By Sabrina Escobar

The race is on to ink an agreement between Costco Wholesale and its roughly 18,000-member union before their contract expires Friday night, triggering the first strike at the discount retailer in years.

Costco isn't going down without a fight. Ahead of the strike deadline, the company circulated a memo detailing a three-year plan for wage increases.

Hourly nonunion employees in top-scale, or more senior, roles will get a $1 per hour salary raise every year through 2027, according to a document shared with employees and reviewed by Barron's. Bottom-of-scale employee salaries will increase by 50 cents in 2025. The adjustments will push salary scales for senior employees to at least $30 an hour in 2025, and at least $20 for bottom-scale employees. Costco is also giving an extra week of vacation to employees with over 30 years of tenure, per the memo.

The company didn't immediately confirm the salary adjustment, nor did a representative answer a Barron's request for comment.

Costco's average hourly rate was approximately $31 at the close of the fiscal year, which ended Sept. 1, according to the company's latest annual 10-K filing with the Securities and Exchange Commission. Wages for entry-level jobs started at $19.50 an hour in the U.S. and Canada.

Walmart's starting wage is $14, while Target's is $15, although it can be as high as $24 depending on the market.

The Teamsters haven't disclosed how much of a raise the union was asking for, but Matt McQuaid, a spokesman, said it was pushing for increased wages, pension benefits, and expanded protections of union rights at work.

Negotiations were still ongoing, he added, and would continue "right up until 11:59 today." If both sides can't reach an agreement, union members across six states are prepared to strike.

Most of Costco's unionized warehouses are in California, Maryland, New Jersey, and New York. That means a few stores in these states will likely see some disruptions to business as usual if the Teamsters go on strike.

Investors don't seem too concerned about the potential strike. Shares of Costco were up 0.1% Friday -- likely because in the grand scheme of things, the union represents about 8% of Costco's U.S. workforce.

Yet nothing happens in a vacuum, and markets would do well to remember that pro-union sentiment has been on the rise across retail for the better part of the past five years, with companies such as Starbucks and Amazon.com seeing big unionization drives that have had repercussions for shareholders. Indeed, Starbucks' worker strike at the end of last year weighed on the stock for weeks.

Union mobilization has been slower to catch on at Costco. The company inherited the bulk of its unionized warehouses following its acquisition of rival Price Club in the 90s. Costco's pay and benefit structure -- which has historically been better than many of its retail peers -- largely kept additional activity at bay.

McQuaid says the pandemic has changed that, with the past three years delivering a trickle of victories to the union. In 2022, the Teamsters ratified its first-ever national master agreement for Costco workers. Roughly a year later, a warehouse in Norfolk, Va., became the first in roughly two decades to vote to join the union.

"The employer hasn't shown appreciation for the sacrifices and the hard work people at this company have continued to give year after year, especially during the pandemic," McQuaid said. "The people in the C-suite at Costco, they didn't have to worry about going to work and catching a disease that can kill them."

Union members also argue the current wages and benefits don't account for the rising cost of living, and are well below executive wages. In fiscal 2024, CEO Ron Vachris took home a little over $12.2 million and CFO Gary Millerchip was paid about $14.3 million, according to the company's 2024 proxy statement.

Employees at nonunionized warehouses have been following the developments, and will be keeping a close eye on the results of the negotiations. If the union is able to eke out a higher raise than the company's latest proposal, more warehouses may be incentivized to unionize.

Erich Zwanzig, a warehouse employee who has been with the company for over three decades, said that ever since the Norfolk store unionized, he has noticed an uptick in backroom chatter about unionization at his store in Ohio. Grousing is also on the rise, he said. For long-term employees such as himself, the pay scales are a point of frustration. While the company has inched up the starting wage to better compete with other retailers for fresh talent, wage gains for tenured employees haven't gone up as much, he said.

"I don't want in any way to try to sound I'm ungrateful for the pay I get, because I couldn't do the job I'm doing anywhere else for the money I am being paid," he said. "However, it becomes a trap -- and just because you pay me more than I can get somewhere else, doesn't mean that you can treat me any way you want to, and I think that's the feeling among a lot of employees."

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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January 31, 2025 16:55 ET (21:55 GMT)

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