Costco Defies Street’s Wisdom
By George Anderson
Jim Sinegal, the CEO of Costco, says he pays attention to Wall Street analyst’s criticism of how he runs the warehouse club retailer. He simply doesn’t let it interfere with doing what he believes is in the best interests of the company, its employees and customers.
“On Wall Street, they’re in the business of making money between now and next Thursday,” he told The New York Times. “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.”
One of the major criticisms of Mr. Sinegal is that he is too generous with employee compensation packages.
John Matthews, Costco’s senior vice president for human resources, said the company stands guilty as charged.
“When Jim talks to us about setting wages and benefits, he doesn’t want us to be better than everyone else, he wants us to be demonstrably better,” said Mr. Matthews.
Others contend that Costco is leaving money on the table by not charging as much as it could for many items.
Mr. Sinegal suggests his critics are missing the point.
“The traditional retailer will say: ‘I’m selling this for $10. I wonder whether I can get $10.50 or $11.’ We say: ‘We’re selling it for $9. How do we get it down to $8?’ We understand that our members don’t come and shop with us because of the fancy window displays or the Santa Claus or the piano player. They come and shop with us because we offer great values.”
Mr. Sinegal thinks there are enough precedents in retailing history to justify his determination to keep prices low.
“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.”
Moderator’s Comment: What are the biggest reasons for Costco’s success? What will be the company’s challenges going forward? –
George Anderson – Moderator