Costco Wholesale Discussion Question

CASE 2: Costco Wholesale in 2008: Mission, Business Model, and Strategy

Arthur A. Thompson

The University of Alabama

Jim Sinegal, cofounder and CEO of Costco Wholesale, was the driving force behind Cost-co’s 25-year march to become the fourth largest retailer in the United States and the eighth largest in the world. He was far from the stereotypical CEO. A grandfatherly 71-year-old, Sinegal dressed casually and unpretentiously, often going to the office or touring Costco stores wearing an open-collared cotton shirt that came from a Costco bargain rack and sporting a standard employee name tag that only said “Jim.” His informal dress, mustache, gray hair, and unimposing appearance made it easy for Costco shoppers to mistake him for a store clerk. He answered his own phone, once telling ABC News reporters, “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?” 1

Sinegal spent much of his time touring Costco stores, using the company plane to fly from location to location and sometimes visiting as many as 8 to 10 stores daily (the record for a single day was 12). Treated like a celebrity when he appeared at a store (news that “Jim’s in the store” spread quickly), Sine-gal made a point of greeting store employees, observing, “The employees know that I want to say hello to them, because I like them. We have said from the very beginning: ‘We’re going to be a company that’s on a first-name basis with everyone.’” 2  Employees genuinely seemed to like Sinegal. He talked quietly, in a commonsensical manner that suggested what he was saying was no big deal. 3  He came across as kind yet stern, but he was prone to display irritation when he disagreed sharply with what people were saying to him.

In touring a Costco store with the local store manager, Sinegal was very much the person in charge. He functioned as producer, director, and knowledgeable critic. He cut to the chase quickly, exhibiting intense attention to detail and pricing, wandering through store aisles firing a barrage of questions at store managers about sales volumes and stock levels of particular items, critiquing merchandising displays or the position of certain products in the stores, commenting on any aspect of store operations that caught his eye, and asking managers to do further research and get back to him with more information whenever he found their answers to his questions less than satisfying. It was readily apparent that Sinegal had tremendous merchandising savvy, that he demanded much of store managers and employees, and that his views about discount retailing set the tone for how the company operated. Knowledgeable observers regarded Jim Sinegal’s merchandising know-how and expertise as being on a par with those of the legendary Sam Walton.

In 2008, Costco’s sales totaled almost $71 billion at 544 warehouses in 40 states, Puerto Rico, Canada, the United Kingdom, Taiwan, Japan, Korea, and Mexico. More than 50 of Costco’s warehouses generated sales exceeding $200 million annually, and 2 stores had sales exceeding $300 million. Sales per store averaged $130 million annually, about C-32C-3375 percent more than the $75 million per store average at Sam’s Club, Costco’s chief competitor in the membership warehouse retail segment. In 2008, about 53.5 million individuals, 29.2 million households, and 5.6 million businesses had membership cards entitling them to shop at Costco, generating $1.5 billion in membership fees for Costco.

Copyright © 2008 by Arthur A. Thompson. All rights reserved.

Top of Form