Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How Costco Built Its Wage Advantage
Transcript
- Lucas: If these conversations have moved your work forward in some small way, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo — that's F. E. X. I. N. G. O. Luna: Thanks for that, Lucas. It really does help keep the lights on for the show. And honestly, speaking of keeping things running smoothly, let’s talk about the one retailer that seems to defy every basic economic law we’ve been taught. Lucas: You mean Costco. Right. The place where you can buy fifty pounds of paper towels and a rotisserie chicken for less than the cost of your morning latte. But here’s the real puzzle: they pay their staff so well that it hurts their immediate bottom line, yet their stock price keeps climbing. Luna: Exactly. Everyone assumes retail is a race to the bottom on labor costs. So why did Costco decide to play the opposite game? Lucas: It starts with looking at the numbers from last quarter, which just closed out September. While other major retailers were cutting headcount or freezing wages to protect margins, Costco reported its highest same-store sales growth in nearly two years. And their employee turnover rate? It was still below fifteen percent. For context, the national average for big-box retail sits around forty-five percent. Luna: That’s a massive difference. If you’re losing almost half your workforce every year elsewhere, but only a tiny fraction at Costco, there’s clearly something structural happening there. Lucas: Let’s break down what that actually costs versus saves. When a typical retail store hires someone, trains them, and then loses them after six months, you’re burning thousands in recruitment, onboarding, and lost productivity during the learning curve. Costco treats labor like fixed capital equipment. They don’t want to replace the machine; they want to keep it running. Luna: So they’re essentially saying that a stable, experienced worker is cheaper in the long run than a constantly rotating new hire, even if the hourly wage is higher. Lucas: Precisely. Think about inventory management. Shrinkage—that’s retail code for theft, spoilage, and administrative errors—is a huge drag on margins. Experienced Costco employees know exactly where everything lives, how to spot counterfeit goods, and how to move product efficiently. New hires are clumsy. They make mistakes. They also tend to be more susceptible to internal theft because they don’t feel ownership of the space. Luna: I’ve noticed that myself. The people at my local Costco always seem to know where I’m standing before I do. Is that just seniority, or is there training involved? Lucas: It’s both. Most of those folks have been there for years. Some have been there for decades. That institutional memory is hard to replicate. When you walk onto a floor where everyone knows their role and feels secure in their job, the operation flows. There’s less friction. Less shouting across aisles. Just quiet, efficient movement. Luna: But doesn’t high wages force them to raise prices? Or cut back on perks? I’d assume the membership fee covers most of that gap. Lucas: The membership fee definitely helps, but it’s not the whole story. The real magic is in the operational leverage. Because their staff is so productive, they need fewer people per square foot compared to competitors. A lower headcount means lower overhead, even if each individual person is paid more. It’s a density play. Luna: So they’re buying efficiency by paying a premium for talent. That’s a bold move when interest rates are high and borrowing costs matter. Lucas: It’s bold, but it’s also defensive. Look at the current market environment in October 2026. Consumer confidence is fluctuating. People are tightening belts. In times like these, brands that treat their customers’ money with respect—and by extension, treat their own teams with respect—win loyalty. Costco isn’t just selling goods; they’re selling trust. Luna: Trust is expensive to build but cheap to maintain. Once you’ve got that, switching costs go up. Why leave a place where you feel valued and where the shopping experience is seamless? Lucas: Right. And consider the supply chain side. When your warehouse staff is stable, your receiving docks run smoother. Your trucks turn faster. You spend less time waiting for misplaced pallets or dealing with confused temp agencies. Every minute saved on the dock translates directly to profit. Luna: It’s funny how many CEOs focus on the flashy tech upgrades instead of the basics like retaining the people who actually move the boxes. Lucas: Technology is useless without execution. You can have the best inventory software in the world, but if your floor team doesn’t understand how to use it or doesn’t care about accuracy, the data is garbage. Costco bets on humans first, tools second. Luna: Does that model work everywhere, though? What about international markets where labor laws or cultural expectations are different? Lucas: They adapt, but they never compromise on the core principle. In Japan, for example, they had to adjust their merchandising slightly, but the wage structure remained competitive locally. They found that paying above-market rates attracted the best candidates even in tight labor markets abroad. Luna: So it’s scalable, provided you stay true to the philosophy. It’s not just about throwing money at the problem; it’s about aligning incentives. Lucas: Exactly. Alignment. When an employee knows their job is secure and their pay is fair, they stop looking for the next exit opportunity. They start looking for ways to improve their station. That’s innovation from the ground up. Luna: And that kind of grassroots improvement is often missed by corporate strategists sitting in boardrooms three floors up. Lucas: Which brings us back to the boardroom. The leadership at Costco doesn’t see labor as a line item to minimize. They see it as the engine. And engines require good fuel. High wages are the premium gas that keeps that engine humming. Luna: I wonder how many other companies would try this if they weren’t so obsessed with quarterly earnings calls. Seems like a short-term view killing long-term strength. Lucas: That’s the trap. Short-termism tempts leaders to sacrifice sustainability for speed. But in retail, speed without stability is just chaos. Costco proves that patience pays dividends, literally. Luna: So the takeaway here is that treating people well isn’t just a nice to have moral stance; it’s a hard-nosed financial strategy. Lucas: Absolutely. It’s counterintuitive, sure. But the data doesn’t lie. Lower turnover, higher productivity, less shrinkage. Those are the metrics that drive stock value over decades, not quarters. Luna: Makes you rethink what ‘efficiency’ really means. It’s not about doing more with less people. It’s about getting more output from the people you keep. Lucas: Well said. Efficiency is quality, not quantity. And quality requires investment. Luna: Before we wrap, I have to ask: do you think this model is vulnerable to automation? Like, could robots eventually replace the need for all this human capital? Lucas: Automation will handle the repetitive tasks, yes. But the complex decision-making, the customer interaction, the handling of irregular items—that’s still human territory. And humans prefer working alongside humans, not just machines. Plus, Costco’s culture is a moat that robots can’t breach. Luna: A cultural moat. I like that. Hard to copy, impossible to automate. Lucas: Exactly. As we look toward the rest of 2026 and beyond, I think we’ll see more companies trying to replicate this, but few will succeed because it requires genuine commitment, not just a press release. Luna: Commitment over compliance. That’s the real lesson here. Lucas: Or maybe it’s just simpler than we think: treat people right, and they’ll take care of your business. Luna: Simple, but surprisingly rare. Thanks for breaking that down, Lucas.