Tuesday, November 29, 2005

WalMart vs Costco

Neal Peirce's recent column about Wal Mart and Costco has some very interesting commentary about how these two retailers operate and what benefits they bring to the communities in which they operate. We have all read the criticism of WalMart's operating practices. And even though WalMart supporters put a spin on the negatives while emphasizing the low priced products they sell, WalMart does not bring all the community benefits some would have us believe.

Some of Peirce's comments include:

Wal-Mart has become the poster child for an era of unfettered globalized corporate operations -- “a destabilizing business model, a dangerous detriment to America’s local and national economies and to the middle class,” in the words of critic Leo Hindery Jr., former CEO of the telecom carrier Global Crossing and an active figure in Democratic party politics.

Hindery, at a recent Washington conference organized by the Center for American Progress, noted that as recently as 1992 (the year of Wal-Mart founder Sam Walton’s death), the Business Roundtable of top business leaders was asserting that corporations had a major responsibility not just to stockholders, but to their employees, society at large, and the nation’s economy. But now, Hindery asserts, the Business Roundtable, indeed most of the corporate world, focuses almost exclusively on profits for stockholders.

So what is the alternative? If not WalMart, then what? Pierce suggests looking at Costco. As he explains:

But the real choice, says Harry Holzer, former chief economist for the U.S. Labor Department, is between “lower-road” employer strategies focused, like Wal-Mart, on low wages regardless of high employee turnover, versus a “higher road” strategy by employers focused on higher worker productivity that’s supported by higher wages and benefits as well as training and promotion ladders.

The mass-retailer Costco, which competes directly with Wal-Mart’s Sam Club warehouse chain, has emerged as critics’ high-road model. While Wal-Mart fights aggressively to stop any union organizing whatever, Costco has agreements with the Teamsters for 16 percent of its employees and has extended most of the benefits to its entire workforce.

Indeed, a Business Week analysis shows Costco’s average hourly wage is $15.97, far above the Wal-Mart (Sam’s Club) $11.52 figure (even excluding the 25 percent of Wal-Mart workers who are low-paid part-timers). The yearly employer contribution to health care-- Costco $5,735, Wal-Mart $3,500. Of Costco employees, 82 percent are covered by the health plan, Wal-Mart 47 percent. Employee turnover at Wal-Mart is three times higher than Costco’s.

And then comes the clincher, suggesting the low-road approach may not be so clever after all: Costco’s profit per employee is $13,647, Wal-Mart’s $11,039.

Paying good wages and benefits, says Costco CEO Jim Sinegal, “is not altruistic; it’s good business.”

As we look at the WalMart question at MLK and 301 and ask what is best for the community, it is entirely possible that we are not setting our sights on what is possible. We continue along the path of letting others direct our future. Here we have done nothing until WalMart has come along with a proposal. Why have we not considered recruiting preferred businesses for this site? The Newtown Redevelopment Plan has identified this location as the site for an "anchor" business. However we have not actively recruited potential businesses and we do not have any competitive forces working to get the best option for Newtown and the larger community.

Based on Pierce's column, it would appear that Costco could be a very viable alternative (closest location currently in Brandon). Costco pays higher wages and benefits along with providing very competitive products.

Instead of considering WalMart vs. nothing, consider WalMart vs. Costco (assuming we can get Costco interested in establishing a presence in Sarasota). We won't know what is possible unless we try.

1 comment:

Blue Cross of California said...

Costco has much better health insurance benefits and wages over walmart.