Costco CEO and cofounder Jim Sinegal is not your ordinary CEO, unfortunately for all of us. Even though his company is America’s fourth largest retailer, you seldom hear much about Costco in comparison to all the press that Walmart or Target seem to get. Yet Sinegal has quietly been leading Costco to continual profit, same store sales that were up 9% in August, and (most importantly) a huge base of happy customers AND employees. What’s his secret? As a recent Q&A session with Sinegal published in last month’s issue of Fast Company shows, it’s a combination of common sense business, honesty and authenticity, and a willingness to piss off Wall Street analysts and investors.
The problem with many large publicly held corporations is that their number one priority becomes satisfying those stakeholders. That’s a bit like buying a new car every month for a spoiled teenager because they think the old one isn’t new anymore. Yet the analysts and investors are the ones with the money and so many brands are afraid to cross them. The results of not doing so, however, can be disastrous. The recent BusinessWeek story about the demise of Mervyns is a perfect example of this. Every company is beholden to their investors to some degree, but it doesn’t have to prevent you from doing what you know is best for your business. Here are a few lessons you can take from Costco on how pissing off your investors (and the Wall Street analysts) may be the best move you can make to help your business survive the recession.
- Spend money on your employees. Costco pays workers an average of $17 per hour, has a great benefits package and generally focuses on their employees so much that the Fast Company piece notes "Wall Street grumbles that Costco cares more about its customers and empoyees than its shareholders." In any list of prioritized stakeholders, Costco puts their investors exactly where they belong … after their employees and customers.
- Make decent (but not unbelievable) returns. Despite not making investors their top priority, Costco has achieved 70% revenue growth over the past five years and its stock has doubled. Returns are important and at the end of the day, you need to make money in order to even have investors. But why focus on making double digit or even triple digit returns at the expense of everything else? Make a profit, beat the industry average, and consider yourself ahead of the game.
- Avoid exploiting customers or partners. A recent Simpsons episode ridiculed Apple’s supposedly “unofficial” policy of overcharging for accessories by having Lisa try to buy a pair of $40 headphones. Though parody, it’s not that far from the truth for anyone who’s tried to shop for such things at an Apple store. Costco, instead, has a policy of not marking any product up more than 15%. It’s a fair and consistent policy that wins them partners, better price negotiation and happier customers.
- Focus on the long term. Wall Street, by its nature, has a short term outlook. It’s why CMO’s lose their jobs every 18 months and why profits and revenue are measured every quarter. Most businesspeople agree that this is exactly the wrong way to measure a business … as sometimes you need to have a bad quarter or two before seeing big success.
Spend money on employees. Yes. It works people. Costco is one of many that pays employees well. The employees are more loyal and they actually enjoy treating the customer with more respect.
Spend money on employees. Yes. It works people. Costco is one of many that pays employees well. The employees are more loyal and they actually enjoy treating the customer with more respect.
I heartily agree on all counts. Became a member six years ago when they approached me about submitting a column (for their U.S. print publication to members) about SmartPartnering.
They had someone take me on a tour of the place – an over and above gesture – then asked for my advice right after the tour: what improvements would you recommend?
A month later someone responded re why they were not going to do one of the suggestions and were going to do the other. I was so startled.
Wrote the article. I got over 300 emails from members that were so smart and frank. What an impressive mix of customers!
They actually read the publication. And they bought about $8,000 worth of our books and tapes, even though they were not mentioned in the article – just available on the web site that was listed. Almost double that amount came to us after a second article for the Candian market.
I just hope, as is human nature, that employees do not take the higher hourly salary and benefits for granted.
Thanks again for another specific and helpful post Rohit
I heartily agree on all counts. Became a member six years ago when they approached me about submitting a column (for their U.S. print publication to members) about SmartPartnering.
They had someone take me on a tour of the place – an over and above gesture – then asked for my advice right after the tour: what improvements would you recommend?
A month later someone responded re why they were not going to do one of the suggestions and were going to do the other. I was so startled.
Wrote the article. I got over 300 emails from members that were so smart and frank. What an impressive mix of customers!
They actually read the publication. And they bought about $8,000 worth of our books and tapes, even though they were not mentioned in the article – just available on the web site that was listed. Almost double that amount came to us after a second article for the Candian market.
I just hope, as is human nature, that employees do not take the higher hourly salary and benefits for granted.
Thanks again for another specific and helpful post Rohit
These are exactly the reasons why I will not even set a foot into a Walmart and spend my $$$ at Costco. It is also worth mentioning that the CEO’s base salary is below 200k.
With more Mr. Sinegals we would not be where we are right now. Obama should present him as a role model to every struggling company out there.
I would go that far that CEO’s raking in 10s and 100s of millions should be forced to pay the best portion of it back. That includes our current Secretary of the Treasury who raked in 500 Million $$$ as CEO of Goldman Sachs.
Time to pay back Mr. Paulson!
These are exactly the reasons why I will not even set a foot into a Walmart and spend my $$$ at Costco. It is also worth mentioning that the CEO’s base salary is below 200k.
With more Mr. Sinegals we would not be where we are right now. Obama should present him as a role model to every struggling company out there.
I would go that far that CEO’s raking in 10s and 100s of millions should be forced to pay the best portion of it back. That includes our current Secretary of the Treasury who raked in 500 Million $$$ as CEO of Goldman Sachs.
Time to pay back Mr. Paulson!