More Proof Politics and Business Don't Mix
Dana is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you're selling to one side of the political divide, don't get too loud on behalf of the other, or Foolish investors may have to sell your stock.
With Americans divided politically as seldom before, it just makes business sense to keep your head down. It's tempting to speak out loudly on the issues of the day, especially those impacting your bottom line. But do it carefully.
The best example of how not to do this is Whole Foods (NASDAQ: WFM). The company caters to upscale, socially conscious consumers, who tend to vote Democratic. But its co-CEO and founder, John Mackey, loudly proclaims himself a libertarian and tends to support Republican causes.
Not that there's anything wrong with that, as Seinfeld said. And Mackey's company was not badly hurt by his 2010 profile in The New Yorker, where he loudly proclaimed political ideas in direct variance to those of his customer base. Since that profile ran, in fact, WFM has doubled in value.
But as health reform has kicked in, Mackey has been taking it up a notch. He called it socialism, then fascism. He also claimed he would cut workers' hours in response to the law, denying them the 30 hours work necessary to get coverage under the law.
For a guy who calls himself “daddy” to his workers, and his workers “team members,” this may have been too much for some shoppers. Shares tanked after earnings fell recently. The Motley Fool's Blake Bos suggests that WFM is now a buy, but I question that.
Mackey himself has always been shocked at how few competitors have copied his act, which consists of charging premium prices for premium goods, and bragging about it. Well, privately held HEB finally has, and in his home market of Texas, under the name Central Market. Nine such stores are now open. Mackey's shoppers are getting alternatives, and are starting, slowly, to vote with their feet.
Like many other companies in the service industries, Darden Industries (NYSE: DRI) – owners of Red Lobster, Olive Garden, and other mid-scale restaurants – saw an opportunity to limit costs in the health care law.
The company, rather loudly, said it was experimenting with turning its 45,000 employees into part-timers, specifically to evade the law's requirements. Worker groups have begun picketing the restaurants even though the company has publicly backed away from its plans.
But damage is being done. The company lowered guidance in December, and the stock promptly fell out of bed, falling almost 20% in a matter of weeks, despite the maintenance of a handsome 20 cent/share dividend.
It may well be that companies like Darden, which hire a lot of low-skill workers, will face higher costs due to health reform, the minimum wage, and other measures. Higher costs put pressure on margins, regardless of a store's politics. But it's one thing to lobby privately, another for a CEO to lobby publicly. And lobbying publicly against the interests of your workers can leave scars on investors, not just management.
Wal-Mart vs. Costco
Wal-Mart (NYSE: WMT), where founder Sam Walton started the drive to call workers “associates,” making many of those early workers into millionaires through purchase of company stock, is now ground zero in the American labor movement.
The company has been very loud in opposing organization of its workers, and on the surface has paid no price for it. Other than to make its stock a bargain.
Amazon.com shares carry an enormous price tag, thanks in part to spectacular growth that has caused sales to go from about $34 billion in 2010 to about $60 billion in 2012. That's a gain of $24 billion on the top line, over two years.
You know how much Wal-Mart's sales have grown in that time? They've grown by $40 billion. True, it's from a bigger base, but the bottom line is investors will pay $2.50 for each dollar of Amazon sales, and only 50 cents for $1 of WMT sales.
It doesn't have to be that way. Costco (NASDAQ: COST) has been growing considerably faster than Wal-Mart the last several years – shareholders pay 60 cents for each dollar of the company's sales, yet Costco manages to pay employees well.
Costco sells more merchandise in each square foot of space than Wal-Mart's Sam Club warehouses. Wal-Mart employees take $4.6 billion in federal aid each year due to their low wages, while Costco employees make about $17 per hour. Costco doesn't have to advertise as much for its sales -- it doesn't advertise at all -- and it has less theft by employees. Customers will drive many miles to reach a Costco, often passing several Wal-Mart stores along the way.
You get Wal-Mart shares at a discount to Costco shares, paying less for Wal-Mart earnings than for Costco earnings, as a result of Wal-Mart's politics, not its operations, which are great. Costco shareholders have also seen their shares gain 60% in value over the last five years, against 40% for Wal-Mart.
The Foolish Take
Keep your politics to yourself. Don't let them get in the way of making money, or they will cost investors, who will withhold from you the capital you need to grow just when you most need it.
Do your research. If you can find nothing about the politics of a company and its management, that doesn't mean they don't have political views. It may be they're just more businesslike in the defense of them.
Just as entertainers like the Dixie Chicks can be hurt by wearing their politics on their sleeves, so can corporations. In these cases, it's investors who get hurt.
DanaFBlankenhorn owns shares of Costco Wholesale. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale and Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!