Costco Wholesale Corp.'s eclectic product mix and customer-friendly policies have created fiercely loyal shoppers. It's the largest U.S. retailer of its type, amassing an anticipated $65 billion in sales this year from its 514 clubs worldwide.
Company CEO Jim Sinegal, who in 1983 joined investor Jeffrey Brotman, now Costco's chairman, to launch the company, has proved himself to be a master merchandiser, honing Costco's retail model with a success that outstrips competitors, including its chief rival, Wal-Mart Stores Inc.'s Sam's Club.
Investors have largely endorsed Costco's strategy. The retailer's stock trades at a multiple far above most other retailers. But some on Wall Street think Costco should focus more on profit and have been pressuring the 71-year-old chief executive to squeeze customers a little harder.
Sinegal, who works at two folding tables in his office, and who's wardrobe includes items from his stores. was recently interviewed by The Wall Street Journal.
Question: You are constantly balancing the needs of customers, employees and shareholders. Some on Wall Street complain that shareholders seem to come third in that equation. Do they?
Answer:That's not the case. We want to obey the law, take care of our customers, take care of our people and respect our suppliers. And we think if we do those four things pretty much in that order, that we're going to reward shareholders.
Question: Giving customers a great deal can sometimes mean taking a hit on profits. Is it worth it?
Answer:There are all sorts of opportunities where you can try to sneak in a little more margin here and a little more profitability there, but that's not what we're about. When you start suggesting that it's not important to save the customer money . . . you start to fool yourself. The customer trusts us. You don't want to give up on that type of reputation.
Question: You've revoked at least one popular policy: unlimited returns of big electronics. Why did you decide to initiate a 90-day time limit on returns of flat-panel TVs earlier this year?
Answer:We were spending an enormous amount of dollars by taking these things back and (selling them to a salvage company) for 30 to 40 cents on the dollar. Most of the reason for the TVs coming back were that customers couldn't understand what to do with them. We said, "We're going to help you get this thing hooked up. We're going to give you two years of warranty. We're going to make sure, even if we have to send somebody out to your house, that it works." We think we came up with a great solution.
Question: Why has the treasure-hunt technique worked so well for you in attracting customers?
Answer:We try to create an attitude that, if you see it, you ought to buy it because chances are it ain't going to be there next time. You're going to come in and find that maybe we have some Lucky jeans that we're selling. You come in the next time and we don't have those jeans but we have some Coach handbags. That's the treasure-hunt aspect. We constantly buy that stuff and intentionally run out of it from time to time.
Question: Can you recall one of your bigger treasure-hunt disappointments?
Answer: One year, we bought an IBM computer that we were going to sell for, I think, $1,000. We bought thousands of them, and it bombed. We had to lower the price. Several times. Yeah, we're not infallible.
Question: Costco offers a wide range of products under its in-house Kirkland brand. Now you're considering a line of frozen foods by Martha Stewart. Why Martha?
Answer: We think that Martha Stewart is a very creative person who has the ability to help us develop some real gourmet type of products. With her name on it, and perhaps the Kirkland signature name combined — that would have some real credibility. We'll see how the customers react to it. We'll probably introduce our first product right before Christmas.
Question: Costco offers better wages and benefits than most of its rivals. Why is that?
Answer: We think that you get what you pay for. If you hire good people, pay them good wages and provide good jobs and careers, good things will happen in your business.
Question: How does the recent concern over tainted goods from China affect Costco's sourcing of merchandise?
Answer: That type of tainted product doesn't just come from one country. It can come from any number of countries, including our own country. It's going to make us better buyers in terms of looking at every single thing that we buy and testing things much more carefully.
Question: You've already expanded to several countries abroad, such as Japan and Mexico. Where next? China? India?
Answer: We would have to have been living on Mars not to recognize that those are two up-and-coming markets. India at the moment has laws that restrict our ability to do business there. We think probably that will change eventually. China's got lots of possibilities as well, but we don't think there's any big rush to go to China. We're going to take our time and make sure we now what we're doing.
Question: You've led Costco in one capacity or another since its inception. Who will succeed you?
Answer: We haven't established a specific line of succession because in our view that generally doesn't work. Everybody then starts lobbying and looking sideways. We have a great management team, and that will never be an issue in this company.