numbers etc, but these only make minor differences to the overall picture:

Costco has sales of $51 billion, 110,000 employees (45% part time, similar to WalMart isn't it?) and WalMart has sales (in North America) of $191 billion and 1.3 million associates. So Costco has sales of some $465,000 per employee and WalMart $147,000 per employee. That sounds about right to me, it's been a number of years since I lived in the US but Costco is the place where you drag that 50lb bag of rice to the door yourself, right? WalMart is the one where cheery souls are employed solely to bid you good day as you enter? So, in theory, we could in fact get WalMart to pay the same as Costco by making similarly efficient use of labor: that is, firing between two thirds and three quarters of their staff.

You might note that despite having nearly four times more employees WalMart does not pay them one quarter of the amount: this is because a higher portion of turnover is actually devoted to paying said wages. Operating costs are not exactly the same as wages (and the two companies account for them slightly differently, as a note to the WalMart accounts -- too boring even for me to cut and paste -- states) but wages are contained within that number: 10% of turnover for Costco and 17% for WalMart. By this measure WalMart should, in order to be like Costco (as Klein would like), actually be reducing the wages on offer.

We could even look at the profit made per employee: $9,000 at Costco, $7,700 at WalMart. If we were of a Marxist cast of mind, seeing profit as purely and solely the surplus value extracted from the labor of the worker, we would thus say that Costco is even more exploitative than WalMart, would we not?

All of the above is of course most fun but really rather beside the point. We all know that WalMart is an extensive user of labor and that Costco is an intensive one. We really shouldn't be surprised that the pay rates are different in the two models. Indeed, our very basic model, that when a price rises, people use less of something, would predict it. Those who are paying a higher price for labor are indeed using less of it. This simply shouldn't be surprising to anyone.

More to the point is that government does a lousy job of analyzing business models and profit and loss statements. This doesn't even allow for regional differences.

But let's "bottom line" it. If tomorrow, one of these two companies went belly up, which would hurt the economy more?

WalMart moves more merchandise. WalMart has a bigger cash flow. WalMart has a bigger payroll. WalMart buys more products. In accounting terms, WalMart is better for the "big picture."

Does that mean that government regulations should force Costco to adopt WalMart's business model?

Funny how strange that sounds to progressives when the "obvious" is reversed, isn't it?

And yet there is no denying that WalMart brings more economic muscle to the table than Costco could ever hope to.

Yet this too is a false comparison. There is room for both and thousands more, in fact, for whoever can make a profit without coercion. One does not need to have success only at the cost of another.

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— NeoWayland

Posted: Tue - August 29, 2006 at 05:39 AM  Tag


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