Why Costco Is Holding Onto Its Diversity Initiatives

Summary

Summary of WSJ What’s News Episode: “Why Costco Is Holding Onto Its Diversity Initiatives”

Released on January 23, 2025, by The Wall Street Journal

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1. President Donald Trump's America First Strategy at the World Economic Forum

The episode opens with a focus on President Donald Trump's recent address at the World Economic Forum in Davos, Switzerland. Host Alex Osila highlights Trump's stern message to global business leaders, emphasizing his commitment to prioritizing American manufacturing.

Key Points:

• Tariff Threats: Trump warned that businesses not producing in the U.S. would face tariffs. He stated, “My message to every business in the world is very simple. Come make your product in America and we will give you among the lowest taxes of any nation on earth... if you don't make your product in America... you will have to pay a tariff” (00:56).
• Frustration with European Tariffs: Trump expressed dissatisfaction with European tariffs on American agricultural products and automobiles, signaling potential retaliatory measures.
• Oil Price Pressure on Russia: He urged OPEC, led by Saudi Arabia, to reduce oil prices as a strategy to pressure Russia to cease its invasion of Ukraine, although no immediate response was received from the Saudi government.

Impact on Markets: Trump’s rhetoric correlated with a positive movement in U.S. stock indices. The S&P 500 achieved its first record of the year, the Dow Jones Industrial Average climbed by approximately 0.9%, and the Nasdaq increased by roughly 0.2% (01:29).

2. MicroStrategy’s Bold Bet on Bitcoin and Its Appeal to Conservative Investors

A significant portion of the episode delves into MicroStrategy's strategic investment in Bitcoin, exploring how it has attracted a unique group of conservative investors traditionally risk-averse.

Key Points:

• Massive Bitcoin Holdings: MicroStrategy owns approximately $48 billion in Bitcoin, a move financed partly through issuing convertible bonds. Last year alone, the company issued $6.2 billion in convertible debt—the highest ever by a single company in a calendar year (02:00).

• Attraction to Conservative Investors: Vicky Huang, a WSJ crypto reporter, explains that unlikely investors, such as insurance companies, are drawn to MicroStrategy's bonds due to their strong performance and the belief in Bitcoin’s growth potential (03:22).

  Vicky Huang: “What we found is it's a three-part answer... the performance of these bonds have been really, really strong... they're essentially Bitcoin bonds...” (03:22).

• Convertible Arbitrage Strategy: Hedge funds and mutual fund asset managers utilize MicroStrategy’s volatile stock to profit through convertible arbitrage, benefiting from the stock’s volatility which aligns with Bitcoin’s inherent fluctuations (05:17).

• Replication by Other Companies: MicroStrategy's success has inspired other firms, including Bitcoin miners like Mara, to adopt similar investment strategies (05:37).

3. Costco’s Commitment to Diversity Amid Increasing Pressure

Post-break, the discussion shifts to Costco’s steadfast dedication to its Diversity, Equity, and Inclusion (DEI) initiatives amidst a growing backlash against such programs in both government and the private sector.

Key Points:

• Shareholder Opposition: Costco faces a shareholder vote on a proposal by a conservative activist group aiming to evaluate the financial risks of DEI initiatives. The company has urged shareholders to reject this proposal (06:45).

• Rationale Behind DEI Commitment: Sarah Nassauer, a WSJ reporter covering big retailers, explains that Costco views DEI as integral to its success. The company believes that these initiatives help attract top talent, foster innovation, and enhance product selection, thereby benefiting the overall business (06:45).

  Sarah Nassauer: “They said that their DEI efforts are part of what has made them so successful... we're committed to this and it's good for our business.” (06:45).

• Customer Loyalty and Corporate Strategy: With a 92% annual membership renewal rate, Costco’s loyal customer base enables it to maintain its DEI focus without being as reactive as other companies. Unlike firms with significant public relations departments or heavy reliance on e-commerce, Costco emphasizes in-store experiences and employs a higher wage and benefit structure to support its DEI goals (06:45).

• Scope of DEI Initiatives: Costco’s efforts are more understated compared to other corporations. Instead of extensive public campaigns, their approach includes tying executive bonuses to social objectives and regularly reporting workforce demographics (09:22).

4. Additional Business Highlights

The episode also touches on other significant business news:

• Sackler Family Opioid Litigation Settlement: The Sackler family, owners of Purdue Pharma, has agreed to a $7.4 billion settlement over lawsuits related to the opioid crisis. This includes $6.5 billion paid over 15 years and a one-time payment of $900 million by the company. Importantly, family members retain the potential for future liabilities (09:22).

• CNN’s Workforce Reduction: CNN is laying off approximately 200 employees (6% of its workforce) as part of a strategic shift towards digital growth and the launch of a new streaming service (09:22).

Conclusion

This episode of WSJ What’s News provides an in-depth analysis of current business strategies and market movements, from President Trump’s protectionist policies to innovative investment approaches in the crypto space, and steadfast corporate commitments to diversity. Through expert insights and detailed reporting, listeners gain a comprehensive understanding of the forces shaping today’s economic landscape.

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Produced by Pierre Bienname and Anthony Banci with supervising producer Michael Kosmides. Host: Alex Osila for The Wall Street Journal.

Transcript

[Alex Osila]

President Donald Trump pushes his America first approach in an address at the World Economic Forum. Plus, why Costco is standing by its diversity initiatives and how MicroStrategy is drawing conservative investors to put their money in Bitcoin.

[Vicky Huang]

A lot of these bond investors, usually investors that play it safe, are starting to believe in the potential of Bitcoin to go up over the short, medium to long term.

[Alex Osila]

It's Thursday, January 23rd. I'm Alex Osila for the Wall Street Journal. This is the PM edition of what's News, the top headlines and business stories that move the world today. In a video address at the World Economic Forum in Davos, Switzerland, President Trump told business leaders that if they don't make their products in the US they should expect to pay a tariff.

[Donald Trump]

My message to every business in the world is very simple. Come make your product in America and we will give you among the lowest taxes of any nation on earth. We're bringing them down very substantially, even from the original Trump tax cuts. But if you don't make your product in America, which is your prerogative, then very simply you will have to pay a tariff. Differing amounts, but a tariff which will direct hundreds of billions of dollars and even trillions of dollars into our treasury to strengthen our economy and pay down debt.

[Alex Osila]

Trump also expressed frustration with European tariffs on American farm products and cars. And he called on the Saudi Arabia led Organization of the Petroleum Exporting Countries, or opec, to lower the price of oil as a move that could pressure Russia to call off its invasion of Ukraine. The Saudi government didn't immediately respond to a request for comment. Separately, a federal judge blocked President Trump's executive order that aimed to end birthright citizenship. In a lawsuit brought by a coalition of Democratic state attorneys general, District Judge John C. Kunauer said he would enter a temporary restraining order that prohibits the Trump administration from implementing the executive order until he can hear arguments over its legality. The restraining order would be in effect for 14 days. Between Trump's speech, his promises for tax cuts and AI investment, plus a strong start to earnings season, US stock indexes were up today. The S&P 500 closed at a new record, its first of the year, rising about 0.5%. The Dow climbed approximately 0.9%, and the Nasdaq was up roughly 0.2%. Software company MicroStrategy is making a big bet on Bitcoin. It owns about $48 billion worth of it, funded in part by selling convertible bonds, debt that can eventually be converted into shares if the stock price rises to a specified level. Last year, MicroStrategy issued $6.2 billion of convertible debt. According to bank of America, that's the most ever issued by a single company in a calendar year. And who buys those bonds? Vicky Huang, who covers crypto for the Wall Street Journal, reports that it's a rather unlikely group of companies. Vicki joins us now. Vicki, you report that many of MicroStrategy's investors are organizations like insurance companies, which aren't known for big risky bets on things like crypto. Why are they so into investing with MicroStrategy?

[Vicky Huang]

What we found is it's a three part answer. One of the reasons why these investors want to buy MicroStrategy bonds is simply because the performance of these bonds have been really, really strong, so that some bond investors almost have to buy it. Especially if you're a convertible bond fund manager and this is in your trading investing universe, it almost makes it so that you have to buy it just to have good performance. The other part of this is that because these are MicroStrategy bonds and MicroStrategy itself has become a leveraged play on Bitcoin, it just means so that these bonds are essentially Bitcoin bonds. A lot of these are unsecured bonds, meaning that MicroStrategy doesn't post collateral to borrow money from investors. However, in a way, these bonds are almost backed by Bitcoin because they're backed by MicroStrategy. And a lot of these bond investors, usually investors that play as safe, are starting to believe in the potential of Bitcoin to go up over the short, medium to long term. And then the last reason is that because the bonds that MicroStrategy issued are convertible bonds. A lot of hedge funds and mutual fund asset managers, they can buy the bonds of microstrategy and short the stock, which basically means betting against the stock. And this trading strategy works only when the stock you're betting against is super, super volatile. And MicroStrategy stock, like Bitcoin is really volatile. So a lot of hedge funds that engage in this convertible arbitrage strategy have been able to make a lot of profits because of the hyper volatility of microstrategy.

[Alex Osila]

Are there other companies doing something similar?

[Vicky Huang]

Yes, there are more and more companies that have started to copy MicroStrategy's playbook. For example, some of the bitcoin miners, such as Bitcoin mining company Mara, want to join in on this ride of momentum and profits.

[Alex Osila]

That was Wall Street Journal reporter Vicky Huang. Thanks, Vicky.

[Vicky Huang]

Thank you for having me.

[Alex Osila]

Coming up, under pressure to reduce its diversity initiatives. Why Costco is holding out. That's after the break. Diversity, equity and inclusion efforts are under fire both in government and the private sector. This week, the Trump administration closed DEI programs within federal agencies and placed all staff working on those programs on paid leave. And as we reported yesterday, activists are pushing banks like Goldman Sachs and JPMorgan Chase to abandon their initiatives as well. But at least one company is sticking with its DEI effort. Costco shareholders are expected to vote today on a conservative activist group's proposal to assess the risks that diversity initiatives pose to the company's stock price. The retailer has urged them to reject it. My colleague Pierre Bienname spoke with Sarah Nassauer, who covers big retailers for the Wall Street Journal. He asked her why Costco is sticking to its DEI efforts.

[Sarah Nassauer]

They said that their DEI efforts are part of what has made them so successful. It helps them attract talent, spur innovation, select merchandise that appeals to shoppers, offer things at a good value. Basically said, you know, we're committed to this and it's good for our business. The way that they have talked about it and you can see this in some of their response to their own customers that have reached out to them about this stuff with concern is, hey, we're an employer that wants to give everyone equal opportunities. We really focus on having a higher wage and benefit structure than our competitors. Those are things that have always been important to us over decades. And we're not changing that. It is just a little bit of a different tone than, than other companies that are on some level, kind of just changing, like switching from one language set of language options to a different set of language options. Right. They're just communicating differently. Customers at Costco, they pay an annual membership fee to shop there and they're pretty loyal. 92% of US members renew that membership each year. How significant is that for Costco's ability to stick to its guns? It seems fairly significant. There are several things at play here. One is that Costco, it's a massive company, but it doesn't really jump on corporate bandwagons. They just tend to do things from a corporate perspective a little bit differently. They don't have a public relations department or even person. They're a retailer that hasn't really tried to quickly grow E commerce sales. They really do want you to come into clubs even though they have a dot com site. And as you said, they have a very, very loyal customer base. And that does allow them to perhaps do things a little differently and be maybe not quite as reactive as other companies. What are Costco's DEI initiatives? They're not as extensive, frankly, as some other companies have developed, say since 2020 in the wake of George Floyd's murder. There were a lot of companies that sort of came out with announcements like Walmart would be one target, would be another about funding new racial equity centers or doing things differently when it came to training workers, things like that. Costco's policies are about things like executive bonuses are partially tied to some social objectives, including diversity, equity, inclusion goals. They do report metrics on gender and race and ethnicity demographics on their workforce, things like that.

[Alex Osila]

That was WSJ reporter Sarah Nassauer speaking to my colleague Pierre Bienname. In other business news, the Sackler family, which owns Purdue Pharma, has struck a new agreement to settle mass litigation around the sale and marketing of opioids. New York Attorney General Letitia James said the family members will pay $6.5 billion over 15 years while the company will fork over an additional $900 million in a one time payment that makes a total of $7.4 billion. Family members won't receive a blanket shield from liability from civil lawsuits. And CNN is laying off about 200 employees, or roughly 6% of its workforce. It's part of a broader effort to boost digital growth and prepare the company to launch a streaming service. And that's what's news for this Thursday afternoon. Today's show was produced by Pierre Bienname and Anthony Banci with supervising producer Michael Kosmides. I'm Alex Osoloff for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.