business news in context, analysis with attitude

We had a piece yesterday about the prices, selection and strategies that seem to distinguish Costco from its competitors…and we were dismissive of the investment community that keeps insisting that the retailer should raise its margins and pay its employees less as a way of maximizing profits.

One MNB user responded:

I would guess that most retailers think that the "investment class" is over paid?

Overpaid. Self-important. And over-caffeinated. (Though there are probably more than a few people who would say that about us...)

And another member of the MNB community offered:

Amen, amen, amen! Your comments regarding the investors' views of Costco's operating practices was right on the button.

When "bean counters" run your business you usually end up counting beans. There is still a lot to be said for "stacking it high and selling it cheap" ... just pay attention to the details.

Of course, nobody is perfect…as illustrated by this next email:

Ironic, Kevin, seeing this article today as I just finished writing Costco a letter complaining about seemingly lack of training with some of their staff. Costco's buying remains their strength, but staffing, at least in my area of Southern California, is not a reflection of Costco's reputation.

Customer service is still important -- even at club stores! It's so hard to build a reputation, and so easy to lose it.


The thing about Costco is, our experience has been that its management will take your complaint seriously and try to do something about it.

You can’t say that about every retailer out there…

We wrote yesterday about a story in the New York Times reporting “that the US Food and Drug Administration (FDA) is delaying action on a proposal that would restrict the ingredients allowed in animal feed, which was originally made after the identification of a single case of mad cow disease in the Pacific Northwest late last year.”

The NYT noted that some critics see this as part of a broader pattern. The paper writes, “Industry lobbyists and their critics say that the re-election of President Bush would probably lead to the adoption of some regulations favorable to industry and the rejection or watering down of others that industry considers objectionable. Consumer groups, environmental organizations and food safety experts, meanwhile, say that delays could lead to significantly weaker rules that could increase prices on some products, reduce safety and relax environmental protections.” And everyone agrees that politically, second-term presidents can do things that first term presidents cannot.

Our comment was simply that these moves seem to be attributable to politics, not science…and we remain concerned that another – and, we think, inevitable - case of mad cow disease could have an enormously negative impact.

Our view was not a universal one. One MNB user wrote:

Your views on Mad Cow (and Fast Food lawsuits) indicate a lack of common sense. Are you listening to the press and/or gullibly adopting everything/anything that “science” brings to us, or are you looking at the facts? Over the past twenty years, at least, the press seems bent on stirring up public frenzy, with little thought of the end result -- or the public or personal costs involved.

I have worked for two European-based companies and am very aware of Europe's attitudes toward Mad Cow, US beef, etc. However, let's take a look at the facts and do a little responsible cost/risk analysis.

Human Risk. Supposedly, 150-180 people in Europe have died from the human form of Mad Cow disease -- since the 1980s (about 20 years). 150 people is not an insignificant number, especially if you are one of them, and if the deaths are preventable. However, this could by no means be considered an epidemic. How many people in the U.S. have suffered from this illness?

Prevention. This disease is only transferred, apparently, by consuming tissue from the central nervous system. Obviously, more is being learned about this malady. However, if in 20 years, this is the conclusion, why don't we focus on ways of avoiding products derived from this tissue -- rather than inciting fear of beef consumption altogether.

Costs. How much does testing cost Europe and Japan? Have their measures improved the situation? These are all questions to be considered and researched.

The real risk here is not whether or not our food supply is safe. The real risk is what public and global opinion will do with this situation - -and how much we will allow the press's lack of common sense deprive us of our own wits...

Hey, we have an open mind about all this, and are willing to be educated.

We would agree that there had not been an epidemic of mad cow disease, and that all the testing in the world hasn’t solved the problem in Japan and Europe. We also agree that the US food supply is, in general, safe.

Our concern is simple – and we don’t think it is fear-mongering. We simply think that if there’s another case of mad cow disease in the US, phrases like “cost-investment analysis” won’t mean much to consumers. All they will do is reduce their meat consumption and wonder why the government and industry didn’t do more testing.

MNB user Al Kober wrote:

It is the NY Times. Are they trying to be the next CBS?

We suspect that this will be the standard response to stories that people don’t agree with – to suggest that the journalism is suspect and built on unsupported facts. You can disagree with the people who are skeptical of US mad cow testing, but to suggest that there isn’t such skepticism and that the Bush administration (like any administration, Republican or Democrat) isn’t concerned about the politics of regulation…well, that strikes us as naïve.

Finally, a response from within Wal-Mart to our observation that a full-time employee at the company responsible for supporting a family of five could, in fact, be paid beneath the poverty level:

I have worked for Wal-Mart for 11 years. In the store where I worked the longest, nine years, I can't think of a single married associate who was the sole source of a family of five, or anywhere near that large.

I know several female associates who were the divorced mothers of one or two and several single females; but not a single one who supported a family of five on their earnings.

I think that, more than likely, this statistic being used as a guideline probably came from the day when the work force was primarily made up of male employees. For years retail was the only job open for women.

While I'm not about to say this is the norm for all Wal-Mart female associates, I'd be willing to bet that it's closer to fact than your…repeated use of this "family of five" figure.

But how else would a figure that's close in size to what's paid in retailing in general…be constantly thrown out as "BAD" about Wal-Mart?

Actually, we don’t disagree with you.

We would, however, observe that Wal-Mart’s business model is in part workable because many of its employees do have other sources of income and benefits. We also think that there’s a big difference between the poverty line and living comfortably.

Not that Wal-Mart, or any other retailer, is responsible for making sure all of its employees live comfortably.

But there may be a reason that Wal-Mart has employee turnover of 46 percent, and retailing in general has 65 percent turnover. That doesn’t strike us as optimal performance – under any circumstances.
KC's View: