Retailer’s retention strategy keeps turnover around 7%
Tony Barzar started working at Price Club, a precursor to Costco, gathering carts in the parking lot of a Tucson store in 1986 for $5.85 an hour. Nearly four decades later, the 60-year-old cashier earns $32.90 an hour and has accumulated over $1 million in his 401(k) retirement account, the Wall Street Journal reported.
Costco executives say the company’s higher wages and benefits are designed to retain long-tenured workers. The company’s annual turnover rate after one year of employment stands at about 7%, a fraction of the retail industry average, according to Costco executives cited by the Journal.
Costco has boosted maximum hourly pay for workers to $32.90 from $31.90, increased its annual bonus, and added an extra week of vacation for workers with at least 30 years of service. Many stores have created “culture coach” roles for experienced hourly workers to serve as mentors to newer employees, passing down the company’s practices.
Chief Financial Officer Gary Millerchip told the Journal that “many thousands” of Costco’s U.S. hourly workers have over $1 million in their 401(k) accounts.
Barzar’s benefits extend beyond retirement savings. His Costco-sponsored health insurance carries a $15 co-pay for regular visits and a $25 co-pay for specialty visits, below national averages. When his wife of 26 years, a former Costco bakery employee, was diagnosed with stage 3 brain cancer, the insurance covered the full cost of her three brain surgeries. Barzar took paid leave for nearly a year to care for his family and used the retailer’s therapy benefits for support.
“You don’t have any idea how deep it goes until something tragic happens,” Barzar told the Journal.
He returned to work part-time earlier this year without a pay cut.
Barzar has declined opportunities to become a supervisor. He said he prefers direct contact with shoppers and the ability to mentor other employees without being their boss. “I would say this is my calling, right where I’m at,” he said.
Costco’s investment in long-tenured workers runs counter to how many employers view their workforce, the Journal reported. Experienced employees are typically more expensive, and those who are not interested in promotions are sometimes seen as less valuable. While the generous benefits attract workers, Travis Maze, general manager of the Tucson warehouse, said some experienced employees retire earlier than the company would like, leaning on their significant savings.
“We’d like to keep them,” Maze said. “The more new employees, the more dilution there is to our core culture.”
Research supports the company’s approach, the Journal reported. A 2023 study by consulting firm McKinsey found that retailers with the top 25% highest employee-satisfaction scores were more than twice as likely to fall in the top 25% of customer-satisfaction scores. McKinsey estimated that losing a front-line retail employee costs an average of $10,000 per worker.
Costco’s stock has increased over 2,000% from a low of about $40 a share following the 2008 recession to around $953 on Wednesday, the Journal reported.
Barzar told the Journal he could retire but does not plan to. “I didn’t think me and my family would reach where we sit now,” he said. “Costco has been good to me.”