In fact, to the people on Wall Street who really run the country, profit seems to be the last consideration in valuing companies.
Here’s an example:
Business Week ran the numbers last year on Costco versus Sam’s Club, a direct competitor which is owned by Wal-Mart.
Costco, a membership wholesale company, pays its full-timers an average of over $16/hour and 92% of their employees’ health insurance premiums.
Wal-Mart on the other hand pays an average of $9.69/hour and 34% of health insurance.
What does Costco get for this? Lower turnover and higher productivity.
In fact, Costco’s employees whip Walmart’s butt when it comes to performance: they outsell Wal-Mart by $279 per square foot. In FY2003, Costco’s operating profit per hourly employee was $13,647 versus $11,039 at Sam’s Club.
Costco’s doing okay at the corporate level, too: in Q1 2004, Costco posted a 25 percent gain in profit and a 14% increase in operating income.
Bottom line, Costco’s labor costs are LOWER than Walmart’s as a percentage of sales as a result of enlightened management practices and a smarter business strategy: they sell higher-margin products to more affluent customers.
Okay, so having read all this, which company do you think is favored by Wall Street analysts?
Last year, “The Street” reacted to Costco’s success by downgrading its stock 4%.
This has to be yet more evidence that graduate schools of business administration are turning out charlatans and fools. By any metric, Costco is a better-bang-for-the-shareholder-buck company than Walmart. But because Walmart has adopted the cheap labor philosophy, all those great-looking-in-a-suit but carrying shit for brains MBAs out there assume – wrongly – that, a priori, Walmart is more profitable.
Besides the impact on employees themselves, Walmart’s pay practices affect the rest of us:
(T)he cheap-labor model turns out to be costly in many ways. It can fuel poverty and related social ills and dump costs on other companies and taxpayers, who indirectly pick up the health-care tab for all the workers not insured by their parsimonious employers. What’s more, the low-wage approach cuts into consumer spending and, potentially, economic growth. “You can’t have every company adopt a Wal-Mart strategy. It isn’t sustainable,” says Rutgers University management professor Eileen Appelbaum.
If you look at the original Business Week article, you’ll notice the numbers I posted here don’t exactly match. Reason is, I picked them up from CNN.com, and I’m guessing the author, progressive columnist Mark Shields, updated the figures.
Anyway, the story hasn’t changed much over the last year and a half, and it still provides yet another reason to really, REALLY hate the “Haves”.
Come to think of it, it also provides evidence that the people who support Bush truly are, bottom line, STUPID, lacking even a microgram of common sense, analytical talent or the ability to grasp the concept of CONSEQUENCES.
It also validates something I figured out a couple of years ago after leaving an unnamed local company I shall refer to as the Bourne Institution for the Befuddled: many if not most CEOs do not put profitability at the top of their business objectives, maybe not even in the top quartile.
Rather, I truly believe that many if not most heads of companies, whether large or small, want to create a world, and that’s why they do what they do.
They want a world that’s pretty, rich and sycophantic, a world that excludes poor people and dour, reality-based folks who don’t boola-boola. Kind of like Dubya’s world.