I found
this thanks to
Kevin at Always Low Prices. It's from a consulting firm called the Hartman Group:
Costco is the company that stock analysts love to hate. In a recent NY Times article, Bill Dreher, an analyst for Deutsche Bank, complained that at Costco "it's better to be an employee or a customer than a shareholder." But even that isn't true. The same article points out that "Costco's stock price has risen more than 10 percent in the last 12 months, while Wal-Mart has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19."
"According to Mr. Dreher Costco's share price was so high because so many people love the company," says the Times reporter. "It's a cult stock," he sneers.
Yikes. That's a bad thing?!
The report continues:
This narrative that has grown up around Costco gives it ballast and staying power. And although it's a word that a down-to-earth guy like Costco CEO, Jim Sinegal, would probably not use, it's what gives Costco it's mystique, and mystique is the X-factor that gives it the cult following that Dreher dismisses.
The main impression you get about a guy like Sinegal is that the guy is a mensch. He's tough. He's shrewd. He understands the marketplace. He cares about his employees and his customers. And he does it his way. According to Sinegal, "The traditional retailer will say: 'I'm selling this for $10. I wonder whether I can get $10.50 or $11.' We say: 'We're selling it for $9. How do we get it down to $8?' We understand that our members don't come and shop with us because of the fancy window displays or the Santa Claus or the piano player. They come and shop with us because we offer great values."
But when you're talking about a cultural brand it isn't just the price and the convenience - the utility - that keeps people coming back. In my part of town, the Costco is not convenient - Sam's is a lot closer--but I gave up my Sam's membership for a Costco membership because of the X-factor, the soul factor, that intrigues me about Costco. And Sinegal understands that dimension of his business very well.
He shows he understands it when he talks about his love of the "treasure hunt": "occasional, temporary specials on exotic cheeses, Coach bags, plasma screen televisions, Waterford crystal, French wine and $5,000 necklaces - scattered among staples like toilet paper by the case and institutional-size jars of mayonnaise." He understands that's it's not just about the stuff at the best price. It's about the experience; it's about the surprise. It's about staying interesting and fresh while at the same time offering the staples that people need.
And he understands loyalty. Now there's an interesting word, and it makes no sense in Dreher's world where everything is about rational calculation. Loyalty is a soul value. And it only makes sense in a culture that understands the logic of soul, not just the logic of efficient markets.
And there's even a nice shot at Wal-Mart to boot:
On the other hand, Wal-Mart has zero mystique. It has adopted a model toward its customers, employees and investors that is based on pure rational calculation driven by the logic of market efficiency. They have been ruthless in running their business according to this logic, and they've been remarkably successful in doing so. The only thing is that if you live by the market, you die by the market. At some point customers, employees and investors might in their own ruthlessly calculating way decide that their involvement with Wal-Mart doesn't serve their interests anymore.
Does praising Costco too much make me some kind of recommendation grubber? Does anybody have anything bad to say about this company?
JR