⚠ The Wage Bill Is the One Cost Costco Chose to RaiseModerate threat

Costco states that "compensation and benefits for employees is our largest expense after the cost of merchandise"¹, and it has spent forty years making that expense larger on purpose. In March 2025 the starting wage in the United States and Canada rose $0.50 to at least $20.00 an hour, the top of the wage scales rose $1.00, and the average American hourly rate reached about $32.00. The company targets at least half its base being full-time.

The commercial case is strong: retention of about 94% for employees past a year cuts recruitment and training cost, and an experienced workforce is why 341,000 people can run 134.7 million square feet. But the case is an argument, not an arithmetic identity, and the cost is certain while the benefit is inferred.

The immediate evidence is in the ratio. SG&A rose from 9.14% to 9.25% of net sales in fiscal 2025, and 3 basis points of the increase excluding gasoline effects came from warehouse operations². On $269,912 million of net sales, 11 basis points is about $297 million — roughly six percent of the entire merchandise profit, absorbed in a single year.

The structural point is that this cost only goes up. Costco cannot cut wages without repudiating the thing it is most publicly proud of, and roughly 5% of its workforce is unionised, which anchors the rest. Meanwhile the competitors it prices against have no such commitment.

What would falsify the facet is SG&A excluding gasoline effects rising for three consecutive years without a matching gross margin improvement — at which point the labour model would be consuming the cost advantage it was supposed to create.