Archives for July 2005

(A universal look, doesn’t matter where you are, Costco is Costco.)

The New York Times has an interesting article about Costco. Good Old Costco, if you ran search on my blog you would probably find a dozen entries about them. It is one of my favorite stores.

Anyway, I thought that some of you might enjoy reading some of this so I have grabbed some sections for your review. Also, if you want to see an interesting presentation you can go to their IR site and review a powerpoint presentation that I thought was interesting.

“Combining high quality with stunningly low prices, the shirts appeal to upscale customers – and epitomize why some retail analysts say Mr. Sinegal just might be America’s shrewdest merchant since Sam Walton.

But not everyone is happy with Costco’s business strategy. Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco’s customers but to its workers as well.

Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco “it’s better to be an employee or a customer than a shareholder.”

Mr. Sinegal begs to differ. He rejects Wall Street’s assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street’s profit demands….

“Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco’s customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers’ expense. “This is not altruistic,” he said. “This is good business.”

He also dismisses calls to increase Costco’s product markups. Mr. Sinegal, who has been in the retailing business for more than a half-century, said that heeding Wall Street’s advice to raise some prices would bring Costco’s downfall.

“When I started, Sears, Roebuck was the Costco of the country, but they allowed someone else to come in under them,” he said. “We don’t want to be one of the casualties. We don’t want to turn around and say, ‘We got so fancy we’ve raised our prices,’ and all of a sudden a new competitor comes in and beats our prices.”

At Costco, one of Mr. Sinegal’s cardinal rules is that no branded item can be marked up by more than 14 percent, and no private-label item by more than 15 percent. In contrast, supermarkets generally mark up merchandise by 25 percent, and department stores by 50 percent or more.

“They could probably get more money for a lot of items they sell,” said Ed Weller, a retailing analyst at ThinkEquity.

But Mr. Sinegal warned that if Costco increased markups to 16 or 18 percent, the company might slip down a dangerous slope and lose discipline in minimizing costs and prices.

Mr. Sinegal, whose father was a coal miner and steelworker, gave a simple explanation. “On Wall Street, they’re in the business of making money between now and next Thursday,” he said. “I don’t say that with any bitterness, but we can’t take that view. We want to build a company that will still be here 50 and 60 years from now.”

IF shareholders mind Mr. Sinegal’s philosophy, it is not obvious: Costco’s stock price has risen more than 10 percent in the last 12 months, while Wal-Mart’s has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19.Mr. Dreher said Costco’s share price was so high because so many people love the company. “It’s a cult stock,” he said.

Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco’s workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent.

“He has been too benevolent,” she said. “He’s right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden.”

And who says that benevolence is such a bad thing. Here are some more nuggets.

“Costco was founded with a single store in Seattle in 1983; it now has 457 stores, mostly in the United States, but also in Canada, Britain, South Korea, Taiwan and Japan. Wal-Mart, by contrast, had 642 Sam’s Clubs in the United States and abroad as of Jan. 31.Costco’s profit rose 22 percent last year, to $882 million, on sales of $47.1 billion. In the United States, its stores average $121 million in sales annually, far more than the $70 million for Sam’s Clubs. And the average household income of Costco customers is $74,000 – with 31 percent earning over $100,000.

One reason the company has risen to the top and stayed there is that Mr. Sinegal relentlessly refines his model of the warehouse store – the bare-bones, cement-floor retailing space where shoppers pay a membership fee to choose from a limited number of products in large quantities at deep discounts. Costco has 44.6 million members, with households paying $45 a year and small businesses paying $100.

A typical Costco store stocks 4,000 types of items, including perhaps just four toothpaste brands, while a Wal-Mart typically stocks more than 100,000 types of items and may carry 60 sizes and brands of toothpastes. Narrowing the number of options increases the sales volume of each, allowing Costco to squeeze deeper and deeper bulk discounts from suppliers.

“He’s a zealot on low prices,” Ms. Kozloff said. “He’s very reticent about finagling with his model.”

I am not a fan of Wal-Mart so I am not upset to see any of this. Costco has gotten to be large enough that they have some real power in the marketplace.

‘He has to be flinty, he said, because the competition is so fierce. “This is not the Little Sisters of the Poor,” he said. “We have to be competitive in the toughest marketplace in the world against the biggest competitor in the world. We cannot afford to be timid.”

Nor can he afford to let personal relationships get in his way. Tim Rose, Costco’s senior vice president for food merchandising, recalled a time when Starbucks did not pass along savings from a drop in coffee bean prices. Though he is a friend of the Starbucks chairman, Howard Schultz, Mr. Sinegal warned he would remove Starbucks coffee from his stores unless it cut its prices.

Starbucks relented.

“Howard said, ‘Who do you think you are? The price police?’ ” Mr. Rose recalled, adding that Mr. Sinegal replied emphatically that he was.”

And finally I present this to you which helps to explain a little bit more about why I enjoy shopping there.

“Mr. Sinegal, who is 69 but looks a decade younger, also delights in not tilting Costco too far into cheap merchandise, even at his warehouse stores. He loves the idea of the “treasure hunt” – occasional, temporary specials on exotic cheeses, Coach bags, plasma screen televisions, Waterford crystal, French wine and $5,000 necklaces – scattered among staples like toilet paper by the case and institutional-size jars of mayonnaise.

The treasure hunts, Mr. Sinegal says, create a sense of excitement and customer loyalty.

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.”

“LOS ANGELES- James Doohan , the burly chief engineer of the Starship Enterprise in the original “Star Trek” TV series and motion pictures who responded to the command “Beam me up, Scotty,” died early Wednesday. He was 85….

The powerfully built Doohan, a veteran of D-Day in Normandy, spoke frankly in 1998 about his employer, Paramount, and his TV commander:

“I started out in the series at basic minimum_ plus 10 percent for my agent. That was added a little bit in the second year. When we finally got to our third year, Paramount told us we’d get second-year pay! That’s how much they loved us.”

He accused Shatner of hogging the camera, adding: “I like Captain Kirk, but I sure don’t like Bill. He’s so insecure that all he can think about is himself.”

James Montgomery Doohan was born March 3, 1920, in Vancouver, B.C., youngest of four children of William Doohan, a pharmacist, veterinarian and dentist, and his wife Sarah. As he wrote in his autobiography, “Beam Me Up, Scotty,” his father was a drunk who made life miserable for his wife and children.

At 19, James escaped the turmoil at home by joining the Canadian army, becoming a lieutenant in artillery. He was among the Canadian forces that landed on Juno Beach on D-Day. “The sea was rough,” he recalled. “We were more afraid of drowning than the Germans.”

The Canadians crossed a minefield laid for tanks; the soldiers weren’t heavy enough to detonate the bombs. At 11:30 that night, he was machine-gunned, taking six hits: one that took off his middle right finger (he managed to hide the missing finger on the screen), four in his leg and one in the chest. Fortunately the chest bullet was stopped by his silver cigarette case.”

I always liked him. Scotty, we’ll miss you.

Yesterday I remarked about the ignorant remarks made by the Mayor of London Ken Livingstone. Today I was given new fodder to comment on.

“LONDON (Reuters) – Western foreign policy has fueled the Islamist radicalism behind the bomb attacks which killed more than 50 people in London, the British capital’s mayor Ken Livingstone said on Wednesday.”

I don’t deny that the colonialist efforts and aspirations of countries such as Britain has caused a tremendous problem within the Middle East, but neither do I allow it to be used as an excuse for the indiscriminate slaughter and violence we see from the radicals.

There are millions of people who have grown up under horrific circumstances that have not resorted to violence. And one of the things that we see with large numbers of the Al Qaeda members is that they are educated and from the middle class. They have not been oppressed, but Livingstone doesn’t comment on that.

“A lot of young people see the double standards, they see what happens in (U.S. detention camp) Guantanamo Bay, and they just think that there isn’t a just foreign policy,” he said.

Police say they believe there is a clear link between bin Laden’s al Qaeda network and the four British Muslims who blew up three underground trains and a double-decker bus on July 7.

“You’ve just had 80 years of Western intervention into predominantly Arab lands because of a Western need for oil. We’ve propped up unsavory governments, we’ve overthrown ones that we didn’t consider sympathetic,” Livingstone said.

“I think the particular problem we have at the moment is that in the 1980s … the Americans recruited and trained Osama bin Laden, taught him how to kill, to make bombs, and set him off to kill the Russians to drive them out of Afghanistan.”

Again I could point my finger right back at him and say that he could look to his fellow Brits and consider their actions but I am not going that route here. I think that there is a real issue when you make excuses for the actions of the murderers.

There is no doubt that there is anger and that some of it is justified, but there is still no justification for the barbarism that Livingstone apologizes for.

The

I finished reading the book about an hour ago and was very happy with it. It gave me what I desired and looked for. I am not interested in dissecting it beyond that, it is just too late.

I will say that one of the things that I enjoyed is that Harry is a real hero. He is courageous but often unsure and very concerned about his actions. He shows real emotions and that is what I most love in a story.

I want a hero who is human. I want a hero who yells and screams. I want a hero who is susceptible to rage and mistakes made by his/her response to emotion. I like the cool guy. I like the James Bond who always maintains that quiet calm and always manages to come out the other side, but not as much as the person who seems so much more human.

Give me a real hero any day of the week.

I shouldn’t be surprised that Ken Livingstone is still a dense fool.

“London Mayor Ken Livingstone told Sky News on Tuesday that he does not distinguish between members of Likud and Hamas, branding them as “two sides of the same coin.”

“I think it is the Israelis who are leading the stubborn line,” said Livingstone, who is known for his consistent criticism of Israeli policy. “The Likud and Hamas members are two sides of the same coin. They need each other in order to attract support.”

“Each side emphasizes the extremism of the other in order to attract sympathy,” Livingstone said.”

He clearly does not read. I could cite chapter and verse from the Hamas charter calling for the destruction of Israel as well as their recurring calls for more bloodshed. Consider this statement from Hamas leader Mahmoud Zahar:

“He strongly dismissed the argument made by PA Chairman Mahmoud Abbas according to which the rocket attacks on Israel were causing more damage to the Palestinians than Israel.

“Who said that the rockets are harmful to the national interests of the Palestinians,” Zahar asked. “History has proven that the rockets have been in the interests of the Palestinians. The rockets have forced Israel to withdraw from the Gaza Strip, and they will end the occupation in the future. It’s the resistance, and not the negotiations, that brought about the end of the occupation.”

There is nothing in that statement that suggests that Hamas will negotiate or has any interest in negotiation. Their sole purpose and goal is to try and destroy Israel.

You would think that after July 7 Livingstone might understand more, but it is clear that he does not. In a Jerusalem Post interview he made more questionable statements:

“Given that the Palestinians don’t have jet fighters, they only have their bodies to use as weapons. In that unfair balance, that’s what people use.”

These are not the words of someone who believes in balance. These are the words of a terrorist apologist. Here is another nugget:

“According to Livingstone, “They point to the excesses of the other to recruit and support and I don’t make any distinction because I believe the taking of human life is wrong, in particular when you think of the illegal invasion of Lebanon, the illegal invasion of Egypt and Jordan in the Six Day War, all these exercises of going into Palestinian refugee camps and indiscriminately destroying homes simply because a bomber came from that area.”

There is no distinction made here between the sovereign right and obligation of a nation to defend itself and the wholesale slaughter of innocents. You cannot defend people who blow themselves on busses, subways, schoolyards or supermarkets.

He is an embarrassment and I would love to see Tony Blair tell him to stuff it, but that is not real likely is it.