When you walk into a store, its workers set the tone for how that visit will go.

Back in my days running a large retail store, we greeted customers as they entered and offered help, but never forced it on people. Our staff liked working there, and many were hobby enthusiasts selling games, remote control cars, helicopters, planes, dollhouses, and train sets they also collected.

We knew our customers and often greeted them by telling them about merchandise. My team built real relationships with regulars and made newcomers feel like part of the family.

Customers want to feel welcome and like the employees want to help them. When you have to search for a worker, wait in a long checkout line, or simply can’t get the help you need, you may not come back.

Costco offers no-frills stores, but it staffs those stores with well-paid workers. The warehouse club recently, after a tense negotiation, raised its starting wages and the top of its pay scale.

“Costco’s new employee agreement took effect this week, increasing its minimum wage to $20 per hour and its average wage to more than $31 an hour in the U.S. and Canada,” Fortune reported.

That $20 hourly wage, which has been known as the $20 rule, will increase to $21 in March. It’s higher starting pay than Target and Walmart offer, which gives the warehouse club an edge over its chief rivals.

A quick look at Costco, Walmart, and Target’s entry-level pay

  • Costco’s base minimum hourly wage for new hourly staff is around $20 per hour, with scheduled increases (to $21 starting in March) under a recent labor agreement.
  • Target’s minimum typically starts at least $15/hour, with higher rates in competitive markets, Target shared in a press release.
  • Walmart’s entry-level hourly pay generally ranges from about $14 to $17 per hour, depending on location and role, according to a Walmart press release.

Both Target and Walmart say they have a range, not a set $20 minimum rule like Costco.

“At Target, our frontline team members are among the best-compensated workers in the retail industry. More than five years ago, we were among the first in the retail industry to invest in a $15/hour starting wage. That was just the beginning though; in 2022 we enhanced our starting pay again, offering a range of $15 to $24 per hour, depending on role and location,” Target shared in its press release.

The company noted that its average front-line workers makes $18.50 per hour.

Costco gets real benefits

“CEOs can look to Costco, Sam’s Club, and QuikTrip to see how increasing wages and benefits and improving work can not only increase sales but also lower turnover and deliver significant improvements in key performance metrics. These findings from an MIT Sloan School professor underscore the direct connection between investing in frontline workers and their work and the long-term success of a business,” Harvard Business Review reported.

Paying workers well isn’t altruism; it’s a business investment.

“When companies focus on minimizing labor costs, workers often wind up underpaid and undertrained, and faced with unpredictable work schedules. This can make their lives difficult, and result in low morale, operational inefficiencies, and higher turnover rates,” said Zeynep Ton, president of the nonprofit Good Jobs Institute and a professor at the MIT Sloan School of Management.

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GlobalData Managing Director Neil Saunders said that investing in workers actually pays off.

“More experienced staff bring many benefits,” Saunders told CX Dive. “They are usually more efficient and productive. They have more knowledge so can assist customers more effectively. And they are often better at selling, if that’s part of their role.”

Walmart still pays better than the national average.

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Costco, Walmart, and Target all pay well above average

“The national average minimum wage is projected to reach $9.29 per hour in 2025, representing robust growth of 4.3% compared to the previous year. This significant increase reflects widespread state-level minimum wage legislation taking effect across the country, with numerous states implementing scheduled increases and cost-of-living adjustments,” according to data from IBIS World.

The federal minimum wage has remained unchanged at $7.25 per hour since 2009.

More Costco: Costco reveals major investment to enhance member experience

“Minimum wage policy has experienced notable evolution over the past five years, driven by state-level legislative initiatives and changing economic conditions following the pandemic. The period began with the minimum wage at $8.78 per hour in 2020, as essential worker recognition during pandemic lockdowns sparked renewed political momentum for wage increases across multiple states,” IBIS World added.

Costco spends money to make money

Costco does not generally comment on its wages, but did note the increase during its fourth-quarter earnings call, due to its impact on selling, general, and administrative (SG&A) expenses.

“The operations component of SG&A was higher or worse by 15 basis points and 8 basis points without gas deflation. This increase was partly due to our investments in employee wages. As noted last quarter, the incremental year-over-year impact from this year’s March employee agreement was mid-single-digit basis points. And the off-cycle wage increase in July 2024, which affected the year-over-year rate comparison for the first 10 weeks of Q4, was mid- to high single-digit basis points,” CFO Gary Millerchip shared.

Spending more on workers, however, also leads to some clear benefits for Costco.

“The warehouse club also offers excellent medical and retirement benefits and tends to promote executives from within the company. The results are staggering: Costco’s turnover rate is about 8%, a sharp contrast to a whopping 60% at other retailers,” according to research from The Economist.

Walmart’s Sam’s Club has seen similar results. Former Sam’s Club CEO John Furner faced opposition from human resources and accounting when he first tried to raise wages, but he pushed higher hourly rates through.

“The result? In just two years, productivity increased by 16%, turnover dropped by 25% and sales rose by 25%,” Harvard Business Review reported.

“This type of performance improvement fueled more investment in people and record membership growth,” Ton said. “The once-struggling chain is now a growth engine for its parent company, Walmart.”

Furner was later promoted to CEO of Walmart after proving that higher wages could drive performance.

Costco understood that long before its rivals.

The warehouse club isn’t winning despite paying more. It’s winning because it does.

Related: Costco makes moves to fix key membership problem