Tuesday, March 12, 2013

Huffington Post — Costco's Profit Soars To $537 Million Just Days After CEO Endorses Minimum Wage Increase

Less than a week after Costco CEO Craig Jelinek spoke out in favor of raising the minimum wage, the big-box retailer’s earnings showed that paying workers a living wage doesn’t always hurt business.
Costco reported a profit of $537 million last quarter, up from $394 million during the same period last year, according to the Wall Street Journal. The healthy earnings report comes just six days after Jelinik urged lawmakers to raise the minimum wage to $10.10 an hour.
“At Costco, we know that paying employees good wages makes good sense for business,” Jelinik said in a statement last week. “Instead of minimizing wages, we know it's a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty. We support efforts to increase the federal minimum wage.”
Costco is known for paying its workers wages that are generally above average for the retail industry. An average Costco worker made about $45,000 in 2011, according to Fortune. That’s compared to an average of about $17,486 per year for a worker at comparable Walmart-owned Sam’s Club.
The Huffington Post
Costco's Profit Soars To $537 Million Just Days After CEO Endorses Minimum Wage Increase

In the interest of full disclosure, I am a Costco member.

15 comments:

Matt Franko said...

A minimum wage increase without an appropriate fiscal adjustment to accommodate the additional income and associated savings within the economy will not work...

rsp,

Bullish_Bear said...

Tom, your sources, like the Huffington Post, are not helping your cause.

Tom Hickey said...

BB, this is not controversial. Climate change is and the quality of the source is key to the argument because it is a heavily partisan one.

Costco's earnings are not disputed, nor is its support of the minimum wage. These are easily checkable facts available in the public record.

Bullish_Bear said...

Please reread the headline and you tell me what it is trying to infer.

You truly believe that there is no partisan bias in the headline?

Bullish_Bear said...

"Costco's earnings are not disputed, nor is its support of the minimum wage. These are easily checkable facts available in the public record."

The article draws a lot of comparison with Walmart. Why doesn't the article mention some of the below stats vs Walmart.

Walmart employs 2.1 million vs Costco's measly 160,000 employees.

Walmart has a profit margin of 3.5% vs Costco's 1.7%.

Walmart annual profit $15.6B vs Costco $1.7B

I got those numbers from the below link. Before you go and shoot down the reference, the article you posted references the same article. Why did they leave out all of these numbers?

Bullish_Bear said...

Sorry forgot the link.

http://www.thedailybeast.com/articles/2012/11/26/why-can-t-walmart-be-more-like-costco.html

Tom Hickey said...

No causality implied in the headline. Obviously, Costco's profit did not shoot up in days.

What I interpret the headline and post to show is that Costco's support for a decent compensation package for workers.

Costco pkg _ $45K
Sam's Club - 17 K

Is Sam's vastly outperforming Costco because of the lower wave, which was Sam Walton's weapon of choice in the competitiveness battle.

But Sam's Club-Walmart aren't aren't really competing, so it is difficult to assess their performance side by side. Sam's Club and Walmart cater to low-end shoppers and Costco caters to relatively affluent ones looking for a deal, which is essentially a tax cut.

Tom Hickey said...

Walmart has a profit margin of 3.5% vs Costco's 1.7%.

Right, and as Drucker observed, the profit is not the chief purpose of business, serving the customer is.

Costco has a stated policy of not making up its goods more than 30%, very low for retail, and Costco's customer satisfaction is off the charts. Walmart's not so much.

Most people I know wouldn't get caught dead in a Walmart or Sam's, or admit that they bought something there, but they are quite happy to say that they bought something at Costco.

Anyway, it's not possible to compare Costco with Walmart for a variety of reasons. They are in different businesses. The comparison would have to get with Sam's Club. But here again, the positioning, hence the clientele, is different. Costco is not competing for the low-end.

Bullish_Bear said...

"No causality implied in the headline."

I completely disagree. As you said, obviously Costco's profit did not shoot up in days. However, look at the headline. Do you see everything through such a strong bias lenses?

Let me break it down for you.

X happened just days after y happened.

Yeah, no causality implied in that statement.

But Sam's Club-Walmart aren't aren't really competing, so it is difficult to assess their performance side by side.

Well it seems like the person that wrote the article doesn't see a problem in assessing their performance side by side.

And apparently the extra pay pays off. Costco makes more than $10,000 in profits per employee, while Walmart takes home about $7,400 per worker, according to the Daily Beast (Walmart and Costco aren’t exactly the same type of business, however).



Tom Hickey said...

Yeah, Megan says what I said about. Costco and Walmart are different business.

But Sam's and Costco are the same business but different business models. It will be interesting to see how they compete.

But again, it is positioning, and Sam's will do better in low income areas and Costco in higher incomes ones.

Tom Hickey said...

Let's just say that anyone who would think that a company profits could shoot up in a matter of days flunked math in grade school.

Bullish_Bear said...
This comment has been removed by the author.
dave said...

should'nt they include government subsidies in their figures?

marris said...

> as Drucker observed, the profit is not the chief purpose of business, serving the customer is.

Is it April Fools already? This Daylight Savings thing has gotten me all screwed up.

Does this guy also think that rainbows are the "purpose" of rain?

Tom Hickey said...

Seems some people don't get the difference between strategic management and managerialism.

BTW, Warren Buffett's long term investment strategy is investing in strategic management rather than managerialism. Seems to have worked for him.