Wall Street's Lament

"Why can't Costco be more like WalMart?" analysts bray....:

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."...

"They could probably get more money for a lot of items they sell," said Ed Weller, a retailing analyst at ThinkEquity...

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."

To paraphrase a Molly Ivins quote, I'm sure the analysts' remarks sounded much less offensive in the original German...

There's another reason for Wall Street analysts to be smarting, though, and that's the stubborn fact that Costco's stock continues to outperform WalMart's, despite disparaging remarks like those above--and despite analysts' recommendations (note: in WallStreetese, a "hold" recommendation might as well be a "sell"). Dreher claims that this is because Costco is "a cult stock."

Cult? Yeah, I guess that's how big finance defines a company that defines good business as basic common decency--quite a departure from Wall Street's own fine examples, which include Enron, WorldCom, HealthSouth, etc...no, no cult stocks there.

To be fair, I have no idea--and the article doesn't say--whether or not Costco takes advantage of Asian sweatshop labor in their marketing of products...if I had to guess, I'd say they probably do. However, my purpose is not to praise a globally benevolent company (again, I don't know if they are or aren't), but to point out that a sound business model doesn't require all cutthroat, all the time.

Besides, I'll bet the analysts whining about health care costs, $17 dollar an hour jobs, and lower mark ups haven't exactly been subject to the same compensation recently. It's pretty goddamn easy to make these complaints when year end bonuses are in the six figure range (and that's on top of salary). Here in the real world, though, where $17 dollars an hour is known as, under the circumstances, a pretty decent wage, it's nice to see there are still companies that offer that kind of salary, along with "extras" like health benefits, sick leave, paid vacations, and so forth. We still ARE the richest country on earth, even if Team Bush is busy ringing up debts on the national credit card (supplying boat loads of cash to Halliburton, while going into phenomenal hock to the People's Republic of China). As the richest country on earth, we can well afford to provide more than a few crumbs to workers (even as we discover that our gutting of public education, not to mention our outdated system of paying for health care are hurting us).

Against that backdrop, Costco doesn't seem like such a bad place to do business--except for one thing...they don't operate here in the Gret Stet (well, I can hit the website, I guess--although, to be honest, I don't do a whole lot of shopping, period).