The anti-Wal Mart

[Chmee]

It was classic Wall Street logic. In August 2003, the financial community decided it was fed up with Costco, the Issaquah-based discount warehouse chain and, at least until the recently announced Sears/Kmart merger, sixth largest retailer in the country on the basis of revenue. Costco was experiencing flat earnings growth for the year, and Wall Street thought it knew just what to blame. The company, proclaimed analysts, treated its employees too well. Costco's average U.S. hourly wage of approximately $16 an hour is widely considered to be the best in the retail business. And its approach to health care, as noted in a report at the time by the financial research and investment firm Sanford C. Bernstein & Co., "has been to provide employees with the best plan at the least expense to the employee." On Wall Street, this is not seen in a positive light. "Whatever goes to employees comes out of the pocket of shareholders," says Bernstein analyst Ian Gordon.

The financial guys noted another sin: Costco also treats its customers too well. Its bargain prices are legendary and, at the time analysts were tsk tsking, Costco was planning to add staff at checkouts in order to shorten lines. You might think that caring for customer is the No. 1 principle of business success. But again, Wall Street views the matter in terms of its slice of the pie. "It was spending what could have been shareholders' profit on making a better experience for customers," Gordon says. Or, as Deutsche Bank analyst Bill Dreher famously told BusinessWeek, "At Costco, it's better to be an employee or a customer than a shareholder."

Wall Street exacted its punishment: Costco's stock price plunged 19 percent in one day. Afterward, Gordon remembers, Costco's chief financial officer "dragged [co-founder and CEO] Jim Sinegal around to investors. He got beaten up a little." Regardless, Sinegal appeared unwilling to kowtow to the people who control his company's stock price, a highly unusual quality for a CEO, especially one who owns a lot of company stock. "He basically told them, 'I don't care,'" recalls Teamster Rome Aloise, the lead representative of Costco's unionized employees who make up one-fifth of its U.S. workforce.

"Why shouldn't employees have the right to good wages and the right to good careers?" asks Sinegal one day last month, sitting in his strikingly unpretentious office, more like an alcove really, devoid even of a door separating him from his employees. Costco has told Wall Street again and again that it believes the key to its success rests with taking care of employees and customers. Analysts "may not like it," Sinegal says, but "it's not a secret." It's also not a secret how he feels about the denizens of the Street. "Those people are in the business of making money between now and next Tuesday," he says. "We're trying to build an organization that's going to be here 50 years from now."

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[Col. Crackpot]

*makes mental note to shop at costco, if and when they open up shop here.

[Montcalm]

*WS Asshole* Costco is evil and must be stopped,making employees happy is uncivilised *WS Asshole*

[Stravo]

Yep, gotta love that market the Republicans keep blowing loads over. They always know whats right and good for business. I think there's a Costco out here somewhere.

[Alex Moon]

I love costco. They have a better selection of meat and fruit than the local supermarkets do, and they are sooooo much cheaper than everyone else. If you're a student living on your own, get a card. The $45 you spend will be made back in savings over a year.

Good for them re: the checkout lines. That's the one frustrating part of shopping there: they really should add an express checkout for people with a few items. That seems to be where the source of the long lines comes from.

That said, I can understand wall street getting miffed. Investors aren't altruistic, they want a good return on their investment. It sounds like Costco's management need to do a better job explaining why it makes good business sense to continue with these policies.

[Chmee]

I love costco. They have a better selection of meat and fruit than the local supermarkets do, and they are sooooo much cheaper than everyone else. If you're a student living on your own, get a card. The $45 you spend will be made back in savings over a year.

Good for them re: the checkout lines. That's the one frustrating part of shopping there: they really should add an express checkout for people with a few items. That seems to be where the source of the long lines comes from.

That said, I can understand wall street getting miffed. Investors aren't altruistic, they want a good return on their investment. It sounds like Costco's management need to do a better job explaining why it makes good business sense to continue with these policies.

Going to Costco for 'a few items' is sort of counterproductive, though. I do agree on the quality, though ... usually they have good produce, and great meat ... I'll buy one of their big trays of chicken or pork, come home and bag it up in individual freezer bags and I'm grillin' for a couple weeks at a very cheap price for good meat.

[DPDarkPrimus]

Unfortunately, there is no Costco anywhere near here. At least there's Target.

[Mayabird]

I need to find the Costco in Atlanta now and start shopping there. Good for them!

[Alex Moon]

Going to Costco for 'a few items' is sort of counterproductive, though. I do agree on the quality, though ... usually they have good produce, and great meat ... I'll buy one of their big trays of chicken or pork, come home and bag it up in individual freezer bags and I'm grillin' for a couple weeks at a very cheap price for good meat.

Not really. The other day I bought a six pound bag of apples, a six pound bag of pears, a case of fruit cocktail, a large bag of garlic and a couple of other things. Total cost: $25. At a supermarket it would have been almost twice as much.

[Howedar]

The other thing that the article didn't mention is that Costco doesn't sell shitty stuff. My family has been getting most of our stuff there for a decade and never have we bought a product that we felt was of substandard quality. Their own products (the Kirkland Signature stuff) are virtually without par quality-wise and generally cost 1/2-2/3 as much as the name brand stuff. At many stores you have to bargain-shop bearing in mind that you don't want to buy stuff that's too cheap, lest it be a pile of shit. That is not an issue at Costco.

[Wicked Pilot]

When you invest your hard earned money in a company, you do so with the expectation that you will see either dividends, or an increase in the stock price. Apparently that's not what the Costco inversters are seeing. Wasting $16.00 an hour on retail employees is not a good business practice, and the company is now paying a price for that.

[Chmee]

When you invest your hard earned money in a company, you do so with the expectation that you will see either dividends, or an increase in the stock price. Apparently that's not what the Costco inversters are seeing. Wasting $16.00 an hour on retail employees is not a good business practice, and the company is now paying a price for that.

While that's true, I think there's a difference between profit and exorbitant profit, between running a company the right way and running it to squeeze every last penny out of your workers. A company that treats its employees right, a company that doesn't pressure its suppliers to outsource to China and trash American jobs ... that seems like a good investment to me.

[Howedar]

When you invest your hard earned money in a company, you do so with the expectation that you will see either dividends, or an increase in the stock price. Apparently that's not what the Costco inversters are seeing. Wasting $16.00 an hour on retail employees is not a good business practice, and the company is now paying a price for that.

Stock price increases are not necessarily tied into reality, though. The truth is Costco is a healthier business than it has ever been and making more money than it ever has. Continuing successful policies and not touching a highly effective business model is good business practice.

[Wicked Pilot]

While that's true, I think there's a difference between profit and exorbitant profit, between running a company the right way and running it to squeeze every last penny out of your workers.

In this case there were flat earnings caused by paying employees too much. In business you pay your employees what they are worth, just like you pay for office supplies based on what they're worth. Paying an employee a $16 wage for a $12 job is like paying $4 for a $3 set of pencils, ie, not a good business practice. If the employees want a higher wage they can do what I did and go get a college degree.

A company that treats its employees right, a company that doesn't pressure its suppliers to outsource to China and trash American jobs ... that seems like a good investment to me.

If you wanna invest your money into Costco for that reason then I applaud your decision and say more power to you. I warn you however not to expect much of a return.

[Alyrium Denryle]

Well, by treating employees correctly, and keeping prices low, they build an amazingly loyal customer base(Howedar for example DOES NOT shop at wal-mart)

My family shops there almost exclusivly. The only exception being when we need a few little things like cheese or milk or eggs.

Practices like those of Costco are going to keep it going in the long term. Safeway, will probably be outcompeted by wal-mart because labor is unionized and prices are to high because of it(and the corporate execs are IDIOTS, and I know this from personal experience)

Costco doesnt have this problem, because their prices are so low that people buy enough that that they can pay their employee salaries, and benefits, while still making a profit.

Their stock price may be lower than some, but it will be stock you can pass on to your kids and grandkids, or place in a trust fund.

[The Kernel]

In this case there were flat earnings caused by paying employees too much. In business you pay your employees what they are worth, just like you pay for office supplies based on what they're worth. Paying an employee a $16 wage for a $12 job is like paying $4 for a $3 set of pencils, ie, not a good business practice. If the employees want a higher wage they can do what I did and go get a college degree.

By that logic, your employer is only required to give you what the market dictates and no more. I hope you are okay with losing all benefits and having your pension fund raided during a bad job market.

Have you ever worked for a large company before? They aren't all souless entities only concerned about maximizing shareholder value, there are huge non-quantifiable benefits towards generating employee and customer goodwill and a lot of companies seize on this by doing a little bit extra for their employees at the cost of their own stock price.

If you wanna invest your money into Costco for that reason then I applaud your decision and say more power to you. I warn you however not to expect much of a return.

Nonsense, have you taken a look at their P&L statements for the last few quarters? They are not nearly as flat as these WS analysts are making them out to be. They are probably pissed because Costco is growing at a pretty good pace, but could be doing even better if they were screwing the employees Wal-Mart style.

[Wicked Pilot]

By that logic, your employer is only required to give you what the market dictates and no more. I hope you are okay with losing all benefits and having your pension fund raided during a bad job market.

So if they're not paid what the market dictates, then how should we determine salary? Dice maybe? If you want a good paycheck with good benefits then you make yourself competitive so it's in the best interest of your employer to keep you.

Have you ever worked for a large company before? They aren't all souless entities only concerned about maximizing shareholder value, there are huge non-quantifiable benefits towards generating employee and customer goodwill and a lot of companies seize on this by doing a little bit extra for their employees at the cost of their own stock price.

And that goes a long way, but in the extreme if it causes a company to go out of business, and everyone loses their jobs, their investments, their retirements, etc, then everyone's fucked. Just look what happened to all the manufacturing jobs in this country.

Nonsense, have you taken a look at their P&L statements for the last few quarters? They are not nearly as flat as these WS analysts are making them out to be. They are probably pissed because Costco is growing at a pretty good pace, but could be doing even better if they were screwing the employees Wal-Mart style.

Then once again you can go invest in them. That would be a lot more productive than whining about others not wanting to. It is in fact their money, then can do with it as they please.

[Jalinth]

In this case there were flat earnings caused by paying employees too much. In business you pay your employees what they are worth, just like you pay for office supplies based on what they're worth. Paying an employee a $16 wage for a $12 job is like paying $4 for a $3 set of pencils, ie, not a good business practice. If the employees want a higher wage they can do what I did and go get a college degree.

A company that treats its employees right, a company that doesn't pressure its suppliers to outsource to China and trash American jobs ... that seems like a good investment to me.

If you wanna invest your money into Costco for that reason then I applaud your decision and say more power to you. I warn you however not to expect much of a return.

Employee wages aren't the be all and end all. Things like turnover, loyalty, etc... matter. If three loyal/hard working employees can do the labour of four unmotivated ones, the company is better off (less staff) and so are the employees (more money). So the question is does the higher than market wage buy enough of a return? In Costco's view, it is a yes. Wall Street disagrees, but they are looking for short term gains - think of Enron and the dot com bubble. Unfortunately, dealing with Wall Street is a major price of being a public company - it can help discipline erratic companies, but also encourages short-term behaviour.

Just to note that turnover isn't cost free. It costs real time and money (often of relatively well paid people) to hire and train employees. So if you can reduce your turnover, then you reduce your costs. Frequent turnover can lead to questionable customer service - which is something Costco is trying to enhance.

Whether this is the right business move will be seen in 3 to 5 years - does the extra motivation of the staff (higher wages - better morale) reduce other costs and increases the same store sales (or profit margins) more than its competitors. If you think yes, buy it - if you think no, don't.

[Master of Ossus]

While I love Costco, the investors have a point. Besides, the additional cost of paying employees exhorbitantly IS transferred to me as a customer (not that Costco has any particular price competition anyway).

[Chmee]

In this case there were flat earnings caused by paying employees too much. In business you pay your employees what they are worth, just like you pay for office supplies based on what they're worth. Paying an employee a $16 wage for a $12 job is like paying $4 for a $3 set of pencils, ie, not a good business practice. If the employees want a higher wage they can do what I did and go get a college degree.

A company that treats its employees right, a company that doesn't pressure its suppliers to outsource to China and trash American jobs ... that seems like a good investment to me.

If you wanna invest your money into Costco for that reason then I applaud your decision and say more power to you. I warn you however not to expect much of a return.

Employee wages aren't the be all and end all. Things like turnover, loyalty, etc... matter. If three loyal/hard working employees can do the labour of four unmotivated ones, the company is better off (less staff) and so are the employees (more money). So the question is does the higher than market wage buy enough of a return? In Costco's view, it is a yes. Wall Street disagrees, but they are looking for short term gains - think of Enron and the dot com bubble. Unfortunately, dealing with Wall Street is a major price of being a public company - it can help discipline erratic companies, but also encourages short-term behaviour.

Just to note that turnover isn't cost free. It costs real time and money (often of relatively well paid people) to hire and train employees. So if you can reduce your turnover, then you reduce your costs. Frequent turnover can lead to questionable customer service - which is something Costco is trying to enhance.

Whether this is the right business move will be seen in 3 to 5 years - does the extra motivation of the staff (higher wages - better morale) reduce other costs and increases the same store sales (or profit margins) more than its competitors. If you think yes, buy it - if you think no, don't.

Low turnover was one of the things mentioned in the rest of that article ... 6% after the first year.

And yes, I invest for the long-term, not the quick buck ... if I want to see a 25% return in a week, I'll go to Vegas, not Wall Street.

[Darth Wong]

Business ethics is now and has always been a contradiction in terms.

[Master of Ossus]

Low turnover was one of the things mentioned in the rest of that article ... 6% after the first year.

And yes, I invest for the long-term, not the quick buck ... if I want to see a 25% return in a week, I'll go to Vegas, not Wall Street.

Low turnover is usually only a good business goal if there is a lot of training required for staff. I'm sure that jobs at the Deli, butcher, etc. at Costco actually have considerable training time, but that doesn't mean you want to pay the guy working the register 30% more than he would get if he took a job somewhere else.

[Chmee]

Low turnover was one of the things mentioned in the rest of that article ... 6% after the first year.

And yes, I invest for the long-term, not the quick buck ... if I want to see a 25% return in a week, I'll go to Vegas, not Wall Street.

Low turnover is usually only a good business goal if there is a lot of training required for staff. I'm sure that jobs at the Deli, butcher, etc. at Costco actually have considerable training time, but that doesn't mean you want to pay the guy working the register 30% more than he would get if he took a job somewhere else.

There can be other payoffs for the company ... Costco also promotes from within at a very high rate, so they may be hiring more qualified 'entry' personnel than a Wal Mart, who are then better qualified for advanced positions as they move up the chain. Quality might not matter if all you *ever* want that employee to be is a cashier, but if you want them to move into management the initial investment could pay off.

[aerius]

While that's true, I think there's a difference between profit and exorbitant profit, between running a company the right way and running it to squeeze every last penny out of your workers. A company that treats its employees right, a company that doesn't pressure its suppliers to outsource to China and trash American jobs ... that seems like a good investment to me.

This is a big part of why I got out of the tech industry, the trend in recent years has gone towards contract work with no benefits and long shitty hours. Of course now I'm working in government where I'm underworked, overpaid, can't lose my job, and have more benefits than I can count, right on the other extreme of the scale. Somewhere in between is the right way to do things.

[Master of Ossus]

There can be other payoffs for the company ... Costco also promotes from within at a very high rate, so they may be hiring more qualified 'entry' personnel than a Wal Mart, who are then better qualified for advanced positions as they move up the chain.

If your goal is to promote from within at a high rate, then highly qualified entry-level personnel should be flocking to your stores even if you DON'T pay them anything extra, since they'll be attracted to the possibility of promotion.

Quality might not matter if all you *ever* want that employee to be is a cashier, but if you want them to move into management the initial investment could pay off.

True, but even then it strikes me as being a waste of money since even with the low turnover rate only a small fraction of your employees will be promoted to management.