Another Solid Victory for Free-Enterprise and Corporate America

[Joe Wordsworth]

SSAQUAH, WASH. - Jim Sinegal, the chief executive of Costco Wholesale, the nation's fifth-largest retailer, crows about Costco's private-label pinpoint cotton dress shirts.

"Look, these are just $12.99," he said while lifting a crisp blue button-down inside Costco's cavernous warehouse store here in the company's hometown. "At Nordstrom or Macy's, this is a $45, $50 shirt."

Combining high quality with stunningly low prices, the shirts appeal to upscale customers — and epitomize why some retail analysts say Sinegal just might be America's shrewdest merchant since Sam Walton, the founder of Wal-Mart.

But not everyone is happy with Costco's business strategy. Some Wall Street analysts assert that 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, Wal-Mart's 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."

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 the fact 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. 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."

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

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 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.

Emme Kozloff, an analyst at Sanford C. Bernstein & Co., faulted 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."

Sinegal says he listens to analysts' advice because it enforces a healthy discipline, but he has largely shunned pressure to be less generous to workers.

"When Jim talks to us about setting wages and benefits, he doesn't want us to be better than everyone else, he wants us to be demonstrably better," said John Matthews, Costco's senior vice president for human resources.

Costco was founded with a single store in Seattle in 1983; it now has 457 stores, including two in the Houston area. Despite Costco's impressive record, Sinegal's salary is just $350,000, although he also received a $200,000 bonus last year. That puts him at less than 10 percent of many other chief executives, though Costco ranks 29th in revenue among American companies.

"I've been very well rewarded," said Sinegal, 69, who is worth more than $150 million thanks to his Costco stock holdings. "I just think that if you're going to try to run an organization that's very cost-conscious, then you can't have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong."

Woooooo!

 

[Liar]

Woooo indeed for the article.

But I gotta ask what you're aiming at with the thread title.

Costco is a success thanks to Free-Enterprise and Corporate America
(the Sincere Title approach)

or

Costco is a success in spite of Free-Enterprise and Corporate America
(the Ironic Title approach)

 

[Joe Wordsworth]

Woooo indeed for the article.

But I gotta ask what you're aiming at with the thread title.

Costco is a success thanks to Free-Enterprise and Corporate America
(the Sincere Title approach)

or

Costco is a success in spite of Free-Enterprise and Corporate America
(the Ironic Title approach)

I've long been of the opinion that a free market can and does produce things worth supporting and companies worth their moral weight. I've also been a long-time fan of the concept of a corporation, and high-business--despite many that are convinced beyond a shadow of a doubt that it only creates things like Wal-Mart.

This is a feather in the cap of those who can manage people smartly, even in retail.

 

[Liar]

I would say that I'm one of the convinced ones then. Not that it only created things like Wal-Mart, but that it mostly does. And that companies like Costco is an exception. There is too much focus on short term shareholder payoff and too little on business sustainability. It takes a man with a plan and a whole lot of backbone to go against that. This proves, as other exceptions have now and then showed, that there are more than one way to be sucessful. Single owner companies, where impatient share holders is no concern, usually handles this better.

But I truly think the current climate and structures of the econimic system works against it. If you don't maximise your income and minimize your costs, your stock (in itself a pseudo value based as much on facts as on trigger-happy nerves, vauge assupmtions and oujia boards in fancy wrapping) will surely plummet. This is not a US issue though, but similar in all west economies (culd be elsewhere too, but I'm not familiar enough with those to dare a guess), so the label Corporate America is a bit misplaced.

 

[Pure]

I did find myself like Costco much more after reading that article when it appeared. It seems to treat its employees well, and not offer them the paltry benefits of Walmart.

OTOH, I wonder if, like Walmart, the majority of product is Chinese, and therefore if Costco, like many other 'big box' discount stores is helping wipe out sectors of American manufacturing. Where was the 12.99 shirt made?

 

[BlackShanglan]

I quite liked the article and the attitude. Thanks for posting.

 

[gauchecritic]

I'd just like to know where the 'analysts' get off telling a successful business bloke that he ought to be screwing his employees more.

 

[elsol]

It's sort of hard to call it a 'victory'... when the rest of the Free-Enterprisers and Corporate America is advocating

a) Screw you employees
b) Charge your customers more
c) Pay your stockholders more

Seems like an argument against Corporate-America to me.

Sincerely,
ElSol

 

[Colleen Thomas]

I'd just like to know where the 'analysts' get off telling a successful business bloke that he ought to be screwing his employees more.

Different set of values. Wall street dosen't evaluate a company based on anything other than its potential as an investment. So any company that is carrying an average of ten percent more in benefits than their competition, is spending money that could be used to be paying dividends to stock holders.

To them, if you the industry operates on a 25% margin and you are operating on a 12, then you are making 13% less than you should be. That's 13% that dosen't go to net profits and thus it's a 13% or thereabouts slow down in growth of the stock's equity.

On wall street, your concern isn't day to day operations, employee satisfaction, or longevity, it's what the stock can do for an investor. Investors are your clients, just as shoppers are Costco's. So to them, why reccomend investing in costco, for a limited return when other operations produce a larger return.

 

[Colleen Thomas]

It's sort of hard to call it a 'victory'... when the rest of the Free-Enterprisers and Corporate America is advocating

a) Screw you employees
b) Charge your customers more
c) Pay your stockholders more

Seems like an argument against Corporate-America to me.

Sincerely,
ElSol

You wouldn't start a bussiness if you weren't trying to make a lot of money. You incur too much risk, it's far safer to invest in already extant companies and grow you r money by wise investing. But the payout in a successful bussiness/franchise is several order of magnitude greater than you can legitimatly expect from prudent or even dangerous investing.

There is one maxim that guides retail, buy chaep and sell dear.

If you are a publicly owned company, the other maxum is keep the owners happy. That means grow their investments for them.

At the bottom line, you have to make more than you spend or you go broke. The more you make over what you spend, the more successful you are, either in terms of your private finanaces or in terms of keeping the owners happy and keeping your job.

Labor is a wasted expense, in that it generates nothing for the money put in. That isn't to sday it's uneccessary, merely that your labor costs are outgoing expenses that generate no return, unlike stocked merchandise, which you can turn around to bring more money in. The cheaper your labor costs, the better your profit margin. One way to raise your overall profit, without shafting the customer is to keep labor costs manageable.

I think it's unfair to accuse companies of trying to underpay labor or of trying to shaft customers. They are just trying to make money, which is the reason most of them opened a company in the first place.

 

[erise]

Different set of values. Wall street dosen't evaluate a company based on anything other than its potential as an investment. So any company that is carrying an average of ten percent more in benefits than their competition, is spending money that could be used to be paying dividends to stock holders.

To them, if you the industry operates on a 25% margin and you are operating on a 12, then you are making 13% less than you should be. That's 13% that dosen't go to net profits and thus it's a 13% or thereabouts slow down in growth of the stock's equity.

On wall street, your concern isn't day to day operations, employee satisfaction, or longevity, it's what the stock can do for an investor. Investors are your clients, just as shoppers are Costco's. So to them, why reccomend investing in costco, for a limited return when other operations produce a larger return.

*Nod* I understand this. For the stock market investor the important thing is what payoff he gets on his investment. But what I don't get is the constant time frame of next trading day. Or if you're really having your long-term hat on, a month of a quarter. That's the longest time window I've ever heard investors talk about. And I meet a lot of them in my job.

If you have maximised payoff each month in a company, but the sort term planning that leads to jeopardizes the longevity of the company, because you can't spend cash on investments, staff education, and so on that doesn't show up on the plus side in the register until years later, it will still be seen as a good investment. The company that does those things will be punished by it's shareholders because they can't cash in quick. However, if they do stick with the stock, they would have a winner. The problem is that the way the share market is built, nobody is patient enough for that.

Giant furniture blob IKEA is a good example of this. It is owned in it's entrieness by one self-made man. He started with nothing and is now up there on Forbes' list of gazillionaires. When he wanted to expand into the Russian market, he just bloody did. He lost a large amount of his fortune for a few years, until the rubels started pouring in. And now he's richer than ever. All the market analysts were in agreement; had IKEA had a split ownership on the open market, the shareholders would have panicked and fled like the rats on Titanic.

 

[BlackShanglan]

Publically owned companies bring a whole new dimension to governing by committee, as well. In a company owned by a founder or by a single person or small group, there are people to complain to. There are consciences to be appealed to when the drive for profit begins to grind humans to pieces under it. There are individuals who might feel some duty to the laborers as well as to the bottom line.

In a publically owned company, however, there is no such person. The CEO and top brass are there to serve the shareholders. The shareholders are assumed to have only one remit: make as much money as humanly possible, whatever it takes. And because shareholders are a massive ocean of constantly shifting players, most of whom don't own appreciable stakes of the company and most of whom have the stock as one of many in a portfolio, there's no one on that side who feels much sense of duty or connection either to the company or to its workers, or indeed who has the time to research labor equity issues with every stock in a portfolio. As erise notes, many of them are looking for short-term investments that will generate profit through re-sale at a higher price rather than long-term dividend payment - or at the very least, short-term high dividends that they can dump when the wave of profits from radical wage cuts has begun to crest. There is no incentive to invest or prolong the life of the company in such a market.

But then there is Thomas Carlyle, with "Captains of Industry." It's an old read but a good one. Leaders of industry, he advises, would do well to remember the feudal model and consider their place in it. A king who only paid his knghts on the eve of battle and who dumped them into poverty as soon as the field was won wouldn't have much of an army for long. A nobleman who left his peasants to starve and wrung them bloodless with taxes wouldn't have much of a labor force come the harvest. And leaders of industry, he argues, will reap what they sow if they crush the life out of the labor force while reaping massive profits for themselves.

Of course, Thomas Carlyle probably never envisioned multi-billionaires. It's hard to see that they are likely to suffer when their industries finally go under, Tyco aside. We seem finally to have invented a system in which whole companies can collapse into ruin while the people running them step out of the wreckage shining.

Shanglan

 

[Joe Wordsworth]

Personally, I can't blame companies for maximizing profits and minimizing expenses (and am confidant few to no companies actually encourage treating their employees like animals or any of that). I've started and run two seperate businesses in my life, and both of them had their eye on the bottom line every month. I get why they do it, even if I'm dissapointed its happening.

 

[SeaCat]

I read this article and had to stop a couple of times. Once was at the average pay scale of the employees. Do you realise they make more than a C.N.A. in South Florida does?

Coleen, You mention that labor is a wasted cost. Maybe in some industries it is. I work in the medical care field and there the labor is what is important. We'll look at it this way. In nurseing you have several levels of employees. At the bottom you have the C.N.A. (Certified Nurses Aide) followed by the L.P.N. (Liscneced Practicle Nurse) then the R.N. (Registered Nurse) and at the top of the food chain the Nurse Practisioner. In South Florida the average pay of a C.N.A. is between $8.00- $10.00 per hour. The average pay of an R.N. is around $18.00- $25.00 an hour. These pay scales are set by a combination of what the Insurance Companies (Big Bussiness) will pay the medical facilities, and what the medical facilities (another big bussiness) are willing and able to pay from the first amounts.
I argue that instead of wasted cost it is the labour that makes a company. If you don't pay your employees enough then you don't get the workers and go out of bussiness. (Again look at Nursing. Have you ever wondered why we are in this Nursing Shortage? It isn't just because a lot of people are getting ready to retire or drop dead in work.)

Cat

 

[gauchecritic]

Different set of values. Wall street dosen't evaluate a company based on anything other than its potential as an investment. So any company that is carrying an average of ten percent more in benefits than their competition, is spending money that could be used to be paying dividends to stock holders.

To them, if you the industry operates on a 25% margin and you are operating on a 12, then you are making 13% less than you should be. That's 13% that dosen't go to net profits and thus it's a 13% or thereabouts slow down in growth of the stock's equity.

On wall street, your concern isn't day to day operations, employee satisfaction, or longevity, it's what the stock can do for an investor. Investors are your clients, just as shoppers are Costco's. So to them, why reccomend investing in costco, for a limited return when other operations produce a larger return.

Hmm maybe I've misunderstood but 13% profit going into someones pocket and never re-appearing to aid anyone with any connection to the company is considered growth?

This company is making shit loads of profit by doing things the stock market says it shouldn't and the analysts and advisers aren't making as much commission on their commissions.

Fuck the stock market, and fuck all profiteers.

 

[Colleen Thomas]

I read this article and had to stop a couple of times. Once was at the average pay scale of the employees. Do you realise they make more than a C.N.A. in South Florida does?

Coleen, You mention that labor is a wasted cost. Maybe in some industries it is. I work in the medical care field and there the labor is what is important. We'll look at it this way. In nurseing you have several levels of employees. At the bottom you have the C.N.A. (Certified Nurses Aide) followed by the L.P.N. (Liscneced Practicle Nurse) then the R.N. (Registered Nurse) and at the top of the food chain the Nurse Practisioner. In South Florida the average pay of a C.N.A. is between $8.00- $10.00 per hour. The average pay of an R.N. is around $18.00- $25.00 an hour. These pay scales are set by a combination of what the Insurance Companies (Big Bussiness) will pay the medical facilities, and what the medical facilities (another big bussiness) are willing and able to pay from the first amounts.
I argue that instead of wasted cost it is the labour that makes a company. If you don't pay your employees enough then you don't get the workers and go out of bussiness. (Again look at Nursing. Have you ever wondered why we are in this Nursing Shortage? It isn't just because a lot of people are getting ready to retire or drop dead in work.)

Cat

No Cat, if you took me to mean labor was a wasted cost, let me clarify. I was trying to say, it's an outgoing expense that brings no return on the ledger. Obviously in service industries your labor is your product. I wasn't tryin to downplay the importance of good employees.

In the context of bottom line, I was merely saying your outlay on labor brings no return on the books. It's a dead expense. Where money you spend on stock, or improvements or expanded facilities are expenses you can recoup down the line, the money spent on labor dosen't come back onto the books. It is therefore one of the first places people look to cut costs when they are trying to improve profits.

 

[Colleen Thomas]

Hmm maybe I've misunderstood but 13% profit going into someones pocket and never re-appearing to aid anyone with any connection to the company is considered growth?

This company is making shit loads of profit by doing things the stock market says it shouldn't and the analysts and advisers aren't making as much commission on their commissions.

Fuck the stock market, and fuck all profiteers.

You aren't looking at it in the same way Wall street does, and it has nothing to do with commission, as your broker will get the same commission on your 100,000$ of Walmart shares as he would off your 100,000$ of costco shares.

To a broker, your shares in Walmart, have the potential to grow significantly more than your costco shares. theoretically, operating at 25% margin means they are going to turn 13% more profit than costco, all things being equal. If they are also having employee's sholder 18% of their own benefits where costco employes shoulder 8, then thats more money potential in Walmart. It's in his best interests to put you onto Walmart as that means you will be making more money and, here is where commission comes in, you will be likely to sink those profits back into your portfolio by purchaseing more shares of something else.

I don't know what your beef with the stock market is. In the first place. many companies we now have wouldn't be here or wouldn't be as big, without the investment dollars the market provides for growng thier bussiness. In the second place, a lot of median income people reap huge benefits to their retirements and networths if they play the market wisely. I worked with a man who retired at 60. He could afford to because his portfolio was worth over 250,000$. At no point in his life was he making big bucks, in fact he spent a good bit of it working up to top pay in his trade, which was a splicer with the phone co. Not exactly a high dollar field.

You'll make a lot more and your dollars will do a lot more in the market than in a savings account.

 

[Joe Wordsworth]

You'll make a lot more and your dollars will do a lot more in the market than in a savings account.

Too true. I have a money market account in Souteast Asia, right now. Big booming over there.

 

[Pure]

?

Colly said,
No Cat, if you took me to mean labor was a wasted cost, let me clarify. I was trying to say, it's an outgoing expense that brings no return on the ledger. Obviously in service industries your labor is your product. I wasn't tryin to downplay the importance of good employees.

In the context of bottom line, I was merely saying your outlay on labor brings no return on the books. It's a dead expense. Where money you spend on stock, or improvements or expanded facilities are expenses you can recoup down the line, the money spent on labor dosen't come back onto the books. It is therefore one of the first places people look to cut costs when they are trying to improve profits.

I do not understand this point at all. If my employees are squatting on the ground weaving baskets, putting a roof over their heads 'brings no return on the ledger.' It's out of pocket. (If we assume no effect on production). Similarly if I repair a hole in the roof of my factory, it's 'dead expense' (unless some key producer cant work because of the rain on his head).

The point of capital is to use it to make money. The factory building is capital; the workforce in the building is capital. [Bringing either into existence is ultimately to make profit.] Why does someone hire more people (increase the workforce size)? Perhaps because the increased efficiency will generate more profit. Improvements to the building or the workforce in it may well increase the productivity and the 'bottom line'--that is why I might air condition the building or give training to employees.

I think the preference for cutting labor costs as in 'outsourcing' is that that's a vulnerable (influenceable) point, not that it's 'dead expense.' It's often hard to affect the raw materials prices, an exception being by vertical integration (possible in the big organizations). McDonald's vertical integration and their stinginess with employee wages both help their botton line.

Marx held--and it's probably true in some respects--that because of the pressure for the increase of capital, wages have an inherent tendency to drop to subsistence. I.e., in one sense, I should pay just enough to keep my workers alive and half way healthy and able to reproduce.
{This may essentially be the point you're making, looked at a little differently.}

Workers organizations, political pressure, alternative employment keep this from happening in the short run.

 

[gauchecritic]

You aren't looking at it in the same way Wall street does, and it has nothing to do with commission, as your broker will get the same commission on your 100,000$ of Walmart shares as he would off your 100,000$ of costco shares.

except that 100 shares in costco costs what? 4 times, 5 times as much? Depends on what numbers you want to look at.

To a broker, your shares in Walmart, have the potential to grow significantly more than your costco shares. theoretically, operating at 25% margin means they are going to turn 13% more profit than costco, all things being equal.

except that all things are not equal and better employee treatment along with little labour turnover means virtual elimination of a human resources department. and I'd rather have 12% of a billion than 25 percent of a million.

If they are also having employee's sholder 18% of their own benefits where costco employes shoulder 8, then thats more money potential in Walmart. It's in his best interests to put you onto Walmart as that means you will be making more money and, here is where commission comes in, you will be likely to sink those profits back into your portfolio by purchaseing more shares of something else.

Again 18% of 10 dollars an hour isn't as much as 8% of 25 dollars an hour. So where is your potential then?

I don't know what your beef with the stock market is. In the first place. many companies we now have wouldn't be here or wouldn't be as big, without the investment dollars the market provides for growng thier bussiness.

My beef. Investment dollars in the stock market stop being investments in the company itself as soo as the flotation is sold. Everything else (the vast majority) is profiteering. Buying and selling nothing but paper.

In the second place, a lot of median income people reap huge benefits to their retirements and networths if they play the market wisely. I worked with a man who retired at 60. He could afford to because his portfolio was worth over 250,000$. At no point in his life was he making big bucks, in fact he spent a good bit of it working up to top pay in his trade, which was a splicer with the phone co. Not exactly a high dollar field.

And who else plays the market more than anyone? Pensions companies. Can you see the irony there if not appreciate the downright immorality?

You'll make a lot more and your dollars will do a lot more in the market than in a savings account.

Oh yes, another big player in the markets. The bank where your money is.

Playing the market wisely is capitalist speak (you just knew I'd get political on your ass didn't you?) for getting yourself into more debt, w hilst making someone else extremely rich.

Pensions companies over here have it written into their company charters (in law) that when they go bust because of one too many imprudent "investments" they can walk away without a by-your-leave and any of the money they have left.

And you know the best thing about that piece (apart from showing that the stock marketeers don't really know how to run a successful business, they only know how to leach off those that do) the best thing was the last thing;

"I just think that if you're going to try to run an organization that's very cost-conscious, then you can't have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong."

Sounds a little bit pinko to me.

 

[Colleen Thomas]

Colly said,
No Cat, if you took me to mean labor was a wasted cost, let me clarify. I was trying to say, it's an outgoing expense that brings no return on the ledger. Obviously in service industries your labor is your product. I wasn't tryin to downplay the importance of good employees.

In the context of bottom line, I was merely saying your outlay on labor brings no return on the books. It's a dead expense. Where money you spend on stock, or improvements or expanded facilities are expenses you can recoup down the line, the money spent on labor dosen't come back onto the books. It is therefore one of the first places people look to cut costs when they are trying to improve profits.

I do not understand this point at all. If my employees are squatting on the ground weaving baskets, putting a roof over their heads 'brings no return on the ledger.' It's out of pocket. (If we assume no effect on production). Similarly if I repair a hole in the roof of my factory, it's 'dead expense' (unless some key producer cant work because of the rain on his head).

The point of capital is to use it to make money. The factory building is capital; the workforce in the building is capital. [Bringing either into existence is ultimately to make profit.] Why does someone hire more people (increase the workforce size)? Perhaps because the increased efficiency will generate more profit. Improvements to the building or the workforce in it may well increase the productivity and the 'bottom line'--that is why I might air condition the building or give training to employees.

I think the preference for cutting labor costs as in 'outsourcing' is that that's a vulnerable (influenceable) point, not that it's 'dead expense.' It's often hard to affect the raw materials prices, an exception being by vertical integration (possible in the big organizations). McDonald's vertical integration and their stinginess with employee wages both help their botton line.

Marx held--and it's probably true in some respects--that because of the pressure for the increase of capital, wages have an inherent tendency to drop to subsistence. I.e., in one sense, I should pay just enough to keep my workers alive and half way healthy and able to reproduce.
{This may essentially be the point you're making, looked at a little differently.}

Workers organizations, political pressure, alternative employment keep this from happening in the short run.

Have you ever done any bookeeping J?

I'm not trying to give a value to labor. Nor am I trying to disparage your employees. I am talking about numbers, in the strictest of bean counting sense.

If I buy 10 widgets for 100$, I can legitimately expect to sell those ten widgets for 100$ plus whatever my markup is. That 100$, has left my books as soon as accounts payable pays the widget supplier, but it will come back on the books (presumabley with a profit) as soon as the customer's payment method clears accounts recieveable. It's not dead end money. It's tied up in stock, so it is no longer a liquid asset, but it isn't gone for good.

if you are the caisher at my local widget outlet and your salary for the week is that same 100$, it clears my books as soon as you cash your paycheck and it clears the bank where I have my operating account. It does not come back onto the books. It's dead end money.

All overhead expense is dead end money. It goes off the books with no return to the books.

When people look to cut expenses, they will look first and hardest at dead end money. There are cases where you can increase profit by decreasing non dead end money expenditures. If you have ever heard of warehouse on demand operations, this is one way to do it. Someone else stocks your merchandise and delivers it on demand. You pay a premium for it, cutting into your margin, but your own cash isn't tied up in stock, you don't have to pay for warehouse space or salary for warehouse employees. You rliquid cash can thus be used for other purposes, Again presumably to increase your profit margin overall.


But by and large, you lok to cut overhead.

Am I not explaning this well? Or is that you guys are having a problem with my terms? Obviously labor has value, but I am not talking about value, just money. Numbers on a ledger that don't tell the whole tale, merely a small part of it?

 

[SeaCat]

No Cat, if you took me to mean labor was a wasted cost, let me clarify. I was trying to say, it's an outgoing expense that brings no return on the ledger. Obviously in service industries your labor is your product. I wasn't tryin to downplay the importance of good employees.

In the context of bottom line, I was merely saying your outlay on labor brings no return on the books. It's a dead expense. Where money you spend on stock, or improvements or expanded facilities are expenses you can recoup down the line, the money spent on labor dosen't come back onto the books. It is therefore one of the first places people look to cut costs when they are trying to improve profits.

Colleen,

Okay now I understand what you were getting at. I may not like it but I do understand where you are coming from with it. My way of looking at employees is old fashioned and not in sync with the new way of doing things which is where the confusion came from. (I believe in two maxims, an honest days work for an honest days pay, and if you can't do the work find something else to do. This might account for why I don't own a bussiness and why I'm usually disapointed by my co-workers and bosses.)

Cat

 

[Colleen Thomas]

except that 100 shares in costco costs what? 4 times, 5 times as much? Depends on what numbers you want to look at.

I didn't say 100 shares gauche, I said 100,000$. It could buy you 100 shares of something valued at 1000$ a cshare of 100,000 shares of something at a dollar a share.

except that all things are not equal and better employee treatment along with little labour turnover means virtual elimination of a human resources department. and I'd rather have 12% of a billion than 25 percent of a million.

Better employee treatment doesn't automatically translate into more earnings. WalMart treats it's employees badly by all accounts here and still turns a tidy profit. 25% margin does translate into more earnings. If you are operating on 25% margin and I am operating on 12, I have to sell twice as much as you do to turn the same profit. My workers loving me while yours hate your guts has no bearing on that. It's quantifiable, where as happy employees are not.


Again 18% of 10 dollars an hour isn't as much as 8% of 25 dollars an hour. So where is your potential then?

You misread I think. Or I am innumerate tonight. I didn't say anything about salary, I said benefits. In this case, costco looses both coming and going. They provide better (read more expensive) benefits than walmart and they pay a higher percentage of those benefits they do offer than walmart does.


My beef. Investment dollars in the stock market stop being investments in the company itself as soo as the flotation is sold. Everything else (the vast majority) is profiteering. Buying and selling nothing but paper.

i don't understand.

And who else plays the market more than anyone? Pensions companies. Can you see the irony there if not appreciate the downright immorality?

In truth I don't. So pension funds invest in the market. The return is greater than it would be in a cd or bank account. Are you suggesting pension funds should sit n the money instead of trying to make it work for those who are paying in?

Oh yes, another big player in the markets. The bank where your money is.

Playing the market wisely is capitalist speak (you just knew I'd get political on your ass didn't you?) for getting yourself into more debt, w hilst making someone else extremely rich.

I play the market. I play it wisely. At this point, the original capital I paid in is sitting in a money market account drawing puny interest, but it's there and it can't be lost due to a down turn. My profits from interest are agressively invested, but even then I play wisely, choosing strong record growth and income mutual funds rather than individual stocks to lessen my vulnerability. My pension stands to be significantly larger than what I put in, but even if the market blows up and falls apart and every invested penny is lost, I'll still be able to raw more than I paid in. You'll have a hard time explaining to me how thats a bad thing.


Pensions companies over here have it written into their company charters (in law) that when they go bust because of one too many imprudent "investments" they can walk away without a by-your-leave and any of the money they have left.

And you know the best thing about that piece (apart from showing that the stock marketeers don't really know how to run a successful business, they only know how to leach off those that do) the best thing was the last thing;



Sounds a little bit pinko to me.

I'll get political in return

It surely dosen't sound pinko to you or you would be heartily endorsing it.

 

[gauchecritic]

If you are operating on 25% margin and I am operating on 12, I have to sell twice as much as you do to turn the same profit. My workers loving me while yours hate your guts has no bearing on that. It's quantifiable, where as happy employees are not.

Which is where the complex terms (meaning I don't understand them proberly) come in; throughput and unit costs.

Reps and manufacturers all tell me that it is economically preferable to sell cheaply, thus maximising volume and reducing purchase costs (and taxes) I presume they're referring to depreciation being better value the more use you get out of your overheads. Sort of 10 people using one lightbulb sort of thing, the light bulb will blow eventually however many use it.

So happy workers = loyalty = reduced labour charge per unit.

 

[Liar]

So happy workers = loyalty = reduced labour charge per unit.

Yep, that's the idea. But it requires a hermeneutic way of doing business, since there is no good way of measuring the happiness / loyality / cost effectiveness ratios. And things that float that way means thing that you can't control as well, which scares many an entrepreneur.

Ironically, nothing floats as much out of anyone's control as the stock market, but that's another story.