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Costco’s Cool

July 25th, 2005

Not that I’ve ever said anything otherwise, but recent evidence only supports this, via DKos and the NY Times.

First of all, Costco treats customers well: it allows no more than a 14% to 15% markup on items it sells. That allows for fair pricing in some areas, and excellent pricing in other areas.

Second–and very importantly–it treats its workers well. The average wage earned by Costco workers is about $17 per hour, not too shabby at all. In contrast, Wal-Mart claims to pay an average of $10 per hour. And while average retailers require their workers to pay 25% of their insurance premiums, Costco only makes workers pay 8%–and that’s only after the shareholders forced the company to take it to there from the 4% it was asking before. In addition:

This knack for seeing things in a new way also explains Costco’s approach to retaining employees as well as shoppers. Besides paying considerably more than competitors, for example, Costco contributes generously to its workers’ 401(k) plans, starting with 3 percent of salary the second year and rising to 9 percent after 25 years.

ITS insurance plans absorb most dental expenses, and part-time workers are eligible for health insurance after just six months on the job, compared with two years at Wal-Mart. Eighty-five percent of Costco’s workers have health insurance, compared with less than half at Wal-Mart and Target.

Costco also has not shut out unions, as some of its rivals have. The Teamsters union, for example, represents 14,000 of Costco’s 113,000 employees. “They gave us the best agreement of any retailer in the country,” said Rome Aloise, the union’s chief negotiator with Costco. The contract guarantees employees at least 25 hours of work a week, he said, and requires that at least half of a store’s workers be full time.

Costco holds that happy workers are more productive, and there is less turnover and less employee theft.

Wall Street disagrees, saying that Costco’s CEO “has been too benevolent,” and that “he could force employees to pick up a little more of the burden.” Apparently the conservative economic crowd just doesn’t believe in a happy, well-paid middle class; those working stiffs have to “pick up the burden” for the wealthy stockholder class.

Of course, thhis view is contradicted by the fact that Costco has been performing well:

If shareholders mind Sinegal’s philosophy, it is not obvious: Costco’s stock price has risen more than 10 percent in the past 12 months; Wal-Mart’s has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart, the multiple is about 19. … Costco’s profit rose 22 percent last year, to $882 million, on sales of $47.1 billion.

Of course, this does not faze Wall Street analysts, who call Costco’s offerings a “cult stock.” Apparently, if you’re not a mainstream, greedy, blood-sucking, worker-exploiting miser then you can’t have respectability.

Furthermore, Costco’s CEO Jim Sinegal, aside from being a multi-millionaire from stock holdings, gets a salary of $350,000 and a bonus of $200,000 yearly, making him one of the lowest-paid executives in America. Of this, he said, “I just think that if you’re going to try to run an organization that’s very cost-conscious, then you can’t have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong.”

So we have a company that gives workers good pay and benefits, gives some of the lowest prices to consumers, keeps executive pay scales down, and is highly successful.

And they’re a major contributor to the Democratic Party, while Wal-Mart contributes to Republicans.

What more could you ask for?

Shop at Costco, and stay away from Wal-Mart and Sam’s Club.

(By the way, you might also want to check out this unrelated but very funny article at the WaPo; very Dave-Barryish.)

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  1. Leszek Cyfer
    August 16th, 2009 at 05:23 | #1

    Four years have passed – how is Costco today?

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