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Walmart..."a giant sucking sound."

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katrina

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By Leo Hindery Jr.

Updated: 12:00 p.m. ET Oct. 7, 2005
Using a multimillion-dollar ad campaign, Wal-Mart's (WMT) executives are defiantly blasting back at opponents who have criticized the retail giant's shoddy labor practices. But most people and even Wal-Mart's critics are missing the real crisis, which is that the behemoth from Bentonville, Ark., with its nationally destabilizing business model, is a dangerous detriment to America's local and national economies and to the middle class.

When H. Ross Perot ran for President back in 1992, he coined a memorable political phrase. The passage of the North American Free Trade Agreement, he said, would create "a giant sucking sound" -- the sound of jobs escaping out of the U.S. and into Mexico.

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Today, if you listen carefully, you can hear a second giant sucking sound: Wal-Mart sopping up the vitality from middle-class American families, local communities, and the national economy.

EMPTY DOWNTOWNS. This happens in three different but related ways. First, there's the clobbering of Main Street: Wal-Mart moves in on the edges of towns, and the much smaller downtown merchants, unable to match its prices, soon go under. Second, there's the miserable wage and benefits package offered by Sam Walton's creation. And third, there's Wal-Mart's purchasing strategy, which seems to be about buying American-made products only as a last resort -- to the point that today Wal-Mart, by itself, is China's eighth-largest trading partner!

You could make the case that we are well on our way to becoming "Wal-Mart Nation." But maybe we don't have to be. Consider Costco (COST), Wal-Mart's most notable competitor --- whose much more sensitive and noble business model actually serves as a boost to the national economy and to its shareholders.

Costco's pay scale begins at around $10 per hour and averages $16. After four years, a Costco cashier can earn $44,000 [counting bonuses], which is significant purchasing power. In comparison, Wal-Mart's average hourly wage is a miserly $9.68. To appreciate the impact of this 65% difference in average wages, University of California at Berkeley researchers recently concluded that in 2003 Wal-Mart's low wages and benefits for its employees in California compelled taxpayers there to give these employees $86 million in food stamps, health-care, and housing subsidies just to stay above water.

UNCOVERED WORKERS. Overall, only 38% of Wal-Mart's nonsupervisory workers receive health-care benefits, according to the United Food & Commercial Workers Union. The company won't disclose how much of its total workforce receives company benefits. It does say 56% of employees in the core U.S. Wal-Mart unit, which excludes operations such as Sam's Club, receive company benefits. Judging by any reasonable standard, it's clear Wal-Mart has left American taxpayers the burden of picking up a huge tab for its uncovered health-care costs.

Wal-Mart has gone so far as to actively instruct its employees on how to apply effectively for government health-care programs like Medicaid. Costco, on the other hand, covers 85% of its employees' health-care costs. Costco is even pilot-testing a program offering discounted health-care plans to its customers in California who are either self-employed or cannot get coverage at work --- about 1.5 million people.

Not surprisingly, Costco's employee turnover is only about one-third that of Wal-Mart's, and Costco's customers are loyal almost beyond measure.

And yet Costco has operated this way while also satisfying Wall Street investors. Wal-Mart, of course, dwarfs Costco in size --- heck, it dwarfs even General Electric (GE) and Microsoft! (MSFT) --- but Costco may in fact be the much better-run company. Wal-Mart operates 5,332 stores with annual sales of $288 billion, or $54 million per store. Costco has 452 stores with annual sales of $48 billion, or $106 million per store.

WAKE-UP CALL. Costco is a living example that a company can be extremely profitable and competitive and at the same time not destroy everything and everyone in its corporate path.

Wal-Mart's success has come at an enormous and painful cost to our national and local economies. From its boarding-up of Main Streets to its failure to pay workers fairly, to its imposing on taxpayers welfare costs for its underpaid employees, to its material contribution to our obscene ballooning trade deficit with China, this "Wal-Martization" of America is leaving us with an economy increasingly characterized by a gaggle of cheap imported consumer goods, shoddy employee practices, and insensitivity to communities.

It is beyond time for all Americans to wake up from this nightmare and support those companies --- Costco, for example --- that believe that companies and their CEOs have as much responsibility to employees, customers, and the nation as to shareholders. And it is way beyond time for us to take our support away from those companies that believe otherwise and do more to aggrandize management than to serve employees and their communities.
 

katrina

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You could be very right FH. I got this off of MSN.... Just thought it was interesting and very true in some ways... I guess I really don't have a favorite place to shop, Roscoe does buy breakfast cereal for us at Walmart and a few groceries when he is trucking, but I guess I look at where it is made and if it's not made in the USA, I try not to buy... It doesn't always work that way... I like target, if I have to choose a store.
 

mp.freelance

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I don't necessarily agree with all the Walmart-bashing that goes on in the U.S. The company succeeded in the free-market system because it was efficient and attracted customers. Is that really something to frown upon? The goal in capitalism is to have your company grow, after all.

On the other hand, I can see that it usurps business from small firms and that distorts the economy, especially in small towns. People "vote with their wallets" as is often said, and if perceptions about Walmart become increasingly negative, I'm sure the company will suffer.
 
A

Anonymous

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The Costco Challenge: An Alternative to Wal-Martization?
by Moira Herbst


Critics believe that Wal-Mart should play the role General Motors played after World War II… [and] establish the post-world-war middle class that the country is so proud of. The facts are that retailing doesn’t perform that role in the economy. Retailing doesn’t perform that role in any country.
—Wal-Mart CEO Lee Scott, April 2005

To workers and union leaders, it is a familiar refrain. These days, the story goes, consumers demand low prices, meaning goods must be produced and sold cheaply — and retail wages must be kept as low as possible. Companies like Wal-Mart insist they’re feeling the squeeze and must pay workers poverty wages — even while netting $10.5 billion in annual profits and awarding millions to top executives.

But there’s another company that is breaking the Wal-Mart mold: Costco Wholesale Corp., now the fifth-largest retailer in the U.S. While Wal-Mart pays an average of $9.68 an hour, the average hourly wage of employees of the Issaquah, Wash.-based warehouse club operator is $16. After three years a typical full-time Costco worker makes about $42,000, and the company foots 92% of its workers’ health insurance tab.

How does Costco pull it off? How can a discount retail chain pay middle-class wages and still bring in over $880 million in net revenues? And, a cynic may ask, with Wal-Mart wages becoming the norm, why does it bother?

A number of factors explain Costco’s success at building a retail chain both profitable and fair to its workers. But the basic formula is one the labor movement has been advocating for decades: a loyal, well-compensated workforce means a more efficient and productive one.

The Union Difference
Though only about 18% of Costco’s total workforce is unionized, union representation creates a ripple effect and helps determine labor standards in all stores. The Teamsters represent about 15,000 workers at 56 Costco stores in California, New York, New Jersey, Maryland and Virginia. Workers are covered by West coast and East coast contracts, negotiated in February and April of last year.

“The agreements lock in wage and benefits packages that are the highest in the grocery and [discount] retail industries,” said Rome Aloise, chief IBT negotiator for Costco and Secretary-Treasurer of Local 853 in San Leandro, Calif.

Costco passes on similar compensation packages to its non-union workers; the contracts act as templates for other stores’ employee handbooks.

“The union contracts raise the bar and set the standard for all employees,” explained Aloise. “Still, while the company extends wage and pay raises to non-union employees, only union members enjoy benefits like seniority-based promotions, a grievance procedure and minimum hours for part-time workers,” he added.

The Payoff of Better Pay
Strong union representation isn’t the only reason Costco jobs are so well compensated; the company itself has an unusually forward-looking corporate philosophy.

Costco CEO Jim Senegal has said: “We pay much better than Wal-Mart. That’s not altruism. It’s good business.”

Chief Financial Officer Richard Galanti explained: “From day one, we’ve run the company with the philosophy that if we pay better than average, provide a salary people can live on, have a positive environment and good benefits, we’ll be able to hire better people, they’ll stay longer and be more efficient.”

A 2004 Business Week study ran the numbers to test Costco’s business model against that of Wal-Mart. The study confirmed that Costco’s well-compensated employees are more productive.

The study shows that Costco’s employees sell more: $795 of sales per square foot, versus only $516 at Sam’s Club, a division of Wal-Mart (which, like Costco, operates as a members-only warehouse club). Consequently Costco pulls in more revenue per employee; U.S. operating profit per hourly employee was $13,647 at Costco versus $11,039 at Sam’s Club.

The study also revealed that Costco’s labor costs are actually lower than Wal-Mart’s as a percentage of sales. Its labor and overhead costs (classed as SG&A, or selling, general and administrative expenses) are 9.8% of revenues, compared to Wal-Mart’s 17%.

By compensating its workers well, Costco also enjoys rates of turnover far below industry norms. Costco’s rate of turnover is one-third the industry average of 65% as estimated by the National Retail Foundation. Wal-Mart reports a turnover rate of about 50%.

With such rates of employee retention, Costco’s savings are significant. “It costs $2,500 to $3,000 per worker to recruit, interview, test and train a new hire, even in retail,” said Eileen Appelbaum, Professor at Rutgers University’s School of Management and Labor Relations. “With Wal-Mart’s turnover rate that comes to an extra $1.5 to $2 million in costs each year.”

Other analysts of the retail industry agree that happier, well-compensated workers help generate bigger profits. George Whalin, president of Retail Management Consultants in San Marcos, Calif., disagrees with many of Wal-Mart’s critics, but said: “There’s no doubt Wal-Mart and many other retailers could do a better job taking care of their employees. The best retailers do take care of their employees — Nordstrom’s, Costco, The Container store — with fair pay, good benefits and managers who care about people. You have fewer employee issues, less turnover and more productivity. It lessens costs to the company.”

Still, Wall Street analysts intent on cutting up-front labor costs tend to frown upon Costco’s model. “Costco’s corporate philosophy is to put its customers first, then its employees, then its vendors and finally its shareholders. Shareholders get the short end of stick,” said Deutsche Bank analyst Bill Dreher.

But Costco’s stock has quadrupled in the past ten years, and has in the past year inched closer to Wal-Mart’s per-share-price. In fiscal year 2004, Costco recorded record sales and earnings. While Wal-Mart continues to profit and expand, its stock has lost value — in recent months it is 16% off its 52-week high — as sales have been more sluggish as gas prices cause customers to cut back on driving to and from the store. The negative publicity around the company has also caused some damage.

Of course, other factors besides low turnover and employee productivity are responsible for Costco’s efficiency. The company has a wealthier customer base than Wal-Mart’s; these customers buy higher-margin goods, purchase in bulk and have steadier spending habits. Costco also saves millions because it does not advertise.

More Than Hot Air
Besides the efficiency of its workforce, another reason Costco can afford to pay more is that it cuts the fat from executive paychecks. The overall corporate philosophy is that workers deserve a fair share of the profits they help generate — not just a pat on the back or a new job title like “associate.”

For example, while CEOs at other major corporations average 531 times the pay of their lowest-paid employees, Sinegal takes only 10 times the pay of his typical employee. His annual salary is $350,000, compared to about $5.3 million awarded to Wal-Mart’s Lee Scott.

After California Costco workers ratified their Teamster contract last March, CEO Jim Sinegal said Costco workers are “entitled to buy homes and live in reasonably nice neighborhoods and send their children to school.”

That the company’s stated ideals match up with workers’ paychecks helps explain employee loyalty at Costco.

Originally from El Salvador, 28-year-old Cesar Martinez has worked at a Redwood City, Calif. Costco for 10 years, serving as a Teamster shop steward for seven years. His pay is now up to $19.42 an hour, which he estimates brings him $43,000 per year.

“There’s a feeling here that the company takes care of its employees and wants to share the profits. We feel compensated fairly,” Martinez said.

“I’ve stuck with it so long because I like the job. And the salary is solid and we have a pension that gives me security into the future. That’s important to me,” he added.

By contrast, some Wal-Mart employees experience the supposed care for “associates” as empty rhetoric. Forty-two-year-old Rosetta Brown, a Sam’s Club employee in Chicago, Ill., for example, stands back each morning when managers and associates gather for the Sam’s Club cheer.

“I refuse to do it,” she said. “I don’t believe the company lives up to what they’re cheering for,” she said.

Rosetta, mother to five children ranging in age from three to 25, does not feel well compensated at $11.34 per hour after five years. She is also suing Wal-Mart, parent company to Sam’s Club, for costs associated with a herniated disc she suffered when she said she was locked in while working the night shift.

Twenty-seven-year-old Jason Mrkwa, who works as a frozen foods stocker in Independence, Kansas, also stands back when it’s cheer time at his store. But he insists he doesn’t hate Wal-Mart: “I’m not another disgruntled employee. I like my job. I just feel cheated with the pay I get.” He started at $7 per hour five years ago, and now makes just $8.53 per hour.

Julie Molina, 38, has worked at Costco’s South San Francisco store for 19 years. “People stick around — most people in my store have been there ten years more. No one in retail makes as much as we do. Plus it’s a good working environment.”

Molina attributes the positive working environment in large part to the Teamsters’ presence. “It works really well now. When problems arise management comes to the union for advice. But without the union I’m not sure what would take place. Would they treat us like Wal-Mart treats its workers? You hear horror stories,” she said.

Of course Costco is not paradise — “On a local level, some managers don’t play fair — they might harass workers, fire them unreasonably or pattern bonuses unfairly. That’s where union representation is the real advantage,” explained Rome Aloise.

Into the future, the question will be which model of employee compensation predominates in retail — the high road of Costco or the low road of Wal-Mart.

“When companies like Wal-Mart are setting the standard, we have to ask: Do we want to live in a country where the largest employer pays below poverty-level wages, whose workers cannot afford health care?” says Paul Blank, chief spokesperson of Wake Up Wal-Mart, the United Food and Commercial Workers’ new campaign to change the company’s practices. “Or do we want Americans to enjoy a decent income and a sense of security in return for their work?”



Costco v. Wal-Mart: How They Stack Up

Global Workforce
Wal-Mart: 1.6 million associates
Costco: 113,000 employees

U.S. Workforce
Wal-Mart: 1.2 million
Costco: 83,600

U.S. Union Members
Wal-Mart: 0
Costco: 15,000

U.S. Stores
Wal-Mart: 3,600
Costco: 336

Net Profits (2004)
Wal-Mart: $10.5 billion
Costco: $882 million

CEO Salary + Bonus (2004)
Wal-Mart: $5.3 million
Costco: $350,000

Average Pay
Wal-Mart: $9.68/hour
Costco: $16/hour

Health Plan Costs
Wal-Mart: Associates pay 34% of premiums + deductible ($350-$1,000)
Costco: Comprehensive; employees pay 5-8% of premiums

Employees Covered By Company Health Insurance
Wal-Mart: 48%
Costco: 82%

Employee Turnover (estimate)
Wal-Mart: 50%
Costco: 24%

Sources: Wal-Mart, Costco, Business Week, Forbes.com







© 2005 Labor Research Association
 

Tumbleweed

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This has been an interesting thread and has given me mutch to think about. In 2002 I sold my cattle and drove truck for a year and a half and in that time I hauled a lot of loads for walmart and costco. Before then I had never even heard of costco. I've never been in a costco store to shop so I don't know what the quality of their goods or customer services are even though I've been to the back door of many of there stores delivering freight. My experience with costco is with there seemingly well paid employees and that wasn't a very good experiance either. I'm wondering now if its because they are union. They tended to be demanding, arrogant and most but not all tended to let the drivers know that they didn't need to be treated with respect or consideration. If you were late one to two hours with a load they were pretty hostile and may not even speak to you and if they did it would be rude. The company I drove for had a contract with them and we were pulling doubles, three and four axle reefers and dry vans through the mountains in the northwest in nov. and dec. When I started I was driving team with another driver so we were runinng twenty four hours a day through snow, dense fog and freezing drizzle in the mountains in winter time. If you were late there was going to be someone waiting for you at the store that was hostile no matter what sort of hell you had been through getting there. Most drivers I talked to ended up being pretty burned out and disgusted because thats what you came to expect from them. Guess the good treatment they extend to empoyees stopped at the loading dock.

I didn't know what a monster walmart was until I started picking up and delivering loads for them. They have huge distribution centers all over the country. Most of the time I would pick up and deliver loads to a distribution center. The loads I delivered to the distribtion centers tended to be just one product and would be broken down to be delivered to individual stores as needed. The way I understand it, as items are sold in the stores and as the bar codes are read a message goes to the distribution center and replacement items for the ones sold are loaded on a trailer. About 3 pm the door is closed on a trailer, a driver hooks on to it and heads for the store that needs the replacement products that have been sold during the day. About 5 pm another driver hooks to another trailer and heads for the same store with more items that have been sold that day. Then another at 7 pm. The first driver backs his trailer to an empty dock, drops it then hooks to an empty one that was left the day before. two hours later the next driver does the same and also the third load does the same. Through the night the shelves are restocked. I had very little contact with walmart enployees but they seem to have a temendously well run distribution system, it was amazing. Another thing was the size and number of distribtion centers (ware houses) scattered around the country. Walmart may not pay the store emplyees to well but I was told they were paying the drivers that worked for the company about 70,000 per year and they had good working conditions and plenty of home time.

The products that come from china, came in on ships in containers. I would go to warehouses on the left coast where these containers had been broken down and loaded on trailers, then pick up the loads to be delivered to distribution centers around the country. A lot of times I would see 100 car trains traveling from the coast that would be going to kansas city to be broken down there and delivered by trucks. I picked up and delivered loads out of the train yard in kansas city and other places around the country.

I've spent over 50 years mostly in the middle of nowhere in south dakota with cattle and horses. The time I spent touring the country in a truck was a real eye opener. Most people I ran into didn't know anything about the dakotas, wyoming or montana except that they are cold in winter time and they didn't want to go there, which I thought was a good thing. They didn't seem to know where there food came from or how it was produced, when they needed it they just went to the grocery stores and got some. I've been caught shopping in walmart but it seems like no matter where you go anymore most things are made in china and I don't think thats a good thing but I don't know what to do about it. Guess I'll just have to think about that for awhile. I read something awhile back written by a fellow named jason hommel about trading with china. He says what china does best is make good things we like to use with cheap labor. That's what they do best. What we do best is print up paper money and trade it to them for all the good things we like to use. Thats what we do best. Eventually all that paper money has to be spent for something in the united states so he says we are really taking advantage of them at the moment rather than it being the other way around.
 

Tumbleweed

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Thanks for the feedback katrina and faster horses on my experiances with walmart and costco. I stopped at a truck stop near reno, nv one night and the truck I parked next to had a sign on it that said "low income housing". Thought they had it pretty well figured out and I got a chuckle out of it.
 

Mike

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Faster horses said:
I must admit I haven't read this all, word-for-word, but I do not buy anything from Walmart.

My question though, is this: Isn't Costco owned by the Chinese? I think so.

I may be wrong..........but I think you might be confusing Costco (the retailer) with COSCO, which stands for the "China Overseas Shipping Company" that Bill Clinton was so aligned with.
 

Tumbleweed

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I used to haul loads in and out of costcos sumner washington distribution center which is in the seattle area. I remember seeing cosco containers in their freight yard. When I asked about that I was told their was no connection only similar names.

I gave the costco emplyees that I had to deal with a hard time in my post about their attitude. Not all were hard to deal with though. Generaly if I was going to run into someone with a bad attitude it was there though. That could also be the result of an earlier driver with a bad attitude and those who followed would pay for it. I tried to always remember the old saying "never miss a good opportunity to just shutup" and that seemed to work the best for me. That seemed to work the best with the highway patol and DOT when they pulled you in at a scale for inspection to. Not everyone did that though.

I think the company had a first rate distibution system with high standards and made an effort to take good care of there employees from what I saw. They had a nice cafeteria with low prices at the distribution center in sumner and a nice lounge with restrooms, tv, snacks and plenty of chairs to sit on while you waited if your load wasn't ready.
 

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