July 20 (Bloomberg) -- Executives at Wal-Mart Stores Inc. and Costco Wholesale Corp., competitors in the $76 billion U.S. warehouse-club market, have taken their rivalry to a new level: national politics.
Wal-Mart, the world's largest retailer and owner of Sam's Club warehouse stores, gives more money to Republican candidates than any other company. Its top three managers, including Chief Executive Officer H. Lee Scott, donated the individual maximum $2,000 to President George W. Bush, and Jay Allen, vice president for corporate affairs, raised at least $100,000 to re-elect the president, earning him the Bush campaign's designation of ``Pioneer.''
Wal-Mart -- two-thirds of whose 3,580 stores are in the ``red states'' that voted for Bush in 2000 -- is backing White House policies on everything from trade to limiting overtime pay.
Costco CEO Jim Sinegal, 68, is a Democrat who says Bush's $1.7 trillion in tax cuts unfairly benefit the wealthy. He opposed the Iraq war and supports Senator John Kerry of Massachusetts for president. And he's the only chief executive of a company in the Standard & Poor's 500 Index to donate money to independent political groups formed to oust Bush, Internal Revenue Service records show.
``Wal-Mart is extremely strong in Republican strongholds; they are a red-state retailer,'' said Amy Bonkoski, an investment adviser at Cleveland-based National City Corp.'s private-client group, which manages about $26 billion, including Wal-Mart and Costco shares. ``Costco is stronger in Democratic states. Costco is a friend to labor. Unions hate Wal-Mart.''
Costco's Candidate
The differences are based on more than ideology: Each retailer has a stake in the election's outcome in areas from health care to the minimum wage to the way unions can organize workforces.
Kerry, 60, a four-term senator, pledges to induce more employers to insure workers with a $257 billion proposal calling for the government to pay most so-called catastrophic health-care costs -- only for companies that provide comprehensive coverage. He'd raise the minimum wage and make it easier for workers to join unions.
Those policies may benefit Costco and hurt Wal-Mart.
Issaquah, Washington-based Costco offers comprehensive health insurance to most of its 78,000 U.S. employees, making it eligible for Kerry's plan, said Kerry's top domestic policy adviser, Sarah Bianchi, 31. That may cut 10 percent, or $35 million, off its annual health-care premiums.
Not Enough
Wal-Mart's health plan for its 1.3 million U.S. workers is probably not broad enough to qualify for the savings that Kerry's proposal would bring, since it doesn't cover enough workers, said Jason Furman, 33, the Democrat's chief economic-policy adviser. Fewer than half of Wal-Mart's employees are enrolled in the company health plan, according to figures supplied by the retailer.
Costco wouldn't have to raise salaries with Kerry's proposal to increase the minimum wage to $7 an hour, from $5.15 now. It already pays hot-dog vendors as much as $16 an hour. The lowest wage it pays -- $10 an hour -- is still higher than Wal-Mart's average wage of $9.96, even after Wal-Mart raised it from $9.64 last month for full-time workers. And the 1.4 million-member Teamsters Union said its workers at Costco have the ``best retail contracts in the country,'' according to Rome Aloise, head of Teamsters Local 853 in San Leandro, California, which represents 1,000 of the company's workers.
Bentonville, Arkansas-based Wal-Mart supports the Bush administration's expansion of free-trade agreements and its bid to curtail the number of workers eligible for overtime pay, according to its lobby disclosure reports.
Bush and Wal-Mart
Wal-Mart has benefited from the president's opposition to raising the minimum wage, since some employees make less than $7 an hour, and from the Republican-controlled Congress's reluctance to make it easier for workers to unionize. Of 204 supporters of a bill in the House of Representatives that would smooth the way for workers to belong to unions, seven are Republicans. Wal-Mart has no unions; about one-sixth of Costco's workers are represented by labor groups.
``President Bush and his administration have made a real concerted effort to reach out to Wal-Mart and try to understand what our experience is,'' said Allen, 47, the vice president.
Wal-Mart and Costco aren't the only companies in the same industry whose executives are on opposing sides in the election. Google Inc. CEO Eric Schmidt is backing Kerry, while Internet rival Yahoo! Inc. CEO Terry Semel endorsed Bush, 58. William Harrison, CEO of J.P. Morgan Chase & Co., is giving more money to Democrats than to Republicans, in contrast to peers at Goldman Sachs Group Inc., Morgan Stanley and Bear Stearns Cos., federal disclosures show.
81% Republican
What makes the Wal-Mart and Costco rivalry stand out is that their political donations are so partisan and both companies are likely to gain if their party wins in November.
IRS disclosure records show that Sinegal and Costco Chairman Jeffrey Brotman each gave $95,000 last December to the fund- raising arm of America Coming Together, a group organizing voters against Bush, and the Media Fund, which is running anti-Bush advertisements. The two Washington-based groups, known as ``527'' organizations after the tax-code provision under which they were created, report to the IRS, not the Federal Election Commission.
Wal-Mart's political action committee, the biggest company PAC, gave Republicans 81 percent of its $1.3 million in donations in the past two years, a higher proportion than any of the top 25 corporate PACs, according to PoliticalMoneyLine, a nonpartisan, Washington-based group that tracks campaign-finance disclosures.
Vice President Dick Cheney underlined Wal-Mart's ties to the White House on May 3 when he visited the retailer's headquarters -- his first talk with a company workforce in the 40 months since he took office, according to the White House Web site.
Praise From Cheney
``This is one of our nation's great companies,'' Cheney said.
Sixty-seven percent of Wal-Mart's stores are in the 30 states that voted for Bush and Cheney in 2000, according to a comparison of store-location figures in the Wal-Mart 2003 annual report and election results. Costco's stores are mostly located on either coast, with 208 of its 321 stores in the higher-wage, more union-friendly 20 states that voted for Democrat Al Gore in 2000.
Investors have profited more from Wal-Mart than Costco. Wal- Mart shares, with dividends reinvested, returned about 11 percent during the past five years, or 2.1 percent a year, compared with a 1.3 percent annual loss for Costco in the same period.
Sam's Club, the Wal-Mart unit that directly competes with Costco, had an operating profit of $1.1 billion on U.S. sales of $34.5 billion in the year to January 2004. Costco's operating profit in the year to August 2003, including international operations, was $1.2 billion on sales of $42.5 billion. Its U.S. sales were $35.2 billion last year.
No `Social Engineer'
Sinegal makes no apologies for Costco's policies, saying higher wages reduce employee turnover, which lowers training costs. ``I'm not a social engineer,'' he said in an interview. ``Paying good wages is simply good business.''
Should Kerry win and enact his health plan, that may also be good for Costco's business.
Under the plan, the government would pay three-quarters of companies' catastrophic health-care costs, defined as expenses of more than $50,000 per illness. That would cut the average company's insurance premium by 10 percent, according to Kenneth Thorpe, an Emory University professor in Atlanta who studied both candidates' coverage plans.
``Our plan is designed to help companies like Costco and many manufacturing companies that are doing the right thing by providing health-care coverage but are having difficulties with rising costs,'' Bianchi said.
Wal-Mart pays two-thirds of the cost of employee health-care premiums, said Susan Chambers, executive vice president for benefits. Costco pays more than 90 percent, Sinegal said. More than three-quarters of Costco employees are enrolled in the company health-care plan compared with 45 percent for Wal-Mart, according to figures provided by Sinegal and Chambers.
`Significant Improvement'
Wal-Mart expects to spend $2.5 billion on health care this year, according to Chambers, meaning it would potentially lose out on $250 million in savings under Kerry's plan should the company fail to qualify for the proposal's benefits.
Chambers defended Wal-Mart's coverage. ``We cover a higher percentage of our workforce than some companies,'' she said. ``Many of our workers come from industries such as fast food, and this is a significant improvement for them. The truth is, we cover a lot of hourly people with our health-insurance plan.''
For Wal-Mart, having to raise wages by $1 an hour for an employee working 30 hours a week would translate into a $1,500-a- year increase per worker, or $150 million per 100,000 workers.
Wal-Mart's average hourly wage doesn't include contributions to 401(K) and profit-sharing plans, spokeswoman Sarah Clark said. The benefit plans add 4 percent a month to an employee's compensation, she said.
`Taking Great Steps'
Some of Wal-Mart's U.S. workers make less than $7 an hour, she said. She wouldn't say how many.
``Wal-Mart's taking great steps to move forward in this area,'' CEO Scott, 55, told 18,000 shareholders and employees at the company's June 4 annual meeting in Fayetteville, Arkansas. The company is facing a class-action lawsuit by female workers who say it has discriminated against them in pay and promotions since 1998.
Wal-Mart's decision to raise wages may help fend off efforts to unionize the company's workers. The 1.4 million-member United Food and Commercial Workers is trying to organize Wal-Mart employees, union spokesman Greg Denier said.
Kerry supports a bill in Congress that would allow unions to represent workers after a majority of employees sign cards asking them to join. Under current law, unions can only represent workers after an election, which can take weeks to arrange and be influenced by consultants brought in by the company to oppose the measure, said Marco Trbovich, 62, Kerry's director of labor policy.
Attacking Reputation
``Workers need the right to organize,'' Trbovich said. ``That's particularly true at Wal-Mart.''
All the biggest unions in the U.S., including the Teamsters and the 13 million-member AFL-CIO, a federation that includes the United Food and Commercial Workers, have endorsed Kerry.
``The UFCW is engaged in a very public campaign both to stop our growth or attack our reputation,'' Wal-Mart's Allen said. ``If a candidate gets a lot of support from the UFCW, that's certainly something we have to consider strongly.''
Posted by UFCW 227 at July 20, 2004 08:05 PM