<instructions>Your goal is to analyze the following comment and estimate how highly it will be upvoted by the Hacker News community.</instructions><comment><author>tanzam75</author><text>&amp;gt; &lt;i&gt;Did you notice the data point in the article that Costco makes $2 billion in membership revenue and yet makes $1.7 billion in profit, which means they effectively lose money on their sales?&lt;/i&gt;&lt;p&gt;That $1.7 billion is net income, which is after subtracting out the income tax.  You have to compare to pre-tax income, which in the case of Costco is essentially just operating income.&lt;p&gt;75% of Costco&amp;#x27;s income came from membership fees in the last fiscal year, and similar or higher percentages in other recent years.&lt;p&gt;From Costco&amp;#x27;s FY 2012 annual report, page 25 (in millions of dollars):&lt;p&gt;&lt;pre&gt;&lt;code&gt;         Membership   Operating income
  2008      1,506          1,969
  2009      1,533          1,777
  2010      1,691          2,077
  2011      1,867          2,439
  2012      2,075          2,759
  &lt;/code&gt;&lt;/pre&gt;
PDF file: &lt;a href=&quot;http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTY1MTY0fENoaWxkSUQ9LTF8VHlwZT0z&amp;amp;t=1&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;phx.corporate-ir.net&amp;#x2F;External.File?item=UGFyZW50SUQ9M...&lt;/a&gt;&lt;p&gt;The membership fee, of course, serves another purpose.  It reduces patronage by lower-income shoppers, and therefore helps to reduce shoplifting.  The receipt-check is another deterrent.  Since Costco has such a tight margin on its merchandise, it cannot tolerate industrywide shrinkage rates.</text><parent_chain><item><author>markost</author><text>Did you notice the data point in the article that Costco makes $2 billion in membership revenue and yet makes $1.7 billion in profit, which means they effectively lose money on their sales?&lt;p&gt;In fact, a little known feature of Costco&amp;#x27;s business model is their ability to sell all their stock well before their suppliers require payment for goods (Net 30)? This means they have an effectively _negative_ cash conversion cycle, or in other words, their suppliers are paying to stock their products.&lt;p&gt;Everything about Costco&amp;#x27;s business model is backwards.</text></item><item><author>jusben1369</author><text>I don&amp;#x27;t think I missed it but I am confused why the author steered clear of some really interesting data. Based on the table Walmart has 2X the profit margin of Costco. Walmart&amp;#x27;s doing around 4.5x topline revenue but over 9x the total profit amount.&lt;p&gt;For the author&amp;#x27;s central point to hold true those numbers need to be more closely aligned. That is, they need to be roughly the same in % terms. They aren&amp;#x27;t, which means one or both of the players are doing something substantially different in their approach. Given that labor costs are the single largest expense for these types of business it&amp;#x27;s not unreasonable to reach the conclusion of those she&amp;#x27;s rebutting with this article. Namely that Walmart is overly maximizing profits based on the back of paying extremely low wages. To put it another way, if for some reason Walmart was told to bring it&amp;#x27;s margins in line with Costco the easiest way to do that would be to bring your wages up and keep your prices the same.&lt;p&gt;Let&amp;#x27;s do back of the envelope math based on the chart in the article. If Walmart had the margins of Costco rather than the current ones that would see it&amp;#x27;s profit dip from $15.6 billion to $7.53 billon. That in turn would &amp;quot;free up&amp;quot; $8 billion in what is now pure profit. With 2 million global employees you could pay them all $4K more. That&amp;#x27;s a 20% salary increase for the basic salary they highlighted of $20K per year.&lt;p&gt;I&amp;#x27;m not bashing Walmart. I&amp;#x27;m just pointing out that Costco seems to have made the decision to have meaningfully smaller margins than Walmart. Given where the bulk of their costs lie they must have had the conversation more than once about paying folks less to move those margins up to please Wall Street more. Yet they have decided not to do that. Perhaps it&amp;#x27;s simply because they believe the business benefit around being easier for them to be accepted in new communities (and thus grow) based on the real and perceived perception that they treat their workers well.&lt;p&gt;PS: Anecdotally Walmart opened near us two months ago. I have now been there 4 or 5 times. I am struck by just how many people there are working there on the floor. There seem to be too many whenever I&amp;#x27;m there. They look bored and so congregate in groups and shoot the breeze. I couldn&amp;#x27;t get that out of my mind as the author kept stressing they really need a lot more employees.</text></item></parent_chain></comment><story><title>Why Wal-Mart Will Never Pay Like Costco</title><url>http://www.bloomberg.com/news/2013-08-27/why-walmart-will-never-pay-like-costco.html?utm_source=buffer&amp;utm_campaign=Buffer&amp;utm_content=buffer8003f&amp;utm_medium=twitter</url></story>
<instructions>Your goal is to analyze the following comment and estimate how highly it will be upvoted by the Hacker News community.</instructions><comment><author>cpleppert</author><text>&amp;gt;&amp;gt;Did you notice the data point in the article that Costco makes $2 billion in membership revenue and yet makes $1.7 billion in profit, which means they effectively lose money on their sales?&lt;p&gt;I&amp;#x27;m pretty sure the revenue isn&amp;#x27;t net. It would mean they have absurd retail margins on their members and negative ones on every other product sold; which doesn&amp;#x27;t make a lot of sense.&lt;p&gt;&amp;gt;&amp;gt;In fact, a little known feature of Costco&amp;#x27;s business model is their ability to sell all their stock well before their suppliers require payment for goods (Net 30)? This means they have an effectively _negative_ cash conversion cycle, or in other words, their suppliers are paying to stock their products.&lt;p&gt;That could just be their way of handling stocking fees. They handle a lot of merchandise they can&amp;#x27;t afford to stick into inventory.</text><parent_chain><item><author>markost</author><text>Did you notice the data point in the article that Costco makes $2 billion in membership revenue and yet makes $1.7 billion in profit, which means they effectively lose money on their sales?&lt;p&gt;In fact, a little known feature of Costco&amp;#x27;s business model is their ability to sell all their stock well before their suppliers require payment for goods (Net 30)? This means they have an effectively _negative_ cash conversion cycle, or in other words, their suppliers are paying to stock their products.&lt;p&gt;Everything about Costco&amp;#x27;s business model is backwards.</text></item><item><author>jusben1369</author><text>I don&amp;#x27;t think I missed it but I am confused why the author steered clear of some really interesting data. Based on the table Walmart has 2X the profit margin of Costco. Walmart&amp;#x27;s doing around 4.5x topline revenue but over 9x the total profit amount.&lt;p&gt;For the author&amp;#x27;s central point to hold true those numbers need to be more closely aligned. That is, they need to be roughly the same in % terms. They aren&amp;#x27;t, which means one or both of the players are doing something substantially different in their approach. Given that labor costs are the single largest expense for these types of business it&amp;#x27;s not unreasonable to reach the conclusion of those she&amp;#x27;s rebutting with this article. Namely that Walmart is overly maximizing profits based on the back of paying extremely low wages. To put it another way, if for some reason Walmart was told to bring it&amp;#x27;s margins in line with Costco the easiest way to do that would be to bring your wages up and keep your prices the same.&lt;p&gt;Let&amp;#x27;s do back of the envelope math based on the chart in the article. If Walmart had the margins of Costco rather than the current ones that would see it&amp;#x27;s profit dip from $15.6 billion to $7.53 billon. That in turn would &amp;quot;free up&amp;quot; $8 billion in what is now pure profit. With 2 million global employees you could pay them all $4K more. That&amp;#x27;s a 20% salary increase for the basic salary they highlighted of $20K per year.&lt;p&gt;I&amp;#x27;m not bashing Walmart. I&amp;#x27;m just pointing out that Costco seems to have made the decision to have meaningfully smaller margins than Walmart. Given where the bulk of their costs lie they must have had the conversation more than once about paying folks less to move those margins up to please Wall Street more. Yet they have decided not to do that. Perhaps it&amp;#x27;s simply because they believe the business benefit around being easier for them to be accepted in new communities (and thus grow) based on the real and perceived perception that they treat their workers well.&lt;p&gt;PS: Anecdotally Walmart opened near us two months ago. I have now been there 4 or 5 times. I am struck by just how many people there are working there on the floor. There seem to be too many whenever I&amp;#x27;m there. They look bored and so congregate in groups and shoot the breeze. I couldn&amp;#x27;t get that out of my mind as the author kept stressing they really need a lot more employees.</text></item></parent_chain></comment><story><title>Why Wal-Mart Will Never Pay Like Costco</title><url>http://www.bloomberg.com/news/2013-08-27/why-walmart-will-never-pay-like-costco.html?utm_source=buffer&amp;utm_campaign=Buffer&amp;utm_content=buffer8003f&amp;utm_medium=twitter</url></story>