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Thread: July 24th new min wage laws take effect

  1. #76
    Banned Melonie's Avatar
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    Default Re: July 24th new min wage laws take effect

    ^^^ well, since you asked ...


    - de-facto monopolies in certain US cities thanks to Democratic zoning keeping out WalMart competition

    (snip)""Costco Says Move Your Big Box, Walmart

    A Costco envisioned for a 16-acre parcel in the Illinois Medical District faces a complex approval process that likely means any ribbon cutting is at least two years away, representatives from the retailing behemoth said," the Chicago Journal reports.

    Costco is often cited by social activists as an example of relatively model corporate citizen.

    “The most important thing is that Wal-Mart has to follow the lead of Costco,” Gov. Pat Quinn said this week. “Costco pays a living wage, a decent wage. They pay good benefits to their employees, and that’s what every employer should do.”

    "Asked about the argument that a low-paying job is better than no job," the ChicagoTribune reported, "Quinn echoed a common line of attack on Wal-Mart: 'I don’t think it’s good to have a race to the bottom'."(snip) from


    - de-facto monopolies in certain foreign markets

    (snip)""Costco's had an easy ride because it's found a loophole in the U.K. planning system," said Tony Bowhill, a London-based planning consultant at CGMS Consulting Ltd. "It's amazing it calls itself a wholesaler rather than a retailer, because around 30 percent of its sales come from individual customers rather than businesses."

    Costco generated $2.6 billion in sales outside the United States and Canada last year -- and says 80 percent of it came from its 15 U.K. outlets. "(snip) from


    - expanding to service 'government funded' customers

    (snip)"According to Costco, they selected the two New York City locations because of a high percentage of food stamp recipients in the area. Depending on this test program, Costco may opt to eventually make food stamp payment available at more of its locations.

    Not surprisingly, the global economic downturn also played a role in this move by Costco."(snip) from


    - management willingness to sacrifice profit margin

    (snip)"Costco Wholesale Corp.’s fiscal third-quarter profit fell 29 percent because of softer sales and a litigation charge for the warehouse club operator.

    Costco’s management said falling prices on its goods and the lackluster consumer appetite shaped the quarter – with soft sales of items like jewelry but strong sales of fresh fruit and other consumables.

    The Issaquah, Wash.-based warehouse club operator earned $209.6 million, or 48 cents per share, for its fiscal third quarter. That’s down from $295.1 million, or 67 cents per share, a year earlier."(snip) from

    I will concede that Costco's CEO Sinecal shares a lot of attributes with Relayer's furniture company owner in terms of choosing to sacrifice profit potential and 'giving' those profits to his workers. However, unlike the furniture company, Costco has investment banks and stockholders to answer to. This is a shoe waiting to drop.

    On the flip side, Costco has contributed heavily to Democrats, and (for the moment at least) seems to be enjoying some quid-pro-quo 'protection' from WalMart competition in many large Democratic cities. Additionally, those same Democrats are providing a steady stream of new Costco customers in the form of food stamp recipients. Combining political 'protection from competition' as well as a 'captive' base of new tax money funded food stamp customers more or less places Costco in the same 'partnership' position as GM and Chrysler !

    ~
    Last edited by Melonie; 08-01-2009 at 01:07 AM.

  2. #77
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    Default Re: July 24th new min wage laws take effect

    Quote Originally Posted by Melonie View Post
    I will concede that Costco's CEO Sinecal shares a lot of attributes with Relayer's furniture company owner in terms of choosing to sacrifice profit potential and 'giving' those profits to his workers. However, unlike the furniture company, Costco has investment banks and stockholders to answer to. This is a shoe waiting to drop.
    ~
    Costco's stock has outperformed Walmart's over the past 10 years.

    http://finance.yahoo.com/echarts?s=C...urce=undefined

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    Default Re: July 24th new min wage laws take effect

    Quote Originally Posted by Melonie View Post

    On the flip side, Costco has contributed heavily to Democrats, and (for the moment at least) seems to be enjoying some quid-pro-quo 'protection' from WalMart competition in many large Democratic cities. Additionally, those same Democrats are providing a steady stream of new Costco customers in the form of food stamp recipients. Combining political 'protection from competition' as well as a 'captive' base of new tax money funded food stamp customers more or less places Costco in the same 'partnership' position as GM and Chrysler !

    ~
    Food stamps don't have anything to do with Costco's profitability over the past few years. Costco didn't accept food stamps until a few months ago, and only in New York City.

    http://cityroom.blogs.nytimes.com/20...s-at-2-stores/

    Walmart has been accepting food stamps much longer so they're the ones getting a 'captive' base of new tax money funded food stamp customers.

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    Banned Melonie's Avatar
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    Default Re: July 24th new min wage laws take effect

    ^^^ food stamp customers are Costco's 'growth' market ! And there are far more food stamp customers available in the urban areas where Costco stores enjoy Democratic zoning monopoly protection from Walmart than there are food stamp customers available in suburban areas which have allowed WalMarts to be built.

    You are correct that Costco accepting food stamps is a relatively new development. However, given that Costco's historical profits from sales of 'big ticket', 'discretionary' items such as jewelry, designer goods, and gourmet food are now falling precipitously, profitability has also fallen. Costco has attempted to offset lower sales / profits in the 'big ticket' item sector by increasing sales in the basic groceries sector - unfortunately a sector which offers lower margins and is much more sensitive to Costco's higher labor / benefit costs. The new Costco business plan appears to be to sell a higher volume of basic grocery items to big city customers ( many of them paying with food stamps) where it is possible for Costco to charge higher prices for those basic grocery items due to lack of lower priced WalMart competition in immediate proximity.



    (snip)"May 28 (Bloomberg) -- Costco Wholesale Corp., the largest U.S. warehouse-club chain, said third-quarter profit fell 29 percent after consumers cut spending, the company incurred a charge for litigation and a higher dollar hurt overseas sales.

    Net income dropped to $209.6 million, or 48 cents a share, from $295.1 million, or 67 cents, a year earlier, the Issaquah, Washington-based company said today in a statement. (snip)

    (snip)"Sales of goods besides food have waned as Costco shoppers cut back to cope with the recession. Chief Financial Officer Richard Galanti also said more staff use of the company health plan hurt earnings, as did the higher dollar, which reduced the value of profits made in Canada, the U.K., Korea and Mexico.

    The retailer suffered from “ongoing weakness in sales, particularly sales of higher-ticket, discretionary items,” Galanti said."(snip)

    (snip)"Sales at Costco stores open at least a year fell 7 percent in the quarter, with a 5 percent drop on that basis for U.S. sales "(snip)

    (snip)"Shoppers visit Costco’s 555 warehouse clubs for discounts on jewelry, designer goods and gourmet food along with basic groceries.

    Excluding fuel, comparable-store sales at Wal-Mart Stores Inc.’s Sam’s Club, the second-biggest U.S. warehouse chain, rose 4.2 percent in the quarter ended April 30. Customers spent more on meat, produce and baked goods and less on big-ticket items such as furniture and jewelry, Sam’s Chief Executive Officer Brian Cornell said on a recorded conference call May 14.

    BJ’s Wholesale Club Inc., the third-largest U.S. warehouse retailer, said May 20 that quarterly net income rose 42 percent from a year earlier and boosted its annual profit forecast. "(snip)


    Food stamps don't have anything to do with Costco's profitability over the past few years
    This is true, but also irrelevant. Historically, Costco earned most of their profits by selling 'big ticket', 'discretionary' items to urban middle class customers. However, this customer base is now dealing with increased state & local taxes, unemployment, late fees and penalty interest rates on their credit cards etc. - and is in turn looking to 'save every penny' they can - meaning that a good number of urban middle class customers are now shopping at WalMart and BJ's instead of Costco (as illustrated in the Bloomberg story above).

    With Costco facing higher labor costs and higher employee benefit costs, they cannot compete head to head with WalMart or BJ's in low margin product segments, and recent financials clearly show it - thus the Costco CFO's specific reference to increased employee health benefit costs being a significant reason for Costco's recent profits 'miss'. So Costco is (smartly) exploiting their politically based zoning protection from competition in Democratically controlled urban areas to 'exploit' their ability to charge higher prices for basic groceries to the urban 'poor' (who generally don't have cheap transportation available to shop at a suburban WalMart or BJ's) in order to support their higher labor / benefit cost structure . The ultimate losers in this 'shift' is likely to be urban supermarket chains like Krogers ( whose union labor / benefit costs are even higher than Costco's), and the urban 'poor' who are charged higher prices for food than they otherwise might have been had Democratic big city zoning boards allowed the construction of a WalMart or BJ's within walking / mass transit distance.

    Circling back on topic, increasing the minimum wage does, in theory, offer a benefit to Costco and Krogers at the expense of WalMart and BJs. The reason in theory is that Costco and Krogers can leave their (higher) hourly pay rates unchanged, while Walmart and BJ's will be forced to increase their ( near minimum wage) hourly pay rates, and in so doing decrease the cost advantage of WalMart and BJ's over Costco and Krogers.

    ~
    Last edited by Melonie; 08-01-2009 at 09:40 AM.

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