The LA Times ran an interesting article about
Wall Street's support for the grocers during this strike. From my perspective I believe that this is a bad business decision. The article has a couple analysts explaining this is the way they can compete with Wal-Mart. However, I don't think the grocery stores can ever beat Wal-Mart at it's own game. Their vast purchasing power
forces concessions from suppliers as well as workers in a way that these three grocers can never match.
Instead the model should be one that Costco takes. Declared by Fortune as "The only as an employer they are one of the better retail companies in the nation (in California half union stores - Teamsters). As a retailer they successfully appeal to a different customer than Wal-Mart and Sam's Club. Their CEO has been described as a "breath of fresh air." However as Jack Gordon describes he must defend himself from Wall Street:
Wal-Mart is "the unstoppable, insatiable force" in retailing, "rul[ing] the commercial strip the way Julius Caesar once ruled the Roman republic." That isn't hyperbole. Against the Wal-Mart bulldozer, nothing can stand. Yet somehow Goliath's Sam's Club operation is being thrashed by Costco.
Sam's Club has 71 percent more U.S. stores than Costco, yet Costco's total sales are 5 percent higher. The average Costco store generates almost double the revenue of a Sam's Club. By any hard-nosed business measure, Costco is succeeding brilliantly against what may be the most formidable competitor in any industry on Earth.
Furthermore, Costco's success translates directly into benefits for workers and customers in the very manner that cheerleaders for corporate America have long described. The company offers "the best wages and benefits in retail." Its starting hourly wage is $10. Full-time hourly workers earn annual salaries of $40,000 after four years.
And get this: Whenever Costco buyers negotiate a good deal on products, the savings are actually passed on to customers. No, seriously; markups are capped at 14 percent.
Well then, you say to yourself, Costco CEO James D. Sinegal, the architect of this marvel, must be taking bows as a Hero of the Republic. Wrong. Instead he's defending himself from powerful forces that better understand how a business ought to be run.
In a single paragraph tucked matter-of-factly into Fortune's hymn to Sinegal and his company, as if it were one more piece of incidental data, we learn that "some of the practices that made Costco great have lately come under attack by Wall Street." What the complaint boils down to is that Sinegal is too generous to the peasants. Stock analysts have "pounded on" him to trim workers' health benefits "and to otherwise reduce labor costs." The critics' view is summarized by "Deutsche Bank analyst Bill Dreher, who recently wrote, 'Costco continues to be a company that is better at serving the club member and employee than the shareholder.' "
This is the key. Success is by profit margins and not a holistic success of serving all of them. Wal-Mart consistently loses money on their Sam Club business despite their 4 to 1 advantage over Costco.
Even more striking about Wall Street's ignorance of "another way" is the impressive partnership that the unions and these companies had created over 20 years that has disappeared in these few months.
Kevin Drum showed HERE's Las Vegas locals as an example of union-company partnerships that provide benefits for both. UFCW was an example of such a partnership as the 7 locals now on strike spent millions to picker non-union markets and contributed to the increase in market share that the stores enjoy today.
This strike is not a typical union-company dispute; it is one more addition to the problems that the sole search for profit creates. Steve Burd is leading his company and the two others into a losing battle of playing Wal-Mart's own game. Wall Street lack of original thinking will be taking investors in these companies on a ride to a much lower stock price.