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Costco's Secret Is in Plain Sight, So Why Hasn't Anyone Copied It?

Stocks in this article: COST GOOG FB WMT

Most suspect it's because Costco has higher-end merchandise, which attracts a higher-end clientele. But that's not why.

The main reason is because when I walk into a Costco store the people working there are happy. Good wages translate into happy employees, and happy employees make for happy customers. You don't have to pay Google wages to make this happen, but you do have to pay significantly more than the minimum wage, and Costco does that.

The Glassdoor survey of Costco wages show a pretty flat salary curve, with pay ranging from $10-$23 an hour for cashiers and just $22-24 an hour for supervisors. No position averages much more than $22 an hour, but none averages less than $11 an hour either. Even the guy who checks your receipt and the woman who sells the cheap hot dogs take home a decent wage.

Glassdoor estimates salaries at Sam's Club are quite different. Cashiers and other low-level employees make as little as $8 an hour, but supervisors take home an average of almost $50,000 a year, which comes to about $25 an hour.

It's not just that Sam's Club employees earn, on average, several dollars per hour less than those at Costco. There is a clear line between labor and management in every Sam's Club store. The line is blurred in a Costco store.

Is that communism? Some might say so. But based on the numbers, it's also good business. Everyone in a retail store is on the same team. Why should there be lines drawn between them?

And that's the secret of Costco. It is hiding in plain sight. What is amazing is how few retailers have copied it.

At the time of publication the author owned shares of GOOG and COST.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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