Costco CEO Finds Pro-Worker Means Profitability

What's the secret behind building a multibillion-dollar business empire that has instant name recognition? You might think it depends on a CEO who's ruthlessly competitive and drives company workers relentlessly. Well, Jim Sinegal isn't your typical CEO, and Costco, the business he founded, is not your typical store.

While it may be unorthodox, nobody could say Sinegal's business strategy isn't working. About 45 million shoppers visit Costco, and for some of them the experience borders on the spiritual. Shopper Jose Davila put it this way: "This is the best place in the world. It's like going to church on Sunday. You can't get anything better than this. This is a religious experience."

And Sinegal isn't just interested in taking care of his customers. He wants to take good care of his employees.

"It's a good place to work; they take care of us," said one Costco employee who spoke with "20/20" correspondent Bill Ritter.

And when Sinegal walks into one of his stores, he's treated like a celebrity. His employees seem to genuinely like him. And the feeling's mutual.

"The employees know that I want to say hello to them, because I like them," he said.

Just Jim

Unlike the stereotypical CEO, Sinegal doesn't try to distance himself from his employees. He even wears a name tag -- but not one that says "Jim, the CEO" or "Jim, Costco Founder." It just says Jim. He easily could be mistaken for a stock clerk.

His philosophy is simple, he said. "We have said from the very beginning: 'We're going to be a company that's on a first-name basis with everyone,'" he said.

That also includes answering his own phone. "If a customer's calling and they have a gripe, don't you think they kind of enjoy the fact that I picked up the phone and talked to them?" he said.

The son of a steelworker, Sinegal began in the warehouse business, loading mattresses. Sinegal's working-class values are ingrained in Costco's corporate culture. That may in fact be the key to the company's success

"Our code of ethics says we have to obey the law. We have to take care of our customers, take care of our people. And if we do those things, we think that we'll reward our shareholders," Sinegal said.

He certainly has rewarded them. This year's sales total more than $52 billion from 462 stores in 37 states and eight countries. Costco is now the nation's fourth-largest retailer, selling everything from crab legs to flat-screen TVs to caskets -- and even a Picasso painting.

Part of Costco's genius is its simplicity. A typical Wal-Mart stocks more than 100,000 items, Costco stocks only 4,000. Stocking only high-quality goods, Costco attracts the most affluent customers in discount retailing -- with an average income of $74,000.

Ray Dinari, a criminal defense lawyer and loyal Costco shopper, said: "I think I spend over $20,000 -- $25,000 a year buying all my products here from food to clothing -- except my suits. I have to buy them at the Armani stores."

The secret to Costco's profit is simple, too. Its margin on each item isn't very high -- but Sinegal says they make it up on volume. To give you an idea of the incredible volume, Costco sold 90,000 karats of diamonds and 26 million rotisserie chickens in 2004.

Costco is also the largest seller of fine wines in the world. And during this holiday season, it will sell $16 million worth of pumpkin pies.

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