Reality-Based Engineering: Why Does Wall Street Hate CostCo?

Sunday, July 24, 2005

Why Does Wall Street Hate CostCo?

I'm just going to copy the whole post regarding CostCo (investor relations here) - I can't say anymore than this. Also, here's a link to basically the same thing that was said a year ago, via NPR, and another from WBUR's On-Point from April 1st, 2004. Last link I'll add - laborresearch.org:

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

Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco's customers but to its workers as well.
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 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."
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Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco's workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent.
"He has been too benevolent," she said. "He's right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden."

Steve gives them a good beating.

Remember, when dotcom CEO's were living like kings, they didn't say shit. Dennis Kozlowski lived like a king and no analyst said a fucking word. But working people need to make less money? Ignore that nonsense.
Loyalty pays its own rewards. There is tremendous internal pressure to keep a Costco job. You show up, on time, sober and don't steal. It pays as well as a factory or civil service job. The health care plan alone can keep their workers loyal. They save millions on training and theft investigations. When you treat the worker as disposable, they treat the job the same way. When you invest in them, they will save you money.

I wonder what Wall Street will say when Costco carries on unimpeded by the costly challenges facing Wal Mart -- lawsuits, hostile unionization drives, consumer boycotts, community efforts to keep them out of new markets, and the tarnishing of the Wal Mart brand until KMart looks good in comparison.