Thursday, March 15, 2007

Death and Taxes

Those two words, connoting unpleasant consequences, have been conjoined for at least 380 years, ever since Daniel Defoe, the author of Robinson Crusoe and Molly Flanders, wrote in 1726, in his Things as in the Political History of the Devil, “Certain as death and taxes can be more firmly believed.”

I always accepted the myth that it was Benjamin Franklin who first wedded those two words, but that phrase by Defoe, who ironically was once sentenced to a debtor prison, was certainly a spy, and was considered the “brilliant quintessential scoundrel of the Augustan age,” preceded Franklin’s comments by over 70 years. Franklin’s observation, originally found in a 1789 letter to Jean-Baptiste Leroy, gained fame in 1817 when reprinted in “The Works of Benjamin Franklin.” The full statement read, “Our Constitution is in actual operation; everything appears that it will last; but nothing in this world is certain but death and taxes.” While it is sometimes comforting to cling to the notion that certitudes do exist in our unpredictable world, death and taxes would not be our favorite choices for inexorability.

In addition, while most will await the former (death) with forbearance and resignation, the mere mention of the word taxes creates a rebellious, gut wrenching anxiety annually, that this year will climax approximately one month from this reading, on April 15 th. It is with this in mind, in the hope that at least some of the following thoughts will assuage and diminish the usual feelings of frustration that are normally associated with Tax Day that the following is presented. C’mon, laugh a little! (Since many of the authors are unknown, I have listed only those whose names I recognize).

“It’s income tax time again, Americans — time to gather up those receipts, get out those tax forms, sharpen up your pencil, and stab yourself in the aorta.— Dave Barry

“We have long had death and taxes as the two standards of inevitability. But there are those who believe that death is the preferable of the two. ‘At least,’ as one man said, ‘there’s one advantage about death; it doesn’t get worse every time Congress meets.’”

“Blessed are the young, for they will inherit the national debt.” — Herbert Hoover

“The term “tax humor” is no doubt an oxymoron to many people; to the more cynical, it is an apt description of the entire tax code.”

“The reward of energy, enterprise, and thrift — is taxes.”

“The best things in life are free, but sooner or later the government will find a way to tax them.”

“Whoever hopes a faultless tax to see, hopes a ne’er was, is not, and ne’er shall be.” — Alexander Pope

“The taxpayer — that’s someone who works for the federal government but doesn’t have to take a civil service exam.” — Ronald Reagan

“The hardest thing in the world to understand is the income tax.” — Albert Einstein

“Count the day won when, turning on its axis, this earth imposes no additional taxes.” Franklin P. Adams

“If you want more of something, subsidize it. If you want less, tax it.” — Old economics adage.

“America is the land of opportunity. Everybody can become a taxpayer.”

“Congress thinks it’s a lot easier to trim the taxpayer than expenses.”

“One of the great blessings about living in a democracy is that we have complete control over how we pay our taxes…cash, check, money order, or credit card.”

“The income tax forms have been simplified beyond all understanding.”

“It’s too bad for the middle income person. They earn too much to avoid paying taxes, and make too little to afford paying them.”

“The latest income tax form has been greatly simplified. It consists of only three parts: 1) How much did you make last year? 2) How much have you got left? 3) Send amount listed in part 2.”

“Taxes and golf are alike. You drive your heart out for the green and then end up in the hole.”

“I’m proud to be paying taxes in the United States. The only thing is — I could be just as proud for half the money.” — Arthur Godfrey

“Called in for an audit, Mr. Briggs was confronted by a surly IRS agent. ‘It says here Mr. Briggs that you are a bachelor, yet you claim a dependent son. Surely this must be a mistake.’ Looking him straight in the eye, Mr. Briggs replied, ‘Yup, it surely was.’ ”

“Today it takes more brains and effort to make out the income tax form than it does to make the income.” — Alfred E. Neuman

“The income tax has made more liars out of the American people than golf has.” — Will Rogers

“The United States is the only country where it takes more brains to figure your tax than to earn the money to pay it.”

“A fine is a tax for doing wrong. A tax is a fine for doing something right.”

“We all get excited these days about paying taxes because we never know which country our money is going to.”

“Don’t tax you, don’t tax me, tax the fellow behind the tree.” — Russel B. Long

“The wages of sin are death, but by the time taxes are taken out, it’s just sort of a tired feeling.” — Paula Poundstone

“American tax laws are constantly changing as our elected representatives seek new ways to ensure that whatever tax advice we receive is incorrect.” — Dave Barry

“No one who has witnessed tax lobbyists’ perennial infestation of Capitol Hill can ever again confuse the making of tax laws with the making of sausages. At least when you make sausages, you know the pigs won’t be coming back.”

“In case you didn’t know, ethanol is made by mixing corn with your tax dollars.”

It’s only natural for late night TV hosts to use the income tax as a subject to be ridiculed. At the same time the President of the country, regardless of political affiliation, is often used as the foil in order to make a humorous point. So, when you read the following, lighten up and at least SMILE.

“Your taxes are due [a month from now]. You can make out your check to Halliburton, or you can do what I’m going to do. I’m filing my first joint return. No. I’m not getting married. I’m sending the IRS an actual joint with a note that says, ‘If you think I’m paying for this war, you must be high.’ ” — Bill Maher

“It’s tax time and President Bush is saving a lot on taxes this year. He’s writing off his entire second term.” — David Letterman

“While President Bush was doing his taxes, under dependents he listed Scooter Libby, Tom Delay, and Jack Abramoff. Then he caught himself. Dependants? Oh, I though it said defendants.”

“Last night in his speech, President Bush called for a complete overhaul of the tax code. He said he was shocked to find out that some millionaires in this country were still paying taxes.” — Jay Leno

“President Bush says he’s going to simplify the tax code. Only the states that are blue will have to pay.” — David Letterman

“President Bush’s tax returns are a little different. He claimed the Christian Right as dependants; he declared the 2000 election as a gift; and he tried to write off all the mileage he got from 9/11.” — Bill Maher

“President Bush said yesterday it doesn’t make any sense to raise taxes on the rich because rich people can figure out how to dodge taxes. Then Dick Cheney said ‘Shut up! You’re ruining everything.’” — Jay Leno

“This week President Bush and Vice President Cheney released their tax returns. Cheney made more money than the president did. When asked about it, the president said ‘That’s true, but he made more decisions.’ ” — Conan O’Brien

“Earlier today, the White House released President Bush’s tax return. Not surprisingly, under dependants, the president listed Iraq.” — Conan O’Brien

“Technically, you’re not paying taxes. According to the Bush administration, your bank account is being liberated.” — Jay Leno

“At last night’s debate, Democrats attacked President Bush saying his tax cuts for the rich bankrupt the middle class. And Bush said, ‘Hey! Thanks for the new slogan.’ ” — Craig Kilborn

“I hate to be the one to remind you, but just pretty soon it is going to be April 15 th, it is going to be tax time. You know what I’m saying? Are you ready? Well you know when something like this happens, New Yorkers always try to put the best face they can on a situation. For example, for an extra $50 the hookers in Times Square will handle your extension.” — David Letterman

As Porky Pig says: “Th-Th-Th-That’s all folks!” Good luck with your taxes.

Thursday, March 01, 2007

Nobody Doesn’t Like Costco

Yeah, yeah! I know — never use a double negative. So what’s the worst that can happen? Someone will get the grammar police on my tail — or I’ll be reported to William Safire? But let me ask you, doesn’t accuracy override the use of the double negative in the headline? More to the point, do you disagree with the premise? I’m willing to defend the headline’s assertion on the basis that rarely do I visit that retail emporium without meeting at least one resident of Boca Pointe, who as we all know, are recognized as world-class shoppers.

If more proof is needed, in its February 12 th issue, Barron’s, a publication that does not suffer fools gladly, featured on its cover a picture of the CEO of Costco, naming him the “World’s Best Discounter.” The headline over the inside article proclaimed Costco as “Everybody’s Store,” elaborating in a sub-headline, “Move over Wal-Mart. A maverick in merchandising and management, Costco Wholesale is the new name to beat.”

The basic problem is that I’m obsessed with Costco, perhaps “addicted” is a better description of the relationship. As an ex-retail executive, I know the symptoms well. I suffer from the dread CS syndrome — Yes, I’m a “compulsive shopper.” Note however, that there is a difference between that malady and the next (more problematic) level which is termed CBD, “compulsive buyer disorder.” As proof that all is not yet lost, I might point out that at times I visit Costco, just to look, and remarkably end up buying nothing — pretty weird, huh?

According to UBS, the average customer visits Costco 22 times a year. My visits must number at least double that. I know it will be difficult to convince female readers that a male actually loves to shop — in fact I even go shopping with my wife, and believe it or not, help her in her selections — but hey, that was my business. I hope you guys won’t hold that against me when your wife complains “Why won’t you come shopping with me? Why can’t you be more like Bob? — perfect in every way.” Sure! Just ask my wife.

So how did Costco become so addictive, not only for me, but for the 47 million members who pay either $50 or $100 to join, making Costco, with $59 billion sales volume the fourth largest retailer in the country, and the eighth largest in the world? The success of Costco can be attributed to its co-founders, CEO Jim Sinegal and Chairman Jeff Brotman; Sinegal a long–time retailer, and the latter, an attorney who launched three different retail operations, and whose father was a menswear retailer. But they in turn will readily credit the genius of another, now legendary retailer, Sol Price, who literally invented the warehouse club concept.

Price, born in 1916, went to high school in San Diego and earned a law degree at University of Southern California in 1938. He was the senior partner in his own successful law practice when, in 1954, he serendipitously turned into a retailer. Failing to find a tenant for a large warehouse that he bought, he took advantage of the new wave of retailing that had just emerged with the creation of the discount store. In those days, fair-trade laws prohibited retailers from discounting branded goods beneath the list price. As an attorney familiar with, but detesting those laws, he circumvented them by opening a store that charged an annual membership fee, thereby making owners out of his customers, and that entitled them to discounts. No other discounter had taken a similar route.

That one store in San Diego developed into a flourishing regional chain of 45 discount stores under the name, Fed-Mart. In the mid-70’s, Price sold the chain to a German retailer, but shortly thereafter, Price and his two sons who worked at Fed-Mart were fired. Ironically, while under Price’s management Fed-Mart grew and prospered, whereas within a few years of the new management, the entire chain was forced to close, with many of the stores purchased by Target.

Just how influential was Sol Price and the Fed-Mart model as it related to the then burgeoning discount store industry? Sam Walton, the legendary founder of Wal-Mart once said in an interview, “I guess I’ve stolen — I actually prefer the work ‘borrowed’ — more ideas from Sol Price as from anybody else in the business.” Walton then revealed how Wal-Mart got its name by admitting, “I really liked Sol’s Fed-Mart’s name, so I latched on to Wal-Mart right away.”

When Price was fired from Fed-Mart, he and his son Robert— to whom he gives much of the credit — tinkered with the Fed-Mart concept and created a new chain with the eponymous name, Price Club. The Prices had concluded that by stocking a relatively small group of highly selective products, inventory turnover could be accelerated — up to 20 times a year — and goods could be priced utilizing very thin margins. The margins could be offset in part, by charging a membership fee. Even more important however was how Price treated his employees and the type of loyalties this developed. Price actually invited unions to represent Price Club workers. Wal-Mart by comparison, was and is totally unorganized by unions.

A book titled, In the Company of Good or Evil, provides as good a description of Sol Price and his effect on employees as I can find: “Price Club was a special place. It’s founder’s charisma, his noble corporate mission of serving brands and consumers alike, his willingness to share the wealth [every employee received stock options], all came together to give the firm a wonderful atmosphere, almost a religious fervor. It was as if the entire staff had become knights embarked on a noble crusade.”

You may find the following totally slanted, politically far left description of Sol Price’s legacy as amusing as it is probably accurate. This is how he is viewed in an article published just weeks ago by the nation’s largest Socialist organization, Democratic Socialists of America: “One way to recognize the reactionary particularities of the Wal-Mart business model is to briefly contrast it with that of COSTCO, a Seattle-headquartered warehouse/retailer whose Fed-Mart and Price Club predecessors Walton frequently acknowledged as the model that he incorporated into his own retail operations. But there was one big exception: Wal-Mart would have no truck with the Fed-Mart-Price Club-COSTCO personnel program. COSTCO owes its character to Sol Price, the Jewish New Deal Democrat whose social and cultural values were those of Depression-era New York. Price became a multimillionaire, but even in the era of Ronald Reagan, he favored increased taxes on high incomes, enhanced social welfare spending, and a confiscatory tax on wealth.”

One of Price’s first hires at Fed-Mart had been Jim Sinegal, an 18-year-old kid just starting college whose job was to unpack mattresses as they arrived. Sinegal recalls, “It wasn’t that great a job. I was getting a buck and a quarter an hour. But it was exciting. Sol was a major part of that excitement.” Within a few years, Sinegal was promoted to store manager and ultimately rose to the position of executive vice-president.

When Price left Fed-Mart in 1979, he convinced Sinegal to join him in his new venture. As executive vice president of Price Club, Sinegal helped Price establish that organization, but in 1981 Sinegal decided to leave. At that point, he had been working for and with Price for a period of 27 years. By 1983, Sinegal had started his own warehouse club in Seattle with the help of Jeff Brotman, an attorney who was the son of an ex-menswear retailer. Together they also opened in an old unused warehouse, adopting basically, the exact same principles advocated so successfully by Sinegal’s old mentor, Sol Price. Ironically, 10 years later, Price Club and Costco merged under the name Price/Costco. Despite the close relationship previously formed by Sinegal and Price, by 1993, Price took control of the non-retail portion of the company and left to start an international operation. He subsequently retired in order to oversee his influential philanthropic foundation.

Some 54 years have passed since Sinegal’s first venture into retailing and it is apparent that he has taken up the mantle from Sol Price. He is now considered the sage and master of the discount industry. Yet, unlike today’s notoriously greedy CEO’s, Sinegal has a one-page contract that is valid only on a year-to-year basis. It provides for a salary of only $350,000 with a small bonus possibility. He refuses to make any more than double that of his store managers. Even his total Costco stock holdings are worth only around $150 million, lower than the annual salaries of many less worthy CEO’s. Other than Warren Buffett, whose salary is a mere $100,000, Costco shareholders get as big a bargain with Costco as its customers do.

Treatment of Costco employees still reflect Sol Price’s influence. They enjoy far and away the best health insurance plan in the industry. Average wages are $17 an hour, 40 percent more that Wal-Mart. After only four years on the job, cashiers can make as more than $40,000 a year; 92 percent of employee health plan costs are covered; and 95 percent of all promotions are from within. This results in a mere six percent turnover rate for employees with the company for more than one year, (estimated to be about one fifth of Wal-Mart); productivity is at $500,000 per employee, and Costco has the lowest shoplifting rate in the industry (.02%).

So, Costco, why do so many love thee? Perhaps it’s because unlike so many other merchants who consistently seek higher profit margins, Costco’s main goal is to lower prices rather than raise them. In the case of its famous Kosher hotdog/soda $1.50 combination (that includes a soda refill), Costco has maintained that same price for the past 18 years, and as Sinegal has promised — will do so forever. Take a guess as to how many hot dogs Costco sells as a result — how about (hold your breath) 65 million, last year. Costco’s well-deserved reputation of having the lowest prescription drug prices enabled them to fill 26 million prescriptions in 2006. Yet Costco customers were apparently more eaters than medication takers since they also bought 28 million rotisserie chickens. And how about the 1.5 million TV sets sold in 2006, as well as the $300 million worth of cameras, and one billion photos it printed. Oh yes! Costco is also the largest wine merchant in the world. Another unique procedure that endears Costco to customers is the most liberal return policy in the industry. (That is changing with a 90-day return limit on all electronics, still more liberal than anywhere else.) The major key to Costco’s success is its hard and fast rule that no branded item is marked up more than 14 percent, and its private Kirkland brand 15 percent. Since these are markups that other retailers find impossible to match, it would be unusual to find a similar product priced lower elsewhere.

But here is where I must make two disclosures. First, it’s necessary to acknowledge that I own stock in Costco (although, with 452 million shares outstanding, I doubt this article can do much to move the stock.) The second admission is that not quite everyone loves Costco. Wall Street is annoyed that the company treats its customers and employees better than shareholders. For example, the retailing analyst at Deutsche Bank is quoted, “From the perspective of investors, Costco’s [employee] benefits are overly generous.” However, Warren Buffett’s Berkshire Hathaway owns 500,000 shares of Costco, and Jim Sinegal takes the rather quaint position that, “I happen to believe that in order to reward the shareholder in the long term, you have to please your customers and workers.” In other words, don’t fix what ain’t broken. This day, for a CEO to adhere to that philosophy is really quite bizarre, yet, that’s exactly why nobody doesn’t like Costco.