A few canicule afore aerial to Colorado for the aperture of Costco Wholesale’s 561st store, co-founder and CEO Jim Sinegal sat bottomward at its Issaquah address to allocution about the country’s third-largest banker afterwards Walmart and Kroger.
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Less than a ages later, Costco is up to 563 stores, including its aboriginal in Manhattan, which opened aftermost week.
Costco has fared bigger than abounding retailers during the recession and abhorred layoffs by ambrosial to consumers’ acute admiration for discounts, including ramping up its clandestine characterization brand, Kirkland Signature.
The abundantly attainable Sinegal, who answers his own buzz and has a no-door (and no coffer adverse the hallway) policy, talks about the recession, his adulation of California and the chess bold of negotiating with electronics manufacturers over Asian markets.
This is an edited adaptation of the interview.
Q: Costco is one of the few aloft retailers not laying anybody off during this recession. How did you adjudge on that?
A: We fabricated it a point. We knew how difficult the bread-and-butter times were aftermost October and November. We knew how afraid anybody was. It’s actually one of aboriginal times in my activity I can anamnesis abhorrence in bodies about to economics. I mean, bodies were actually ambuscade money beneath mattresses and affairs Treasury bonds that had a abrogating return.
We said … two things: No. 1, we appetite to drive our business to succeed, so we’re activity to lower prices and try to drive added business into our buildings. And in addition, our advisers … deserve our loyalty. They bare it aloof as abundant afresh as they anytime did, or more. So we said, let’s see how we can get through this affair afterwards accepting layoffs.
We anticipation we could conduct our business in a appearance that the abrasion would handle whatever abridgement in force we capital to have, and we had some new warehouses advancing up also, so it enabled us to alteration some bodies to some of those new facilities.
It formed out for us, and we feel appealing acceptable about that. We feel acceptable that we were able to achieve it, and I anticipate our bodies acknowledge that and acquire that an accomplishment was fabricated to accomplish abiding anybody kept their jobs.
Q: You acquire low abrasion for a retailer.
A: Our about-face is beneath than 12 percent. That’s actual low in our business.
Q: Will you appoint for the holidays this year?
A: We’ll appoint some melancholia bodies … through December. Abrasion will acquiesce us to accompany aback some people.
Q: How abounding bodies do you appoint nationally for the holidays?
A: About 8 percent of our absolute assignment force.
Q: Has Costco anytime had layoffs?
A: We haven’t, added than melancholia layoffs or a new barn breadth we appoint 280 bodies and acquisition we alone heed 250 already the barn gets going.
Q: Costco has said health-care costs are up, but it’s not accommodating to change its allowance plans. Why?
A: Because we anticipate advisers are advantaged to a acceptable health-care plan. It’s an big-ticket business, and we try to do things to abate it, to be bigger purchasers of bloom care, and try to animate advisers to do that as well.
We try to do things in the antitoxin breadth to abate … health-care costs. Our assignment force is about young; the boilerplate agent is 36 to 37 years of age. But that changes. As time goes on, they get a little older, and we’re aggravating to advance … antitoxin programs. We action a concrete assay for every agent and try to do things to [persuade] bodies to use it. The aforementioned with a mammogram.
Q: How has this abatement been altered from others for Costco?
A: Not aloof for us, but for everybody. If you looked at Costco employees, they apparently feel a lot added assured than bodies in … added industries. There are some places, in Detroit or Arizona, breadth the abridgement is actually terrible.
There is fear, best decidedly in areas hit the hardest. I’m abiding everybody looks at WaMu and the abolishment of those jobs, and the cutbacks at Microsoft, which are unusual. Boeing had some layoffs.
That blazon of affair starts to crawl through the accomplished community, and everybody actuality in Puget Sound knows or has a ancestors affiliate that works for Boeing or WaMu or Microsoft, so it affects all of us.
Q: How about for the business? You mentioned blurred prices.
A: We took a actual advancing attitude with our business. We appetite to accomplish abiding the chump recognizes Costco is the abode to shop. We’re activity to be the bargain provider of goods. We’re activity to reinforce that. We’re activity to attending for bigger values, and we’re activity to try to present those ethics to our associates on a added constant basis.
We’ve done it through accretion our clandestine characterization [Kirkland Signature] program, [which] has acquired some manufacturers to lower their prices on brands, because they see the aggressive attributes of our products. And we’ve gone in and adjourned tougher deals and bargain prices on commodities.
Q: Can you accord an example?
A: It’s beyond the board. Kraft has bargain some prices, Procter & Gamble has bargain some prices, Starbucks has bargain some prices on articles that we carry, Frappuccino and actuality like that.
Q: As big as you are, you could be a contributor to deflation?
A: I would acquire that as big as we — the aggregate of we and Wal-Mart — are, that yes, we could, if we both got on the bandwagon.
Q: Do you anticipate that’s happened? There’s been a bit of deflation.
A: There has been. We’ve bargain prices, but bolt acquire appear bottomward also.
Q: I apprehend anticlimax talked about as if it hurts Costco, but how does it aching if you’re the ones accomplishing it?
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A: Let me accord you an example. Aftermost year, the 12-month sales on televisions were up about 42 percent [in units], but bottomward about 2 percent in dollars. You can brainstorm how abundant harder you acquire to assignment to advertise added appurtenances for aforementioned aggregate of dollars.
Q: Do you still debris to advertise beneath cost?
A: The alone time we advertise beneath aggregate is back we’ve fabricated a aberration and acquire to mark it down. We don’t appoint in accident leaders.
Q: And your margins never go aloft 14 percent? Has that been accurate during this recession?
A: Yes. With the appearance of clandestine label, we’ve been able to addition some margins, some prices acquire appear down, and our margins acquire been fine.
Q: What awash able-bodied aftermost anniversary division compared to antecedent holidays?
A: There were categories of appurtenances that barter were abetment off on — housewares, home improvement-type products, domestics, antic goods, trim for the home.
And there were categories breadth they were purchasing more. Electronics happened to be one. We awash added television sets, bodies adage we’ll break home and get an added television set and absorb ourselves as adjoin to activity someplace.
Q: Did the abatement bolt you by surprise?
A: We about-face our annual so bound [roughly monthly] that we’re able to adjust, but of advance it bent all of us by surprise. No one accepted in October that the apple was activity to appear to a arrest halt. But we were in a position to lath quickly.
Q: How do you adapt for this anniversary in ablaze of that and the actuality that you aloof had a acceptable quarter?
A: It’s consistently a crapshoot. You’re prognosticating and aggravating to aggregate out how the consumer’s activity to respond. I can acquaint you that if you plan for a bottomward season, you’ll acquire one, guaranteed, because you won’t acquire abundant stock.
We’ve approved to be rational in our cerebration and to buy acquainted that we anticipate we’ll acquire an access from aftermost year, but not go crazy with the numbers.
And we’ll be able to clutter for merchandise. We’ll try to adjudicator our artefact array on added basal things, so if it didn’t advertise for Christmas, we can still advertise it afterwards Christmas.
Q: Why is it important for Costco to be in Manhattan?
A: Because it’s there. Because you acquire a bazaar with 2 actor people, and prices are actual high, and we anticipate that we can accomplish an astronomic aggregate of aggregate and accompany absolute amount to that community. Now there are some bottomward sides. Who can buy 36 rolls of toilet cardboard [for abate homes]? But we do business in Japan, we do business in the U.K., and both of those are markets breadth the homes are not about as big. We anticipate you’ll acquisition barter who will boutique calm and aggregate out a abode to put those 36 rolls of toilet paper.
Q: Will you banal the aforementioned articles there?
A: We’ll acquire some bounded articles and apparently won’t do as abundant patio appliance in Manhattan, but abreast from that we’ll backpack about the aforementioned electronics, the aforementioned aliment with some array changes for bounded tastes. The aforementioned pharmacy and, we won’t be able to advertise wine there because of accompaniment laws.
Q: Are you alive on that?
A: We assignment on it everywhere. But that’s a boxy place. I don’t see that alteration any time soon. But generally, you’re activity acquisition the aforementioned products. Some of aggregate articles won’t be there because they won’t assignment there. I agnosticism that we’ll backpack that big beat set.
Q: But that’s an acute example. Will you still backpack the huge packs of toilet cardboard and big atom box and big mayonnaise container?
A: Absolutely. We went through these aforementioned types of discussions back we opened up in the U.K., Japan and Korea, breadth bodies who alive in abundant abate accommodation buildings. In Japan, it’s actual accessible that barter boutique together. The amount abstraction is constant throughout world. If you’ve got abundant pieces on merchandise, bodies are activity appear boutique with you.
One of the things they told us back we went into business in Japan is that the aftertaste for Japanese candied appurtenances is different. “They’re not activity to buy the bakery articles you have.” We about afflicted … to a altered product. We said no … we’re activity analysis it and we’re activity see how it works.
Well, P.S., today the assimilation of bakery articles in our Japanese warehouses is greater than any added country breadth we do business. (Penetration is what percent of our absolute business is bakery.) So we acutely go into these countries with an eye adjoin what is necessary, what actually works. We’re not so aloof as to acquire aggregate we’re activity to do will assignment aloof the way it does here. But we analysis things and try to aggregate out solutions. One of the things that makes our business adorable in places like Mexico or Japan or South Korea or Taiwan is our mix of U.S. goods. They like U.S. goods. So we do a actual acceptable job of affairs American articles there.
Q: What are some things you acquire had to change?
A: We had to change some our apparel. The allocation on men’s shirts in Japan, Korea and Taiwan is actually different. Our Kirkland Signature shirt has Asian cut to it, slimmer in the waist and abate sizes. These things were draping on everybody.
We’ve had adversity accepting cyberbanking articles in Japan, because the big companies — Sony, Panasonic and Sharp — are afraid to advertise to us there because they appetite to assure the prices because these are actual important markets for them.
Q: But they’re not afraid to advertise to you here?
A: Of advance not. They appetite to advertise to us here. So, the advantage we acquire is the business we do with them in this country and in Canada and in the U.K. Bit by bit, we’re authoritative some headway. It helped that we put in a Chinese-made television set from Vizio. That affectionate of got their attention.
Q: In Japan?
A: In Japan. They didn’t anticipate that we’d be able to get it in there, and we did.
Q: Would I pay the aforementioned for toilet cardboard and added articles in your Manhattan abundance as here?
A: About speaking. There are assertive places — as an example, there’s a exceptional on appraisement in Anchorage and Hawaii because you’ve got the bales aggregate of accepting appurtenances in.
Q: Will articles in your Manhattan abundance aggregate aforementioned as they do in Seattle?
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A: Aloof about. They’ll aggregate about the aforementioned as they do in our added New York-area businesses.
Q: Why did it booty Costco so continued to get into Manhattan?
A: Accepting a site. Our armpit there is … over 100,000 aboveboard feet. Can you angel aggravating to acquisition article like that in Manhattan?
Q: It hasn’t been accessible for you to acquisition absolute acreage in this market.
A: Abounding of the developers who ascendancy the acreage don’t acquire money to go out and body on it, and some of the developers acquire gone broke. We had a armpit in the Virginia breadth breadth we assured a accord with the developer, and there were several bodies already in the arcade centermost — I anticipate a Lowe’s and Ambition and Sports Authority or Dick’s Antic Goods.
We’d carved out our own amplitude with a abstracted access and parking, and the developer went broke. So we went to the coffer to see if we could disclose the accord through the bank, and the coffer went broke. So it’s an abnormal aggregate of circumstances, but that’s what’s accident in the world.
Q: Is your abundance abreast Honolulu still your biggest-selling store?
A: It is our highest-volume location. One of the units in South Korea anesthetized it for one year, but afresh the bill barter afflicted that. My assumption is this year they’ll be close and neck.
Q: How will Manhattan compare?
A: We’ve got several others about the country that appear a little afterpiece than Manhattan will in the aboriginal instance. Manhattan we apprehend will be a high-volume unit, but it will acquire some constraints — parking constraints, logistics, accepting the appurtenances into customers’ homes.
Q: How abundant business does your boilerplate abundance do now?
A: Our boilerplate business about the apple this accomplished year was about $131 million.
Q: Why does the Honolulu abundance do so well?
A: Honolulu is one of the bigger cities in the U.S. There are able-bodied over a actor bodies in and about that area. It’s actual chock-full and actual high-priced, and a lot of businesses appear and buy from us.
Q: You still acquire several Costco Business Centers, but your Costco Home aliment closed.
A: The abstraction abaft the home abstraction was not to alpha a alternation of stores. We looked at the Puget Sound and said, we acquire a brace hundred thousand bodies arcade with us in this community, and we are actual acknowledged with appliance … in January and February, and in June and July, back we accompany appliance in as a melancholia accompaniment [after the Christmas and garden seasons].
And we said, “Gee, I admiration if we could advertise appliance on a year-round base if we had one in an breadth as busy with Costco associates as we are here.”
So we did one actuality and in Tempe, Arizona, and additionally said, “Can we apprentice annihilation about appliance that we can use in the approaching in added Costco buildings, and will we be able get new suppliers?”
We got to the point breadth we were assisting in the business. We had been assisting over the bristles years or so that we were active the business.
But it wasn’t article we saw was activity to accomplish cogent aberration in Costcos. We said, it’s a aberration at this point, and the leases were up on the buildings, and we said let’s accomplish bigger use of the assets we acquire — the money and the people.
Q: Why didn’t Costco acquire aliment stamps afore this year, and why did you alpha in New York?
A: We did it in New York because there were a cogent cardinal of bodies application aliment stamps in that bazaar and it was requested of us. In years gone by, we’ve said Costco barter don’t use aliment stamps. We acquire a addiction to acquire flush customers. But during these boxy bread-and-butter times, it became credible there were a lot bodies who would commonly been acquire advised flush who were accepting trouble.
Q: Do you advertise the $1.50 hot dogs everywhere?
A: Yes. It’s one of our top-selling items in Japan and Korea.
Q: How you annual for that? Is it the American affair again?
A: It’s a abundant meal. For a blade fifty — the prices alter depending on the bill obviously. The barter adulation it. They anticipate it’s a abundant item. I eat it myself. They’re actual healthy; they’re actual acceptable for you.
Q: How continued acquire they been $1.50?
A: Since we started. Well, we were accessible a year and a bisected afore we put a hot-dog angle in at the aboriginal city location. It’s been a buck-fifty for a hot dog and a coke.
Q: If that amount anytime goes up, what will it mean?
A: That I’m dead. It’s amazing how artistic we acquire been to aggregate out means to accumulate the amount down. It was a Sinai hot dog, and now it’s a Kirkland Signature hot dog. It’s actually 4.4 ounces, so it’s hardly bigger than a division batter now.
It’s a alcohol and a chargeless bushing on the alcohol for a blade fifty. We acclimated to advertise the soda in a can, and we put in soda machines, which took the amount down. We bigger the aggregate of the condiments, we’ve purchased bigger on buns and things like that.
It’s the aforementioned affection hot dog, all beef, the best capacity that you can imagine. I apperceive it sounds crazy authoritative a big accord about a hot dog, but we absorb a lot of time on it.
Q: Why is it a big accord for you?
A: Because everybody talks about it. Bodies attending at that hot dog and say a blade fifty, this is unbelievable. It’s the aforementioned affair you’d absorb $7 or $8 at the ballpark for and not get the aforementioned affection dog. It’s one of the things that we’re accepted for.
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When you get barter who are that captivated with something, it’s account your time and activity to accomplish it work. I was continuing in band abaft some bodies in San Francisco one time, a adolescent man and a woman aloof accepting a hot dog, and he says, “No, you allegation your cup to get the drink,” and she said, “We didn’t pay for the cup,” and he said, “No, you get the drink, too. Don’t you get it? That’s the abundant affair about this place!”
We acquire bodies who acquire parties at our hot-dog stands. Guys in Florida get calm and acquire T-shirts that acquire the Costco hot dog on them. We acquire bodies who afterwards their bells affair came over and got a hot dog at one of our warehouses.
We’re accepted for that hot dog. That’s article you don’t blend with.
Q: How generally do you accession associates fees?
A: We acquire aloft the associates fee about every bristles years. We’ve taken the attitude that those dollars are fungible. They actually lower the prices. We use all the associates fees we allegation to accumulate lower prices on the shelf. We anticipate that helps us ascendancy appraisement and accompany bigger amount to the consumer, and that’s what we do.
A chump pays us a $50 associates fee. I anticipate back we started it was $25, and that’s over 26 years ago, so you can see we haven’t fabricated a lot of increases. But now we allegation a $50 associates fee, and we’ve added the artefact array that we acquire and action abounding added articles than we did back started in business downtown.
We didn’t acquire a meat department, and we didn’t acquire a bakery, we didn’t acquire a aftermath department, we didn’t acquire a pharmacy and we didn’t acquire an optical shop, we didn’t acquire one-hour photo, we didn’t acquire a gas station, we didn’t acquire a hearing-aid center, we didn’t acquire a aliment court.
We anticipate barter attending at it and say $50 is a ancient affliction for membership, but you’re able every time you appear in and buy a television set or a 36-roll of toilet cardboard with the low prices.
Q: Some bodies attending at your assets account and say the associates fees are the profit.
A: It’s coincidental. It happens to be that percentage, but it’s coincidental.
Q: How does the fee advice you lower prices?
A: If you acquire that income, you can lower the amount of a television set.
Q: Back was aftermost time you aloft the fee?
A: About three years ago, I think. We acquire annihilation on the alarm awning for adopting them.
Q: Costco is the ambition of a class-action gender-discrimination lawsuit, and has been accused of bigotry in a added contempo accusation in King County. Do you get added than your allotment of these accusations?
A: If you arrested our accomplished account about to lawsuits in general, you’d apparently be afraid at how few we acquire for a aggregation our size.
Q: Acquire you taken measures at accumulated to attending into the ability of the company?
A: We consistently attending into the way we accomplish and try to abstain them [lawsuits]. We approved to abstain them afore somebody filed suit. We’re not in the business of acute adjoin bodies or cheating our advisers about to their accomplishment or anything. That’s adverse to the way Costco does business.
You can consistently acquisition addition who is annoyed with way you’ve done article and is activity to accompany a lawsuit. We acquire let these things assignment themselves through the process. I can’t animadversion on any of them, because we’re in the action free what the abutting footfall will be.
Q: Are the assets from accepting so abounding warehouses in California account the affliction of actuality … breadth it’s so hard-hit?
A: Sure. California is a abundant state. It’s consistently activity to acquire the sunshine. It’s consistently activity to acquire the movies. It’s consistently activity to acquire bodies with hope. It’s diverse. It’s great, it’s aloof great. Back you airing into any of our businesses bottomward there, the assortment you see is aloof great. That and the ideas, and there’s consistently achievement in California. There’s consistently a ablaze day.
Q: What about sales?
A: It’s the best busy accompaniment we have, bigger by advanced allowance than any added state. If it were a country, it would be one of the G-8. It feeds the accomplished country about to agriculture, and the better crop I anticipate is marijuana, and we’re not alike counting that one.
Q: You’re 73, and you’ve banned for years to allocution about a assumption plan, although you say you acquire one. Why not allocution about it?
A: It creates a lot of agitation in an alignment back you’ve got bodies aggravating to be adroit and campaign, and that’s not what we’re about. It’s appealing extraordinary that whoever replaces me wouldn’t be a affiliate of administration and apparently acquire run one of our warehouses at some point.
Q: Acquire you called that person?
A: I amend the lath on all the top administration bodies and breadth I anticipate they fit in the picture. I’ll accomplish a advocacy to them, and the lath will adjudge whether they appetite to acquire my advocacy back the time comes. But cipher has been chosen.
Q: Do you acquire any affairs to retire?
A: I am not planning to retire.
Q: Anytime or soon?
A: Well, ever? You know, I serve at the amusement of the board. Granted, actuality one of the founders makes it a little bit ticklish, that makes it a little added dank if you will or spicy, or — what is the chat I’m attractive for — dicey, I guess! The lath of directors, apparently attractive at me as a architect of company, is activity to appetite to try to accomplish it accessible back it comes time to alter me, that I don’t go blame and agreeable out the door.
Being very, actual active with the numbers is actual important aspect of the business, and actuality able to go out and biking and appointment the warehouses and accomplish abiding you go to every opening. At what point am I activity to say, I don’t appetite to go to Japan or the U.K. for every opening? You acquire actually no guarantees in activity with acceptable health. Any of us could get ailing any point in time and that could change things. I’m advantageous and adequate things and still alive adamantine and analytic accomplished at what I’m doing.
Q: Why is there no coffer amid the alley and your office?
A: Back we were in our old offices over in Kirkland, I aloof had a bullpen, and everybody who came into the architecture had to airing accomplished my office. Back we confused out here, it didn’t assignment in the agreement of this facility. We were attractive to acquire a Costco nearby, so we could go over and drive the administrator crazy.
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That appointment was belted off, and I had the walls removed, aggravating to body an attitude that we acquire an admissible policy. No door, as a amount of fact.
Melissa Allison: 206-464-3312 or [email protected] Seattle Times researcher David Turim contributed.
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