What’s the product?

Part of the fallout from the Black Friday Walmart “strike” entails a number of well-meaning progressives wondering “why can’t Walmart be as progressive an employer as Costco?”, which they take to be a leading question. And in fairness to them, Costco was founded by the more-or-less progressive James Sinegal, whose politics surely informed the company’s business model, so if all you know about Walmart and Costco is that they sell cheap stuff in large warehouse-y stores it’s an entirely reasonable question.

Megan McArdle has accumulated a lot of factoids about the two companies which she was more than happy to share. The first one that stood out to me was this:

Costco shoppers have an average income of $85,000–not surprising, because Costco tends to locate itself in affluent suburbs. Walmart shoppers are what the firm calls “value driven shoppers” which is to say, there’s not a lot of spare money lying around the house, just waiting for an opportunity to buy a 6-lb wheel of Camembert.

I suspect that when rich (and aspirational) people go to Costco, they think This must be what shopping at Walmart is like. “My goodness, five kilos of fish oil gelcaps for $120, that’s very reasonable if you look at it per serving. Look, honey, they’re on pallets! Just like IKEA!” This is, of course, not what Walmart is like at all — if the people who shop at Walmart had the slack in their budgets to buy five kilos of fish oil all at once, they’d be shopping at Costco instead.

But as much as I like ranting about well-off white people with profound perspective deficiencies — as a well-off white guy it makes me feel Prius-owner levels of smug to do so — it turns out that there’s a more important difference between the two, one which involves fundamental business-model differences rather than merely well-meaning obliviousness. Here y’go:

One final thing that’s worth pointing out is that Costco doesn’t even make money selling the groceries and the six person hot-tubs. Their annual membership fee revenue exceeds their net profit–which is to say that the actual business of selling stuff is operating at a loss. They’re charging you an annual fee to buy stuff at or near cost.

(Emphasis added.)

Now the title makes sense. Costco isn’t so much selling you groceries — or five-kilo jugs of supplements — as much as it’s selling you memberships in a club where you can buy a semi-random assortment of products for damn cheap. Stacked on pallets, just to remind you of how frugal you’re being. Go you.

Walmart, meanwhile, is actually selling you — well, probably not you — stuff.

The problem is, we’re easily misled by our focus on stuff. We look at Costco, and we focus on the stuff they sell us, so we assume that their business model is selling us stuff rather than memberships. I figure this part of our social gestalt was fundamentally broken — on this continent at least — in the 1950s, when we told ourselves that our strong economy was a product of a robust manufacturing sector rather than the fact that the rest of the world had just been bombed back into the 1790s and would need two or three decades to recover.

Similarly, when a company like HBO produces an awesome show we’d like to watch, we assume they’re selling us the show — and we get pissy when they refuse to sell it to us in a convenient, bite-sized format and thereby “force” us to pirate it. Ain’t so. HBO’s selling us subscriptions, not content. The latest season of Boardwalk Empire is of as much importance to HBO as that enormous canister of fish oil is to Costco… or than the Stratos space jump was to Red Bull, for that matter.

As an aside, I’ve been waiting for someone to make this argument this eloquently for quite some time:

[I]f piracy is actually wrong, it doesn’t get less wrong simply because you can’t have the product exactly when and where you want it at a price you wish to pay. You are not entitled to shoplift Birkin bags on the grounds that they are ludicrously overpriced, and you cannot say you had no alternative but to break into an the local ice cream parlor at 2 am because you are really craving some Rocky Road and the insensitive bastards refused to stay open 24/7 so that you could have your favorite sweet treat whenever you want. You are not forced into piracy because you can’t get a television show at the exact moment when you want to see it; you are choosing piracy.

If that’s not wrong, then hey, no need to write long articles about how they’ve really backed you into a corner. If you think it is wrong, then act like a grownup and wait until you can buy it legally. And really, if you wouldn’t write an op-ed urging storeowners to stay open 24/7 lest they drive their customers to a little light B&E, then please don’t write essentially the same thing about cable networks.

Yes, yes, digital content’s different, I know what you’re going to crap into the comment form; don’t bother. Don’t focus on stuff, or tangibility, or the lack thereof.


11 Responses to “What’s the product?”

  1. November 29, 2012 at 21:16

    Costco won’t touch a lot of the people that Walmart hires. Your typical Costco employee is a pretty highly functional person, probably with an IQ average similar to that of your average college graduate. Walmart will give you a chance WAY WAY lower on the human resources food chain. So of course they pay more. You probably won’t find any Costco employees below average intelligence.

  2. December 1, 2012 at 20:42

    I wonder how rare I am, on the scale of “shops at both Wal-Mart and Costco”.

  3. 4 Not Sure
    December 5, 2012 at 17:32

    “Part of the fallout from the Black Friday Walmart “strike” entails a number of well-meaning progressives wondering “why can’t Walmart be as progressive an employer as Costco?”

    It would be interesting to see the progressive reaction should Walmart decide to charge people to shop there.

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