BUILT ON values
Jim Sinegal and Jeff Brotman,
2007 shareholders’ meeting.
24 ;e Costco Connection JANUARY 2012
SEVERAL YEARS AGO a Costco clothing
buyer was able to purchase a large quantity of
high-end name-brand jeans at an extremely
low price, and the pants showed up in the
warehouses for $29.99. ;e 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. ;e idea of keeping the
price at $29.99 was brie;y ;oated—potentially
bringing in a handsome payo;, considering
Costco could sell millions of pairs of jeans. But
that 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
As Costco CEO Jim Sinegal steps
down, a look back— and ahead
has been Costco’s modus operandi from the
start. ;e 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? ;e customer’s never
going to know the di;erence,’ ” Jim explained
to Chesley Sullenberger for an upcoming book
by the famed pilot. “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?’ ”
It’s an approach that traces its roots to two
businesses where Jim and many other current
Costco executives worked early in their retail
careers—Fed-Mart and Price Club. ;ere’s no
doubt it works. Today, Costco is on its way to
becoming a company with $100 billion in
annual sales, nearly 600 warehouses in nine
countries and 64 million members worldwide, making it the third-largest retailer in
the U.S. The warehouse club concept is a
dominant part of today’s retail landscape, and
Costco is the sales leader in the category, with
$89 billion in annual sales.
On the occasion of Jim’s stepping down as
CEO (he’ll stay on as an adviser for a year),
e;ective this month, ;e Connection thought
it would be a good time to look at Costco’s
history and o;er readers a glimpse ahead.
Price was right
In 1954, in San Diego, a group of local
businessmen approached attorney Sol Price,
looking for investors for a new retail concept:
a large warehouse-style store featuring depart-ment-store-quality products at lower prices.
;e idea they proposed was that selling lots of