Sunday, July 24, 2005

Analysts rag on Costco

Kos points out the incredible commentary from a Deutsche Bank analyst in a recent New York Times article re: Costco and its treatment of its employees:

Wow. How do these Wall Street analysts sleep at night?

Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco “it’s better to be an employee or a customer than a shareholder.”

Mr. Sinegal [Costco CEO] begs to differ. He rejects Wall Street’s assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street’s profit demands.

Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco’s customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers’ expense. “This is not altruistic,” he said. “This is good business.” [Daily Kos] (emphasis mine)

Driving home tonight following an unsuccessful trip to buy a new mattress for the top bunk (the boys have moved into a bunk bed as of tonight!), we faced a dilemma: do we swing by Wal-Mart? They’d probably have one, and it’d be cheap. “No way,” my wife said. “Absolutely not.” Apparently her friends give her a hard time for not shopping at Wal-Mart, but the combination of Wal-Mart’s low-paid employees (who seem altogether unhappy about being there and less than helpful when you need something) with Wal-Mart’s political activity, and their attitude towards employee benefits have reinforced Robin’s (and my) commitment to avoid shopping there. We happily shop at Costco, and have never felt like thier prices or selection have suffered due to their higher employee wages or superior benefits.

We are certainly a prime example of a loyal Costco family — so much so that we used to drive 15 miles to the nearest Costco (even though the Wal-Mart is less than 2 miles from our house). Fortunately, Costco opened a warehouse closer to us (about 2 miles from the house, as a matter of fact) and it’s much easier for us to make the trip with greater frequency.

As for the analyst’s comments about it being better to be an employee or customer than a shareholder? Well, it’s better to be a taxpayer with Costco than it is with Wal-Mart… Thanks to Wal-Mart’s approach to benefits, they’re creating a public burden to the tune of tens of millions of dollars in California alone, could it be hundreds nationwide? From the earlier link:

A study released in August 2004 by researchers at the University of California at Berkeley determined that the healthcare expenses of uninsured Wal-Mart employees were costing the already economically-strapped state $32 million a year in taxpayer funds.

And wait a sec: as long as we’re talking numbers, Costco’s stock is trading at 23x earnings, while Wal-Mart’s is at 19x. Costco’s stock is up 10 percent in the last 12 months, while Wal-Mart’s is down 5 percent. Its profits rose 22 percent last year, to $882m, and its U.S. stores average $121m in sales (compared to $70m for Sam’s Club, the Wal-Mart warehouse company).

Happy, well-compensated employees; a labor-friendly management team with proven results on the bottom line; superior results compared to its better-funded competitor; loyal customers: why would we shop anywhere else?


  1. I also noteworthy that most of Costco's employees are in unions.

  2. Also Wal-Mart in Naperville is a pit anyway.

  3. I've avoided "WallyWorld" for a loooong time already but you've just given me even more reason to keep avoiding it.

    Now I just have to find a Costco in my area.

    What blows my mind is so many of my blue collar family, friends, aquaintenances and peers will b*tch and moan about outsourcing and China-made goods yet see nothing what-so-ever wrong with making most of their purchases at WalMart.

    Sadly, Sam Walton is screwing America slowly but surely.