Re: Costco vs. Wal-Mart

["Devine, James" <jdevine@xxxxxxx>]

there's also an article in BUSINESS WEEK on this subject, with a useful chart. If I can get the time, I'll forward the (password-protected) article to pen-l.
Jim D

	-----Original Message----- 
	From: michael [mailto:michael@xxxxxxxxxxxxxxxxx] 
	Sent: Sat 4/3/2004 6:31 PM 
	To: PEN-L@xxxxxxxxxxxxxxxx 
	Cc: 
	Subject: [PEN-L] Costco vs. Wal-Mart
	
	

	Even though Cosco has been helping gather signatures for Arnold's
	efforts to
	cut back workers' compensation, the company seems to have been one of
	the few
	not to embrace hyper-capitalism.  Investors are mad.
	
	Zimmerman, Ann. 2004. "Costco's Dilemma: Be Kind To Its Workers, or Wall
	
	Street?." Wall Street Journal (26 March): p. B 1.
	"Wal-Mart Stores Inc.'s parsimonious approach to employee compensation
	has
	made the world's largest retailer a frequent target of labor unions and
	even
	Democratic presidential candidate John Kerry, who has accused the
	Bentonville,
	Ark., chain of failing to offer its employees affordable health-care
	coverage.  In contrast, rival Costco Wholesale Corp. often is held up as
	a
	retailer that does it right, paying well and offering generous
	benefits."
	"But Costco's kind-hearted philosophy toward its 100,000 cashiers,
	shelf-stockers and other workers is drawing criticism from Wall Street.
	Some
	analysts and investors contend that the Issaquah, Wash., warehouse-club
	operator actually is too good to employees, with Costco shareholders
	suffering
	as a result."
	"From the perspective of investors, Costco's benefits are overly
	generous,"
	says Bill Dreher, retailing analyst with Deutsche Bank Securities Inc.
	"Public
	companies need to care for shareholders first.  Costco runs its business
	like
	it is a private company."
	"Costco appears to pay a penalty for its largesse to workers.  The
	company's
	shares trade at about 20 times projected per-share earnings for 2004,
	compared
	with about 24 for Wal-Mart.  Mr. Dreher says the unusually high wages
	and
	benefits contribute to investor concerns that profit margins at Costco
	aren't
	as high as they should be."
	"The last thing I want people to believe is that I don't care about the
	shareholder," says Jim Sinegal, Costco's president and chief executive
	since
	1993, who owns about 3.2 million Costco shares valued at $118 million
	based on
	yesterday's price of $36.96, up 52 cents, in 4 p.m. Nasdaq Stock Market
	trading. "But I happen to believe that in order to reward the
	shareholder in
	the long term, you have to please your customers and workers."
	
	
	Morgenson, Gretchen. 2004. "Two Pay Packages, Two Different Galaxies."
	New
	York Times (4 April).
	"there are some corporate executives who do not grab for every last
	perquisite, who embrace the concept of enough rather than ever more.
	James D.
	Sinegal of Costco Wholesale is one.  His pay package seems a throwback
	to
	another era, especially when compared with the lavish compensation of
	Henry R.
	Silverman of Cendant.  When it comes to pay, Mr. Sinegal, president and
	chief
	executive of Costco, the warehouse retailer based in Issaquah, Wash.,
	seems to
	inhabit an alternate universe.  His salary last year, $350,000, was not
	much
	different from the $300,000 he earned 10 years ago.  He received 150,000
	stock
	options last year but has refused a bonus in each of the last three
	years.
	The terms of his employment contract could fit on a cocktail napkin."
	"A 2000 survey by Towers Perrin, the consulting firm, found that the pay
	of
	chief executives, on average, was 531 times that of their lowest-paid
	rank-and-file workers.  But Mr. Sinegal's salary is less than 10 times
	that
	earned by his company's top hourly employees and roughly double the
	salary of
	a Costco warehouse manager, he said."
	"While Mr. Sinegal keeps a lid on his own pay, his company is known for
	providing salaries and health care benefits to lower-level workers that
	are
	higher than average for the industry.  For example, Mr. Sinegal said, a
	forklift driver at the company typically makes more than $40,000
	annually,
	after three years on the job.  And Costco pays 92.5 percent of
	employees'
	health care costs."
	"We just believe firmly that if you're taking care of your customers and
	
	taking care of your people, you're not too far off target," Mr. Sinegal
	said.
	"The profits will come and you'll be successful."
	"One measure of how this approach succeeds is found in the rate of theft
	by
	customers and employees at Costco stores - what the retail industry
	charmingly
	calls shrinkage. Mr. Sinegal says such losses run under two-tenths of 1
	percent at Costco each year.  Other companies have 10 to 15 times that
	amount
	of theft."
	"But Mr. Sinegal countered that it is just good business. "If you're
	going to
	say to all the people that you're working with, 'We want you to treat
	the
	customers honestly; don't lie and don't cheat,' it is somewhat
	hypocritical if
	you're not following the same rules," he said. "Everybody is watching
	you
	every minute anyways.  If they think the message you're sending out is
	phony,
	they're going to say, 'Who does he think he is?' It's again good
	business.
	But it is also an obligation"."
	
	
	
	--
	
	Michael Perelman
	Economics Department
	California State University
	michael at ecst.csuchico.edu
	Chico, CA 95929
	530-898-5321
	fax 530-898-5901