Happy Costco

The past, present and future of Costco is all about keeping "prices low, volumes high, and … employees happy," reports Brad Stone in Bloomberg Businessweek (6/10/13). "This isn’t Harvard grad stuff," says chief executive Craig Jelinek. "We sell quality stuff at the best possible price. If you treat consumers with respect and treat employees with respect, good things are going to happen to you." Good things certainly have happened to Costco: "While competitors lost customers to the internet and weathered a wave of investor pessimism, Costco’s sales have grown 39 percent and its stock price has doubled since 2009."

Craig’s philosophy is simple: "We know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty." This is why, during the depths of the recession, then-CEO Jim Sinegal "approved a $1.50-an-hour wage increase for hourly employees, spread out over three years." His reasoning was that Costco should give its employees more, not less, especially in bad times. Indeed, "Costco pays its hourly workers an average of $20.89 an hour, not including overtime." The US minimum wage currently is $7.25 per hour.

Keeping costs low means that "almost everything is marked up 14 percent or less over cost." Most of its profits – 80% — come from Costco’s $55 annual membership fee, which its happy customers renew "at a rate close to 90%." The low prices also make Costco less vulnerable to "showrooming," although "as the 17th most popular retail site in the US, its online popularity lags the success of its physical stores." This concerns some Costco executives, but Craig Jelinek simply chants his mantra: "As long as you continue to take care of the customer, take care of employees and keep your expenses in line," he says, "good things are going to happen to you."

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