Busy in Seattle: Costco's same-store sales were up 9% in August; its e-commerce is growing even faster. | photograph by Annie Marie Musselman
Retail Renegade: Costco CEO and cofounder Jim Sinegal says he bought a shirt at Sam's Club -- but just to compare it with Costco's | photograph by Annie Marie Musselman
Flat-screen TVs, wedding rings, mini-quiches, gallon jugs of mayo -- and, of course, free samples. America's fourth-largest retailer, which opened its first warehouse store 25 years ago this fall, is booming. Wall Street grumbles that Costco cares more about its customers and employees than its shareholders; it pays workers an average of $17 an hour and covers 90% of health-insurance costs for both full-timers and part-timers. Yet revenues have grown by 70% in the past five years, and its stock has doubled. In typically blunt language, cofounder and CEO Jim Sinegal makes his case for why "big box" and "progressive" aren't mutually exclusive.
You answer your own phone, you send your own faxes, you talk to customers and employees. What motivates you to stay involved in the details of the business?
Because I love it. I've been doing it all my life, and it's my style. That doesn't mean it's the right style or the style that works for everybody, but it's my style.
You recently announced that August same-store sales were up 9%, yet Wall Street analysts were unhappy because you hadn't met their expectations.
You know, that has nothing to do with reality. Analysts put their own numbers on things, and we can't help them there. We think that 9% in the state of this economy is pretty good.
Some of those analysts have argued that Costco's generosity to its workers hurts the company and its shareholders.
You have to recognize -- and I don't mean this in an acrimonious sense -- that the people in that business are trying to make money between now and next Thursday. We're trying to build a company that's going to be here 50 and 60 years from now. We owe that to the communities where we do business. We owe that to our employees, that they can count on us for security. We have 140,000 employees and their families; that's a significant number of people who count on us. We owe it to our suppliers. Think about the people who produce products for us -- you could probably multiply our family of employees by three or four times. And we owe it to our customers to continue to offer good prices. Our presence in a community makes pricing better throughout that community because when you have a tough competitor in the marketplace, prices come down.
Could we talk about your competition for a minute? Would you be willing to play a little game for us? Costco is to Sam's Club as _____ is to _____.
You're not going to get me to fall for that one. Listen, Sam's is a very formidable competitor. They're part of Wal-Mart. That's the biggest corporation ever in the world in terms of sales volume, and continuing to grow. They've made significant improvements to their Sam's operation. We watch them like a hawk. Hardly a week goes by that I'm not in a Sam's.
Do you buy anything?
I think I purchased one of their men's dress shirts one time, because I wanted to test it in comparison to ours. But I don't buy anything for consumption.
And obviously yours was better.
That's the reason I'm telling you the story [laughs]. No, I mean, we feel it's better. You know, you have to be careful not to delude yourself in what you're putting into a product. The final analysis is, the customers vote at the checkout.
What's the first thing you look for when you go into a Costco?
I try to approach the visits from the standpoint of a customer. Does the building have the right goods out? Is it well-stocked and clean and safe? Nothing is a bigger turnoff than poor housekeeping, most particularly in a place where you have food. Also, when you have a sloppy building, I can guarantee you're going to have high shrinkage [pilfering and shoplifting].
Sales on Costco's e-commerce site are expected to hit $1.6 billion this year, a 33% increase over 2007, and the average customer ticket is more than $400. What do you choose to put on the Web site as opposed to stocking in the regular warehouse?
We've generally tried to select items that are a little more unusual. For example, we've been offering floral arrangements for weddings. It's a complete package: The flowers for the tables and the flowers for the church and the flowers for the bridesmaids and boutonnieres for the men and the corsages for the ladies.
That seems unorthodox for a store like yours. Where do those kinds of ideas come from?
Certainly from our buyers, but they also come from our suppliers. When somebody sees that you're willing to take a chance on coffins, odds are they'll come up with some other good ideas.
Your coffin business is brisk?
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Recent Comments | 23 Total
October 29, 2008 at 1:17pm by Julio Meza
I have practiced Costco CEO's similar style management and got excellent results in IT Administration.
November 19, 2008 at 6:25pm by David Mullings
"We just reconfigured our cashews. They were in a round canister, and we put them in a square canister. It sounds crazy, but we saved something like 560 truckloads a year of that one product. That's significant savings."
That is simply amazing and more companies need to look at simple things like that.
I love Sinegal's style and the fact that he cares so much about his employees, turning up his nose to unreasonable demands from Wall Street.
November 20, 2008 at 10:52am by Mike Cohen
Fortunately and unfortunately for me, I can see Costco from my house. However the lines are so long, I go to BJ's 5 times for every 1 Costco visit. BJ's has self-service checkouts and few manned registers, while Costco has not enough manned registers considering the volume of customers, especially on a Saturday morning. It is unacceptable to have to wait in line for 20 minutes to buy anything.
I have heard that Costco drives those Zamboni's around their stores, cleaning the floors, to give customers the impression that they are in a "warehouse." They could easily wash the floors at night. Appearance is everything. Costco stores are clean, but they also tend to be devoid of employees out on the floor. Finally, as I see people buying huge tubs of brownies, fat laden muffins and huge pies, I realize why we have such as obesity epidemic in America.
November 21, 2008 at 12:41pm by Jonathan Fry
I find great irony in comments made by analysts on Wall-Street that, “Costco’s generosity to its workers hurts the company and its shareholders.” I wonder how many of these analyst, especially given the current economic climate, wished their current employer operated more like Costco? I’m a firm believer that we need more Jim Sinegal’s in the world running big business. At the end of the day, you’ve got to be as efficient as you can, but you also need people to help you run your organization. You’ve got to take care of and protect those people, as best you can, for long term growth and sustainability. I believe Costco does just that. They seem to pay a more than fair wage, offer a strong benefit package, and work with employees to create win-win situations for all parties involved. I have no doubt Costco could hire a team of high-dollar consultants to come in and reduce their operating cost (e.g., slash health insurance coverage, more automatic registers, etc.). These changes could very easily bring a significant savings to Costco and jubilation to many Wall Street analysts. But, these are short-term benefits. Jim Sinegal understands that as a leader you can never make a decision without first thinking about the long term implications.
November 24, 2008 at 4:25pm by Michael McKenna
Bravo for a straight-talkin' business leader. The wall street sentiment of: "Costco’s generosity to its workers hurts the company and its shareholders" is absurd and Sinegal's response was on target. Well compensated, happy employees grab buckets in tough times to help bail out a sinking ship; a lesson many failing companies continue to learn the hard way. I'e never been in a Costco, but I think I might give them a glance next time I need 5 gallons of black olives.
November 27, 2008 at 12:53am by Y Araki
I respect Sinegal’s decision to resist Wall Street’s pressure to become a less generous employer by taking leadership in treating employees well with generous salaries and benefits. Wall Street analysts tend to focus on short-term results for their own interest (money); however, effective leaders need to look at both short-term and long-term results and decide what is best for the company and its stakeholders. I believe treating employees fairly results in providing mutual benefits to all stakeholders in the long-term. Happy employees create happy and loyal customers. With more business from these customers, companies increase profit creating more profit for investors. Good business practices could also contribute to enhancing the company’s brand equity which creates more value for all stakeholders. Sinegal’s leadership is an example of creating a successful connection between wealth and responsibility which benefits all stakeholders.
November 28, 2008 at 5:03pm by Y Araki
I wanted to add a comment that Sinegal’s values are well reflected in Costco’s code of ethics. Sinegal approached the pressure from Wall Street by sticking to Costco’s code of ethics, which puts customers and employees first and then rewards shareholders. Leaders should be accountable for moral climates they create as it can have a large influence on the organization. Having a leader with moral values that one can respect is essential to maintain the highest ethical practices in a workplace and I think Sinegal is a role model of such morally effective leadership.
November 29, 2008 at 5:04pm by Y Araki
One area of interest is how Costco will select and prepare the successor to Sinegal. Sinegal is 72 years old and Costco faces the tough question of whether the company will be able to continue the moral leadership model Sinegal has created. The Costco brand reflects the values and ethical practices of Sinegal and a successor in alignment with such values is critical for Costco’s future success.
December 6, 2008 at 12:36am by Adam Dolan
It's refreshing to hear from a sensible executive who marches to his own orders. Sinegal's approach to business should serve as an example to those Wall Street analysts who were once calling for his head and are now looking for work. The era of cut throat, greed is good, capitalism is coming to an end. People are voting for "progressive" companies with their wallets and in the end it's the customer who gets the final say. While I may hate waiting in the 20 minute checkout line at Costco on a Saturday afternoon, I'm more than willing to pass on the cheaper trip to Sam's or Wal-Mart for the satisfaction that comes from handing my money to a business that's paying a living wage and providing healthcare.
December 14, 2008 at 7:50pm by tony daysog
Sinegal said businesses are\were Costco's original customer base. Does anyone know how much of Costco's overall sales businesses represent? Just curious.
March 15, 2009 at 12:42pm by Jo King
Costco's claims of sustainability are out-and-out greenwashing. This is the same company thet is petitioning the City of Fredericton, New Brunswick to let them destroy an environmentally-protected wetland to buld a new store. This, despite a huge number of other choice areas to build, some within a few minutes of their choice. The wetland is in a preserve that has been protected for over 100 years. Even without the environmental concern, this is a PR nightmare, but Costco doesn't seem to care.
August 13, 2009 at 2:24pm by Tim Gravert
The best investment that any comapny can make right now is in making the light needed to do business more efficient. www.g2led.com is a new breakthrough in Solid State Lighting that gives a business an investemnt directly back into their facilities inprovements that pays back over 25% of every dollar for every year they are in service. With their 5 year unconditional warranty you are guaranteed to not only recoup every dollar invested in the electricty saved, you will also make money within the first 5 years. The lights continue to save for a long life of over 20years. Its a no brainer.
Tim Gravert 970-690-7568 We did it because it made sense. We resell the lights through our inegration channels now too. Your business can do the same through us.
August 13, 2009 at 2:24pm by Tim Gravert
The best investment that any comapny can make right now is in making the light needed to do business more efficient. www.g2led.com is a new breakthrough in Solid State Lighting that gives a business an investemnt directly back into their facilities inprovements that pays back over 25% of every dollar for every year they are in service. With their 5 year unconditional warranty you are guaranteed to not only recoup every dollar invested in the electricty saved, you will also make money within the first 5 years. The lights continue to save for a long life of over 20years. Its a no brainer.
Tim Gravert 970-690-7568 We did it because it made sense. We resell the lights through our inegration channels now too. Your business can do the same through us.