Costco
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JIM SINEGAL, the chief executive of Costco Wholesale, the nation's fifth-largest retailer, had all the enthusiasm of an 8-year-old in a candy store as he tore open the container of one of his favorite new products: granola snack mix. "You got to try this; it's delicious," he said. "And just $9.99 for 38 ounces."
Some 60 feet away, inside Costco's cavernous warehouse store here in the company's hometown, Mr. Sinegal became positively exuberant about the 87-inch-long Natuzzi brown leather sofas. "This is just $799.99," he said. "It's terrific quality. Most other places you'd have to pay $1,500, even $2,000."
But the pièce de résistance, the item he most wanted to crow about, was Costco's private-label pinpoint cotton dress shirts. "Look, these are just $12.99," he said, while lifting a crisp blue button-down. "At Nordstrom or Macy's, this is a $45, $50 shirt."
Combining high quality with stunningly low prices, the shirts appeal to upscale customers - and epitomize why some retail analysts say Mr. Sinegal just might be America's shrewdest merchant since Sam Walton.
But not everyone is happy with Costco's business strategy. Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco's customers but to its workers as well.
Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."
Mr. Sinegal begs to differ. He rejects Wall Street's assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street's profit demands.
Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco's customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers' expense. "This is not altruistic," he said. "This is good business."
He also dismisses calls to increase Costco's product markups. Mr. Sinegal, who has been in the retailing business for more than a half-century, said that heeding Wall Street's advice to raise some prices would bring Costco's downfall.
"When I started, Sears, Roebuck was the Costco of the country, but they allowed someone else to come in under them," he said. "We don't want to be one of the casualties. We don't want to turn around and say, 'We got so fancy we've raised our prices,' and all of a sudden a new competitor comes in and beats our prices."
At Costco, one of Mr. Sinegal's cardinal rules is that no branded item can be marked up by more than 14 percent, and no private-label item by more than 15 percent. In contrast, supermarkets generally mark up merchandise by 25 percent, and department stores by 50 percent or more.
"They could probably get more money for a lot of items they sell," said Ed Weller, a retailing analyst at ThinkEquity.
But Mr. Sinegal warned that if Costco increased markups to 16 or 18 percent, the company might slip down a dangerous slope and lose discipline in minimizing costs and prices.
Mr. Sinegal, whose father was a coal miner and steelworker, gave a simple explanation. "On Wall Street, they're in the business of making money between now and next Thursday," he said. "I don't say that with any bitterness, but we can't take that view. We want to build a company that will still be here 50 and 60 years from now."
IF shareholders mind Mr. Sinegal's philosophy, it is not obvious: Costco's stock price has risen more than 10 percent in the last 12 months, while Wal-Mart's has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19.Mr. Dreher said Costco's share price was so high because so many people love the company. "It's a cult stock," he said.
Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco's workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent.
"He has been too benevolent," she said. "He's right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden."
Mr. Sinegal says he pays attention to analysts' advice because it enforces a healthy discipline, but he has largely shunned Wall Street pressure to be less generous to his workers.
Continued (NYT)
Some 60 feet away, inside Costco's cavernous warehouse store here in the company's hometown, Mr. Sinegal became positively exuberant about the 87-inch-long Natuzzi brown leather sofas. "This is just $799.99," he said. "It's terrific quality. Most other places you'd have to pay $1,500, even $2,000."
But the pièce de résistance, the item he most wanted to crow about, was Costco's private-label pinpoint cotton dress shirts. "Look, these are just $12.99," he said, while lifting a crisp blue button-down. "At Nordstrom or Macy's, this is a $45, $50 shirt."
Combining high quality with stunningly low prices, the shirts appeal to upscale customers - and epitomize why some retail analysts say Mr. Sinegal just might be America's shrewdest merchant since Sam Walton.
But not everyone is happy with Costco's business strategy. Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco's customers but to its workers as well.
Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."
Mr. Sinegal begs to differ. He rejects Wall Street's assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street's profit demands.
Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco's customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers' expense. "This is not altruistic," he said. "This is good business."
He also dismisses calls to increase Costco's product markups. Mr. Sinegal, who has been in the retailing business for more than a half-century, said that heeding Wall Street's advice to raise some prices would bring Costco's downfall.
"When I started, Sears, Roebuck was the Costco of the country, but they allowed someone else to come in under them," he said. "We don't want to be one of the casualties. We don't want to turn around and say, 'We got so fancy we've raised our prices,' and all of a sudden a new competitor comes in and beats our prices."
At Costco, one of Mr. Sinegal's cardinal rules is that no branded item can be marked up by more than 14 percent, and no private-label item by more than 15 percent. In contrast, supermarkets generally mark up merchandise by 25 percent, and department stores by 50 percent or more.
"They could probably get more money for a lot of items they sell," said Ed Weller, a retailing analyst at ThinkEquity.
But Mr. Sinegal warned that if Costco increased markups to 16 or 18 percent, the company might slip down a dangerous slope and lose discipline in minimizing costs and prices.
Mr. Sinegal, whose father was a coal miner and steelworker, gave a simple explanation. "On Wall Street, they're in the business of making money between now and next Thursday," he said. "I don't say that with any bitterness, but we can't take that view. We want to build a company that will still be here 50 and 60 years from now."
IF shareholders mind Mr. Sinegal's philosophy, it is not obvious: Costco's stock price has risen more than 10 percent in the last 12 months, while Wal-Mart's has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19.Mr. Dreher said Costco's share price was so high because so many people love the company. "It's a cult stock," he said.
Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco's workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent.
"He has been too benevolent," she said. "He's right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden."
Mr. Sinegal says he pays attention to analysts' advice because it enforces a healthy discipline, but he has largely shunned Wall Street pressure to be less generous to his workers.
Continued (NYT)
GhostOfTomJoad
500+ Posts
The last 2 articles posted make great points. One thing I've always noticed (and liked) is the minimal turnover @ the Costco we go to (183/Braker). I can honestly say I've never had a bad customer service experience there & I'm sure that's due in large part to the fact that the employees like their work environment.
horn blooded
100+ Posts
I bought a car battery for a coworker this week and he ended up saving $40.00, even after buying me lunch. He had priced batteries at all the major vendors and was ready to buy a lower end battery for $80 after all required fees. He ended up with a great battery with a great warranty from Costco for $60.00. One that would have cost him $100 elsewhere.
I dont have medical plan right now so when i get Rx for meds and there is a generic I go there. They blow walgreens, cvs, and even sams out of the water as far as prices go. You might be able to get your Rx filled there without a membership but its still something I appreciate and makes the membership worth even more for me. I love me some costco and I'm a college student living alone, added my mom as my 2nd and she loves the place too.
A recent interview with Jim Sinegal, Costco CEO. Incredible manager.
We were regulars at the 183 Costco when we lived in Austin. We moved to the DC area last summer and have been going to the Costco in Arlington, but I get more pissed off every time I go.
First of all, it's super crowded. If you try to go there on a weekend, just forget it. Second of all, the layout is ridiculous. Toilet paper by the produce section? Really? And third, in Austin they'd put all your loose stuff in boxes at the checkout table. In D.C., you have to check out, then push your cart to where a bunch of empty boxes are piled up, dig one out that's reasonably sized and do it yourself.
Kind of sums up the difference between Austin and the East Coast, really.
First of all, it's super crowded. If you try to go there on a weekend, just forget it. Second of all, the layout is ridiculous. Toilet paper by the produce section? Really? And third, in Austin they'd put all your loose stuff in boxes at the checkout table. In D.C., you have to check out, then push your cart to where a bunch of empty boxes are piled up, dig one out that's reasonably sized and do it yourself.
Kind of sums up the difference between Austin and the East Coast, really.
Uncle Rico
1,000+ Posts
Diapers and wipes there are insanely cheap. We also buy stuff like meat/fish which is awesome quality given the price. My tires were extremely cheap and the service was greatness.
In summary, if Costco was a chick it would be Marissa Miller.
In summary, if Costco was a chick it would be Marissa Miller.
Summerof79
2,500+ Posts
The $100 executive membership is the way to go as you pay $100 one time and the membership rebate pays for itself from then on.
Wine- very good pricing
beer- Selectively good pricing
Coffee- mind blowing pricing
Great seasonal items, and has been said the meat quality is excellent. I think their biggest sellers are actually toilet paper and paper towels by volume, from a show I watched once. PLUS they are great on returns. Not as great as they were due to abuse by memebers but still very very good in standing behind their products. Call a manufactuer about a problem when you bought it at costco and they WILL bend over backwards to help you from my experience.
Plus their gas is usually a bit cheaper though I don't think you get a rebate on the gas unless you get one of their gas specific cards?
Wine- very good pricing
beer- Selectively good pricing
Coffee- mind blowing pricing
Great seasonal items, and has been said the meat quality is excellent. I think their biggest sellers are actually toilet paper and paper towels by volume, from a show I watched once. PLUS they are great on returns. Not as great as they were due to abuse by memebers but still very very good in standing behind their products. Call a manufactuer about a problem when you bought it at costco and they WILL bend over backwards to help you from my experience.
Plus their gas is usually a bit cheaper though I don't think you get a rebate on the gas unless you get one of their gas specific cards?
Seattle Husker
10,000+ Posts
My "home store" is the store next to Costco's corporate office. I go there so much that my wife put me on a budget. We have a family of 5 (3 boys) so when I go it's not uncommon for me to spend ~$700/trip. I'll get all the necessities plus another $100-$200 in impulse buys.
Now she restricts me to $300/trip. I guess I'll just have to go there more often.
I'm surprised to see so much support for Costco tires. I work with the spouses of a few Costco employees and they've each told me that Costco doesn't attempt to have the best prices on tires. Discount Tire and Les Schwab will generally have better prices.
Now she restricts me to $300/trip. I guess I'll just have to go there more often.
I'm surprised to see so much support for Costco tires. I work with the spouses of a few Costco employees and they've each told me that Costco doesn't attempt to have the best prices on tires. Discount Tire and Les Schwab will generally have better prices.
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