Morningstar awarded Costco CEO Jim Sinegal its CEO of the year. Like infosec, retail is a tough business, and Sinegal and Costco succeeded by following a core set of values and by doing things differently.
Several years ago a Costco clothing buyer was able to purchase a large quantity of high-end brand-name jeans at an extremely low price, and the pants showed up in the warehouses for $29.99. The same jeans were selling for $50 at department stores.
It turns out that the buyer was able to negotiate an even better deal on the next order, about $7 less per pair. The idea of keeping the price at $29.99 was briefly floated - potentially bringing in a handsome payoff, considering Costco could sell millions of pairs of jeans. But the notion was quickly and forcefully rejected- and the price dropped to $22.99 a pair, or just a few dollars over cost.
Crazy, right? Yes if you follow traditional retail rationale. But going against convention has been Costco's modus operandi from the start. The person to best explain the approach is Jim Sinegal, Costco co-founder and longtime CEO:
"in traditional retail the thinking is 'Gee, I'm selling this thing for ten bucks, I wonder if I can get eleven for it? The customer's never going to know the difference. We look at it and we say, 'Selling this thing for ten bucks, how do I get it to nine? And then if I get it to nine, how do I get it to eight?'"
This little story illustrates the Costco mindset, which by itself would be an impressive achievement, but Costco values integrity for more than just low prices. At the top SInegal answers his own phone and takes an annual salary of $400k/year. At the employee level, Costco is unique among big retailers in that they pay health benefits, a 50% higher wage, have employee retention rates near 90% (unheard of in the space), and did not lay employees off during the financial crisis. This leads to a great customer experience, and for shareholders the highest valuation of major retailers. You often hear the term "value chain" in business, but Costco actually built one.
Of course, creating a virtuous circle like Costco has isn't easy, otherwise everyone would do it. Its not a stright line path, learning and adapting is required, and this is not an accident either - as Jim Sinegal says "If you aren't spending 90% of your time teaching, you aren't doing your job."
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