Costco and Wal-mart Costco Wal-mart Essay

Submitted By lwarren09
Words: 1316
Pages: 6

Costco's Dilemma: Be Kind
To Its Workers, or Wall Street?
March 26, 2004; Page B1
When it comes to workers, companies can be accused of not paying enough -- or paying too much.
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.
Costco, which opened its first store in 1983 and now has 432 locations, disputes the contention that it takes care of workers at the expense of investors. "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."
CLOCKING IN Comparing some workplace statistics from Costco and Wal-Mart
Costco Wal-Mart
Employees covered by company health insurance 82% 48%
Insurance-enrollment waiting periods (Full-time) 3 mos 6 mos
Insurance-enrollment waiting periods (Part-time) 6 mos 2 yrs
Portion of health-care premium paid by company 92% 66.60%
Employees who work part-time 43% 30%
Annual worker turnover rate 24% 50%
Source: the companies

Worker pay, benefits and job quality have been hot topics in the retail industry. While employees in many fields are worried about generally stagnant job growth and spiraling health-care costs, already-meager retail wages also are threatened by retail-pricing pressure, partly fueled by Wal-Mart's growing dominance in toys, electronics, groceries and other categories. Grocery workers in California recently waged a brutal four-month strike to protest health-care cuts that large supermarket chains were imposing to stay competitive with Wal-Mart.
Hourly retail pay grew only 1% in the 12 months ended last month, according to the Bureau of Labor Statistics, compared with a 1.7% gain for private-sector jobs overall.
Wal-Mart last year added 99,000 jobs in the U.S., making it the country's biggest job creator, and nearly all those positions pay by the hour. And since Costco and Wal-Mart's larger Sam's Club warehouse chain increasingly are competing head-to-head on everything from turkeys to tires, the companies have to pay close attention to each other.
Wal-Mart spokeswoman Mona Williams says the company's "entire package of wages, benefits and career opportunities is at least as good as that offered by Costco," including bonuses, company-paid life insurance and a discounted Wal-Mart stock-purchase program. Sam's Club has a "cost advantage" over Costco, she