Democrats & Liberals Archives

Blue works!

(via Jack Bog)

The New York Times has discovered what we in Oregon have known all along: Corporations don’t have to pay their workers a pittance and deny them benefits in order to making a screaming profit:

Combining high quality with stunningly low prices, the shirts appeal to upscale customers - and epitomize why some retail analysts say Mr. Sinegal just might be America's shrewdest merchant since Sam Walton.

But not everyone is happy with Costco's business strategy. 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."

He also dismisses calls to increase Costco's product markups. Mr. Sinegal, who has been in the retailing business for more than a half-century, said that heeding Wall Street's advice to raise some prices would bring Costco's downfall.

Bucking the Wall Street analysts, Costco's stock price has increased 10 percent in the last 12 months. WalMart? Down 5 percent. But even more interesting:

Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19.Mr. Dreher said Costco's share price was so high because so many people love the company. "It's a cult stock," he said.

Yup. When you're good to the employees and good to the community, you'll be supported. When you pinch every penny and make the bottom line the ultimate priority, you lose. Sears lost. WalMart is losing. Costco is kicking ass.

The gravy of this entire story? Costco is as blue as it gets.

Posted by Carla Ryan at July 19, 2005 1:04 PM