[lbo-talk] Walmart and Costco

Marvin Gandall marvgandall at rogers.com
Wed May 4 18:34:44 PDT 2005



> Wall Street Journal - March 26, 2004
>
> Costco's Dilemma: Be Kind
> To Its Workers, or Wall Street?
>
> By ANN ZIMMERMAN
> Staff Reporter of THE WALL STREET JOURNAL>


> ...Costco says its higher pay boosts loyalty: Its employee turnover rate
> is 24% a year. Wal-Mart's overall employee turnover rate is 50%,
> about in line with the retail-industry average. Wal-Mart doesn't
> break out turnover rates at Sam's Club. High turnover creates added
> expense for retailers because new workers have to be trained and are
> not as efficient.
--------------------------------- More information from Business Week below. I'm surprised that the higher retention rate and productivity at Costco actually makes as much difference as reported at this skill level, where retraining costs can't be that high, and the largely passive sales force is mostly there to help customers find products. But I guess it does - that, and the lower marketing costs and its somewhat more affluent customer base.

It'll be interesting to see whether the Teamsters are able to use the Price Club beachhead at Costco to win model agreements and organize the rest of the company - with all of the implications this would have for Walmart and retail in general - or whether the unionized units inherited in the Price Club takeover, representing less than one in five employees, will be isolated and worn down by the company for all of the reasons unions are having such a tough time organizing the service sector of the economy. A slowdown in consumer spending won't help.

MG ----------------------------- US: Higher Wages Mean Higher Profits

by Stanley Holmes, Wendy Zellner, Business Week April 12th, 2004

Costco Wholesale Corp. handily beat Wall Street expectations on Mar. 3, posting a 25% profit gain in its most recent quarter on top of a 14% sales hike. The warehouse club even nudged up its profit forecast for the rest of 2004. So how did the market respond? By driving the Issaquah (Wash.) company's stock down by 4%. One problem for Wall Street is that Costco pays its workers much better than archrival Wal-Mart Stores Inc. does and analysts worry that Costco's operating expenses could get out of hand. "At Costco, it's better to be an employee or a customer than a shareholder," says Deutsche Bank (DB ) analyst Bill Dreher.

The market's view of Costco speaks volumes about the so-called Wal-Martization of the U.S. economy. True, the Bentonville (Ark.) retailer has taken a public-relations pounding recently for paying poverty-level wages and shouldering health insurance for fewer than half of its 1.2 million U.S. workers. Still, it remains the darling of the Street, which, like Wal-Mart and many other companies, believes that shareholders are best served if employers do all they can to hold down costs, including the cost of labor.

Surprisingly, however, Costco's high-wage approach actually beats Wal-Mart at its own game on many measures. BusinessWeek ran through the numbers from each company to compare Costco and Sam's Club, the Wal-Mart warehouse unit that competes directly with Costco. We found that by compensating employees generously to motivate and retain good workers, one-fifth of whom are unionized, Costco gets lower turnover and higher productivity. Combined with a smart business strategy that sells a mix of higher-margin products to more affluent customers, Costco actually keeps its labor costs lower than Wal-Mart's as a percentage of sales, and its 68,000 hourly workers in the U.S. sell more per square foot. Put another way, the 102,000 Sam's employees in the U.S. generated some $35 billion in sales last year, while Costco did $34 billion with one-third fewer employees...



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