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
They do well. They're generally special order. I think we sell more of them online than we do in our warehouses.
Are certain locations really great for coffins?
You mean like Florida [laughs]? No, no -- the unfortunate thing is people pass on everywhere.
What's done well that has surprised you?
Our Kirkland Signature wines. I thought, in that category of goods, people would be reluctant to take a house brand.
Kirkland Signature has become one of the most successful house brands out there.
There was so much pressure on prices going up, it created an umbrella for private labels to sneak in -- and under -- and to create significant savings. But we made up our minds that if we were going to make a private label, we weren't going to equivocate on the quality. Customers shop with us for value. They don't shop with us for cheap prices on cheap merchandise. They expect us to deliver value on quality.
What's an area that didn't work?
You don't have enough space in your magazine to talk about all the things that we've tried that didn't work out. Some time ago, we tried to get involved in the home-improvement business. We were going to have paint. There are places where you can get thousands of colors of paint. We were going to have four, and three of those were going to be white [laughs]. It's safe to say we underwhelmed the customer.
Do suppliers still balk at your policy of not marking products up more than 15%?
There will always be people who are going to be reluctant to sell to us. They use a lot of different excuses, but when you cut through all the defecation, the fact is, they don't want to see our prices on their merchandise. But most people have come around to say, "Hey, this is a pretty good company to do business with. They can sell a lot of our products." We have high-end customers. If anyone wants to purchase a Movado watch or Michelin tires or Waterford crystal, it's our customer.
How is the current economic climate impacting Costco?
We are subject to elements of the turndown just like everyone else. You might argue, "Well, gee, the value concept really holds these guys in good stead because people are looking for better pricing and perhaps are willing to go out of their way to find it." But Costco was developed to be cash-and-carry, catering primarily to businesspeople, and that business customer is probably seeing their business suffer a little bit, so their purchases are going to go down.
There are definitely purchases that are being deferred: patio furniture, housewares, and domestic products -- blankets and things like that. The upside is we're seeing more purchases of basic stuff like health and beauty aids and food. Apparel is doing reasonably well, but we're not in the business of selling $800 cocktail dresses.
Our healthiest business from a standpoint of sales growth has been in Asia; we're in South Korea and Taiwan and Japan. At the moment, our weakest, I would say, is in parts of California, Arizona, and around Las Vegas. Those are the places where we think more people have been hurt relative to this mortgage issue.
Are there economic issues you would like the next U.S. president to address?
I would like to see somebody paying attention to the deficits. I think they're significantly higher than have been stated, and they're not even taking into account the war or what's going to happen further down the line with Medicare and Social Security. How are we going to cover those costs? There's got to be some tough decisions made. These problems are not going to go away.
What's your stand on universal health coverage?
We should have it. I think that in the wealthiest nation in the world, it's a shame and disgrace that we don't. We try to provide a very comprehensive health-care plan for our employees. Costs keep escalating, but we think that's an obligation on our part.
What about high gas prices?
Even employees who work at Costco -- who make the type of wages that we pay -- are being hit at the gas pump. We're working very hard to schedule people from the same part of town so they can drive together. We're encouraging van pools. We're even testing 10-hour days, something we've never done in the past. If we can schedule some employees for four 10-hour days, that's one day they don't have to drive to work. They've got a 20% savings in their gas right there.
You've also installed skylights and solar panels in many of your buildings.
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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.