Jim Sinegal, Costco’s 76 year old CEO, announced that he is retiring in January and will be replaced with Costco President and longtime employee, Craig Jelinek. Analysts hope that Jelinek will continue with the legacies, traditions, and corporate culture that Sinegal created.
Sinegal’s motto has always been not to overcharge the customer for anything. For example, Costco offers customers a $1.50 hot dog and fountain drink combo; the price tag has remained constant for over 25 years. This combo is one of the most representative symbols of Costco’s value proposition. Costco does not sell anything in its warehouse stores with a margin that is higher than 14%, except for its private label products, Kirkland Signature. Kirkland Signature products may have margins that reach 15%.
Costco has maintained the same membership fees for most of its 600 locations for the past 5 years. With commodity prices rising, Costco could raise prices, but tries not to. When the cost of bananas increased in early 2011, Costco raised the per-bunch price by 4 to 5 cents, but reduced the price once the cost of bananas fell.
This frugality and cost saving mindset is engrained in the Costco culture. Most Costco executives answer their own phones. Costco has no public relations staff and a very small investor relations staff, especially compared to other retailers of the same size. Costco’s board has suggested that Costco executives are underpaid; for example, Sinegal has earned $350,000 per year since 1999.
Sinegal is recognized as a pioneer in retailing and as one of the great retail leaders for developing corporate culture. Considering that Costco’s shares have risen nearly 40% in the past year, compared with Walmart’s 6%, Sinegal is also recognized for his success. For the continued growth of Costco, Jelinek should continue the strong culture and cost saving traditions of his predecessor.
1. What is Costco’s marketing strategy?
2. What are Costco’s bases for sustainable competitive advantage
Source: Jessica Wohl, “Costco’s CEO’s legacy continues as he steps down,” September 1, 2011, Reuters