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Costco Wholesale Corp. does a lot with relatively little.
Operating only 538 warehouse clubs globally, the retailer generates almost as much annual sales volume — about $70 billion — as Kroger Co., which operates six times as many locations.
In that regard, Issaquah, Wash.-based Costco is a lot like its president and chief executive officer, Jim Sinegal. Although he doesn’t have much of a public presence — he doesn’t even speak on the company’s quarterly earnings calls — his impact on food retailing has been enormous.
In an interview last year with SN to mark his induction into the magazine’s Food Retailing Hall of Fame, Sinegal deferred praise to the others who help him run the company.
“The greatest accomplishment I’ve made in my career is working with my partner to assemble the right team,” he said. “Anything I’ve accomplished is a result of what they have done.”
Sinegal, 72, founded Costco in 1983 with Jeff Brotman, who remains chairman. Together they threw out the book on traditional merchandising and made “treasure hunt” a viable retailing strategy. Merchandising a limited selection — about 4,000 SKUs per store — that constantly changes as new deals become available, Costco created a concept that has appeal to people across all income strata, and to both consumers and businesses. It also has increasing appeal internationally, with three new stores in Canada last year and one each in Mexico, Japan and the U.K. This year the company added more units in Canada and a store in Taiwan, and it unveiled plans to enter Australia next year.
The chain has fared particularly well in the U.S. in the past year, as its bargain-pricing position has been a draw in a weakened economy. Although Sinegal keeps a low profile outside of Costco, he maintains strict control over the company’s operations, especially the policy of marking up retail prices no more than 14%, according to reports.
Art Turock, a Kirkland, Wash.-based retail consultant, said Sinegal’s management style appears to reflect the highest ideals for corporate management expressed in the popular business book “Good to Great,” by Jim Collins.
“He does resemble the Level 5 leader in that book,” Turock told SN.
The qualities of the Level 5 leader in the “Good to Great” paradigm include subordinating the success of oneself to the success of the company, a characteristic exemplified by Sinegal’s salary. His base salary of $350,000 last year was less than that of many of his top vice presidents — although he has the potential to make up for it in stock awards — and the company is well known for the high retention rates it achieves among store-level workers through its generous pay packages.
“We extend our thanks to each and every one of Costco’s 136,000 employees for their hard work and dedication to our company,” Sinegal said in a letter to shareholders in the company’s most recent annual report. “Our current thinking is that Costco has tremendous additional growth opportunities going forward, and if we continue to perform well, we might be able to double the size of our company over the next decade.”
— MARK HAMSTRA
