- What are your Company's Vision, Mission and Core Values?

- Are there indications that these resonate with the employees? (Give some specific examples that employees consider the company Vision, Mission & Core Values as they do their day-to-day work.)

- What is the company's strategy for achieving this Vision?Are there definite objectives and performance targets?(Note a couple of specifics.)

-What specific measurements are being looked at in their Financial Objectives? How about in their Strategic Objectives?

- Whatspecific actions have taken place that demonstrate management is actively managing the "strategic execution process"?

Costco Wholesale in 2020.pdf X + X G f of 24 Q + CD Page view A Read aloud T Add text A Draw V Highlight Erase CASE 3 Costco Wholesale in 2020: Mission, Business Model, and Strategy connect Arthur A. Thompson Jr. The University of Alabama ight years after turning the leadership of Costco Price Club lost $750,000 in its first year of opera- Wholesale over to a new CEO, Jim Sinegal. tion, but by 1979 it had two stores, 900 employees. Costco's co-founder and chief executive officer 200.000 members, and a $1 million profit. Years ear- (CEO) from 1983 until year-end 2011, had ample rea Hier, Sol Price had experimented with discount retail- son to be pleased with the compa y's ongoing rev- ing at a San Diego store called Fed-Mart. Jim Sinegal enue growth and competitive standing as one of the got his start in retailing at the age of 18, loading mat world's biggest and best consumer goods merchant- tresses for $1.25 an hour at Fed-Mart while attending disers. Sinegal had been the driving force behind San Diego Community College. When Sol Price sold Costco's 37-year evolution from a startup entrepre- Fed-Mart, Sinegal left with Price to help him start neurial venture into the third largest retailer in the the San Diego Price Club store; within a few years. United States and the world (behind Wal-Mart and Sol Price's Price Club emerged as the unchallenged Amazon.com) and the undisputed leader of the dis- leader in member warehouse retailing, with stores count warehouse and wholesale club segment of the operating primarily on the West Coast. North American retailing industry. Since January Although Price originally conceived Price Club 2012, when then-president Craig Jelinek took the as a place where small local businesses could obtain reins as Costco Wholesale's president and CEO. Ineeded merchandise at economical prices, he soon the company had prospered, growing from annua concluded that his fledgling operation could achieve revenues of $89 billion and 598 membership ware- Far greater sales volumes and gain buying clout with houses at year-end fiscal 2011 to annual revenues of suppliers by also granting men bership to individu $152.7 billion and 782 membership warehouses at conclusion that launched the deep-discount warehouse year-end fiscal 2019 (September 1. 2019). Costco's club industry on a steep growth curve. growth continued in the first six months of fiscal When Sinegal was 26, Sol Price made him the 2020; six-month revenues were $76.1 billion, up 8.0 manager of the original San Diego store, which had percent over the first six months of fiscal 2019, and become unprofitable. Price saw that Sinegal had the company had opened five additional warehouses special knack for discount retailing and for spot- as of April 2020. As of March 2020, Costco had con- ting what a store was doing wrong (usually either not tinued to maintain its ranking as the third largest being in the right merchandise categories or not sell- retailer in both the United States and the world. ing items at the right price points)-the very things that Sol Price was good at and that were at the root COMPANY BACKGROUND of Price Club's growing success in the marketplace. Sinegal soon got the San Diego store back into the The membership warehouse concept was pioneered black. Over the next several years, Sinegal contin by discount merchandising sage Sol Price, who jued to build his prowess and talents for discount opened the first Price Club in a converted airplane hangar on Morena Boulevard in San Diego in 1976. Gagarinle 62011 by Arthur A. Thompson. All rights reserved. 7'C B ENG 10:38 AM () O Cloudy US 27/10/2022ODE Costco Wholesale in 2020.pdf X + X G f 2 of 24 Q + CD Page view A Read aloud Add text A Draw V Highlight Erase CASE 3 Costco Wholesale In 2020: Mission, Business Model, and Strategy C-19 merchandising. He mirrored Sol Price's attention to customer's calling and they have a gripe, don't you detail and absorbed all the nu ices and subtleties off think they kind of enjoy the fact that I picked up the his mentor's style of operating-constantly improving phone and talked to them?" store operations, keeping operating costs and over- Sinegal spent considerable time touring Costco head low, stocking items that moved quickly, and stores, using the company plane to fly from location charging ultra-low prices that kept customers com- o location and sometimes visiting eight to 10 stores ing back to shop. Realizing that he had mastered daily (the record for a single day was 12). Treated like a the tricks of running a successful membership ware- celebrity when he appeared at a store (the news "Jim's house business from Sol Price, Sinegal decided to in the store" spread quickly). Sinegal made a point of leave Price Club and form his own warehouse club greeting store employees. He observed, "The employ operation. ees know that I want to say hello to them, because Sinegal and Seattle entrepreneur Jeff Brotman I like them. We have said from the very beginning founded Costco, and the first Costco store began "We're going to be a company that's on a first-name operations in Seattle in 1983-the same year that basis with everyone." Employees genuinely seemed Walmart launched its warehouse membership for- to like Sinegal. He talked quietly, in a commonsense mat, Sam's Club. By the end of 1984, there were nine inner that sugg ested what he was saying was no Costco stores in five states serving over 200.000 mem- big deal.' He came acros s as kind yet stern, but he was bers. In December 1985. Costco became a public prone to display irritation when he disagreed sharply company, selling shares to the public and raising addi- with what people were saying to him. tional capital for expansion. Costco became the first In touring a Costco store with the local store ever U.S. company to reach $1 billion in sales in less manager, Sinegal was very much the person-in- than six years. In October 1993, Costco merged with charge. He functioned as producer. director, and Price Club. Jim Sinegal became CEO of the merged knowledgeable critic. He cut to the chase quickly. company, presiding over 206 PriceCostco locations. exhibiting intense attention to detail and pricing. with total annual sales of $16 billion. Jeff Brotman. wandering through store aisles firing a barrage of who had functioned as Costco's chairman since estions at store managers about sales volumes and the company's founding, became vice chairman of stock levels of particular items, critiquing merchant Price Costco in 1993 and was elevated to chairman of dising displays or the position of certain products in the company's board of directors in December 1994. the stores, commenting on any aspect of store opera a position he held until his unexpected death in 2017. tions that caught his eye, and asking managers to In January 1997, after the spin-off of most do further research and get back to him with more its non-warehouse assets to Price Enterprises Inc.. information whenever he found their answers to his PriceCostco changed its name to Costco Companies questions less than satisfying. Sinegal had tremen Inc. When the company reincorporated from dous merchandising savvy, demanded much of store Delaware to Washington in August 1999, the name managers and employees, and definitely set the tone was changed to Costco Wholesale Corporation. for how the company operated its discounted retail- The company's headquarters was in Issaquah. ing business. Knowledgeable observers regarded Jim Washington, not far from Seattle. Sinegal's merchandising expertise as being on a par with Walmart's legendary founder, Sam Walton. Jim Sinegal's Leadership Style In September 2011, at the age of 75, Jim Sinegal informed Costco's Board of Directors of his inten- Sinegal was far from the stereotypical CEO. He tion to step down as CEO of the company effect dressed casually and unpretentiously, often going to tive January 2012. The Board elected Craig Jelinek. the office or touring Costco stores wearing an open- Costco's President and Chief Operating Officer since collared cotton shirt that came from a Costco ba February 2010, to succeed Sinegal and hold the titles gain rack and sporting a standard employee name tag of both President and CEO. At the time, Jelinek was that said, simply, "Jim." His informal dress and unim- a highly experienced retail executive with 37 years in posing appearance made it easy for Costco shoppers the industry. 28 of them at Costco. where he started to mistake him for a store clerk. He answered his as one of the Company's first warehouse managers own phone. once telling ABC News reporters, "If a In 1984. He had served in every major role related 7'C Cloudy Q 10:38 AM B. ENG () O US 27/10/2022ODE Costco Wholesale in 2020.pdf X + X G f B of 24 Q + CD Page view A Read aloud T Add text A Draw V Highlight Erase C.20 PART 2 Cases In Crafting and Executing Strategy to Costco's business operations and merchandising United States, Canada, the United Kingdom, Mexico. activities during his tenure. When he stepped down Korea, Taiwan, Japan, and Australia; e-commerce as CEO, Sinegal retained his position on the compa sales represented about four percent of total net sales my's Board of Directors and, at the age of 79, was re- in 2019. Over 100 million cardholders were entitled elected to another three-year term on Costco's board to shop at Costco as of January 2020; in fiscal year in December 2015; he retired from Costco's Board at 2019, membership fees generated over $3.35 billion in the end of his term in January 2018. revenues for the company. Headed into 2020, shopper traffic at Costco's warehouse locations averaged over 3.1 million members per day. Annual sales per store COSTCO WHOLESALE averaged about $190 million ($3.7 million per week) IN 2020 in 2019, an amount that was 93 percent higher than The $98.2 million per year and $1.9 million per week In April 2020, Costco was operating 787 warehouses. averages for Sam's Club, Costco's chief competitor. In Including 547 in the United States and Puerto Rico, 100 2019. Costco was the only national retailer in the his in Canada, 39 in Mexico. 29 in the United Kingdom. tory of the United States that could boast of average 26 in Japan. 16 in Korea, 13 in Taiwan, 12 in Australia annual revenue in excess of $190 million per location. two in Spain, and one each in Iceland, France, and Exhibit 1 contains a financial and operating sum- China. Costco also operated e-comm ce sites in the mary for Costco for fiscal years 2016 through 2019. EXHIBIT 1 Selected Financial and Operating Data for Costco Wholesale Corp., Fiscal Years 2016-2019 ($ in millions, except for per share data) Fiscal Years Ending Selected Income Statement Data Sept. 1, 2019 Sept. 2, 2018 Sept. 3, 2017 Aug. 28. 2016 Not sales $149.351 $138,434 $126, 172 $ 1 16,073 Membership foes 3,352 3,142 2,853 2,646 Total revenue 152,703 141,576 129,025 1 18,719 Operating expenses Merchandise costs 132,886 123,152 111,882 102,901 Selling, general and administrative 14.994 13,876 12,950 12.068 Preopening expenses Provision for Impaired assets and store closing costs Total operating expenses 147.966 137,096 124,914 115,047 Operating Income 4,737 4,480 4,111 3,672 Other Income (expense) Interest expense [150) (159) (134) EEL Interest Income and other, not 178 121 62 80 Income before Income taxes 4,765 4,442 4,039 3,619 Provision for Income taxes 1.061 1,263 1.325 1.243 Net income attributable to Costco $ 3,659 3,134 2,679 2,350 Diluted net income per share 8.26 7.09 6.08 5.33 Dividends per share (not including special dividend of $7.00 In 2017 and $5.00 in 2015) 2.44 214 1.90 1.70 Millions of shares used in per share calculations 442. 141.8 440.9 441.3 7'C Q 10:38 AM B W ENG () O Cloudy US 27/10/2022X Costco Wholesale in 2020.pdf X + G f 4 of 24 Q + CD Page view A Read aloud T Add text A Draw V Highlight Erase CASE 3 Costco Wholesale In 2020: Mission, Business Model, and Strategy Fiscal Years Ending Balance Sheet Data Sept. 1, 2019 Sept. 2, 2018 Sept. 3, 2017 Aug. 28, 2016 Cash and cash equivalents $ 8,384 6.055 $4,546 $ 3,379 Merchandise Inventories 11,395 1 1,040 9,834 8,969 Current assets 23,485 20.289 17,317 15,218 Current liabilities 23,237 19.926 7,485 15,575 Net property and equipment 20,890 19.68 18,16 17,043 Total assets 45,400 DER OF 36,347 33.163 Long-term debt, excluding current portion 5,124 6,487 6,573 4,061 Stockholders' equity 15,584 13,103 10,778 12,079 Cash Flow Data Net cash provided by operating activities $ 6,356 $ 5,774 $ 6,726 $ 3,292 Warehouse Operations Warehouses in operation at beginning of year" 762 741 715 686 New warehouses opened (Including relocations) 25 25 28 33 Existing warehouses closed (Including closures due to relocations (5) 14) (2 (4) Warehouses at end of year Net sales per warehouse open at year-end [in millions) 191 182 170 167 Average annual growth at warehouses open more than a year (excluding the Impact of changing gasoline prices and foreign 6% 7% 4% 4% exchange rates) Members at year-end Businesses, Including add-on members (000s) 1 1,00 10.900 10,800 10,800 Gold Star members (000s) 42,90 D.700 18,60 36,800 Total paid members 53,900 51,600 49,400 47,600 Household cardholders that both business and Gold Star members were automatically entitled to receive 44,600 42,700 40,900 39, 100 Total cardholders 98,500 34 300 30,30 86,700 At the beginning of Costco's 2011 fiscal year the operations of 32 warphouses in Mexico that and joint vent ture were consolidated and reported as part of Costco's total operations. Nore: Some totals may not add due to rounding and to not including sonja line inoms of minor sig ance in the company's statement of ncoma. ourcas: Company 10-K reports for fiscal years 2017 and 2019. 10:39 AM 7'C Q A B W ENG US 27/10/2022 CloudyODE Costco Wholesale in 2020.pdf X + X G f 5 of 24 Q + CD Page view | A Read aloud T Add text MeJO A v Highlight Erase C.21 PART 2 Cases In Crafting and Executing Strategy COSTCO'S MISSION, creating opportunities to open new warehouses both BUSINESS MODEL, AND domestically and internationally. Big sales volumes and rapid inventory turnover- STRATEGY when combined with the low operating costs achieved by volume purchasing efficient distribution, and Costco's stated mission in the membership warehouse reduced handling of merchandise in no-frills, self- business was: "To continually provide our members service warehouse facilities-enabled Costco to oper with quality goods and services at the lowest possible ate profitably at significantly lower gross margins prices."However, in a "Letter to Shareholders" in than traditional wholesalers, mass merchandisers. the company's 2011 Annual Report, Costco's three supermarkets, and supercenters. Membership fees top executives-Jeff Brotman, Jim Sinegal, and Craig were a critical element of Costco's business model Jelinek-provided a more expansive view of Costco's because they provided sufficient supplemental rev- mission, stating: enues to boost the company's overall profitability The company will continue to pursue its mission of to acceptable levels. Indeed, Costco's revenues from bringing the highest quality goods and services to membership fees typically exceeded 100 percent of market at the lowest possible prices while providing the company's net income, meaning that the rest of excellent customer service and ad ring to a st Costco's worldwide business operated on a slightly code of ethics that includes taking care of our employ below breakeven basis (see Exhibit 1)-which trans ces and members, lated into Costco's prices being exceptionally com- ing our shareholders, and seeking to be responsible petitive when compared to the prices that Costco corporate citizens and environmental stewards in c members paid when shopping elsewhere. operations around the world." Another important business model element was In the company's 2017 Annual Report, Craig that Costco's high sales volume and rapid inventory Jelinek elaborated on how environmental sustainabil turnover generally allowed it to sell and receive cash Ity fit into Costco's mission: for inventory before it had to pay many of its mer chandise vendors, even when vendor payments were Sustainability to us is remaining a profitable busines made in time to take advantage of early payment while doing the right thing. We are committed to less discounts. Thus, Costco was able to finance a big ening our environmental impact, de percentage of its merchandise inventory through the bon footprint, sour our products re msibly. a working with our suppliers, manufacturers, and farm payment terms provided by vendors rather than by ers to preserve natural resources. This will remain at having to maintain sizable working capital (defined the forefront of our business as current assets minus current liabilities) to enable timely payment of suppliers. The centerpiece of Costco's business model was a powerful value proposition that featured a combi- nation of (1) ultra-low prices on a limited selection Costco's Strategy of nationally branded and Costco's private-label The key elements of Costco's strategy were ultra- Kirkland Signature products in a wide range of mer- low prices, a limited selection of nationally branded chandise categories, (2) very good to excellent prod- and top-quality Kirkland Signature products cove uct quality, and (3) intriguing product selection that ering diverse merchandise categories, a "treasure Included both everyday items and ongoing special hunt" shopping environment that stemmed from a purchases from a big variety of merchandise suppliers constantly-changing inventory of about 900 "while that turned shopping at Costco into a money-saving they-last specials." strong emphasis on low operating treasure hunt. Ever since the company's founding costs, and ongoing expansion of its geographic net- Costco management had strived diligently to ensure work of store locations. that shopping at Costco delivered enough value to keep existing members returning frequently to a Pricing Costco's philosophy was to keep customers nearby warehouse and to spur membership growth coming in to shop by wowing them with low prices every year, thereby generating high sales volumes and thereby generating big sales volumes. Examples and rapid inventory turnover at each warehouse and of Costco's 2015 sales volumes that contributed to 7'C 10:39 AM B ENG Cloudy US 27/10/2022ODE Costco Wholesale in 2020.pdf X + X G f 5 of 24 Q + CD Page view A Read aloud T Add text A Draw v Highlight Erase CASE 3 Costco Wholesale In 2020: Mission, Business Model, and Strategy C-23 low prices in particular product categories included selling a hot brand of jeans for $29.99. They were $50 156,000 carats of diamonds (up to 400,00 carats in a department store. We got a great deal on them and in 2019), meat sales of $6.4 billion, seafood sales could have sold them for a higher price but we went of $1.3 billion, television sales of $1.8 billion, fresh down to $29.99. Why? We knew it would create a riot. produce sales of $5.8 billion (sourced from 44 count At another time, he said: tries), 83 million rotisserie chickens, 7.9 million tires. 41 million prescriptions, 6 million pairs of glasses, and We're very good merchants, and we offer value. The 128 million hot dog/soda pop combinations. Costco raditional retailer will say: "I'm selling this for $10. I was the world's largest seller of fine wines ($965 million wonder whether we can get $10.50 or $11." We say "We're selling this for $9. How do we get it down to out of total 2015 wine sales of $1.7 billion). $8?" We understand that our me mbers don't come For many years, a key element of Costco's pricing and shop with us because of the window displays or strategy had been to cap its markup on brand-name the Santa Claus or the piano player. They come and merchandise at 14 percent (compared to 25 percent hop with us because we offer great value and higher markups for other discounters and most supermarkets and 50 percent and higher markups Indeed, Costco's markups and prices were so for department stores). Markups on Costco's private fractionally above the level needed to cover company- label Kirkland Signature items were a maximum off wide operating costs and interest expenses that Wall 15 percent, but the sometimes fractionally higher mark Street analysts had criticized Costco management ups still resulted in Kirkland Signat for going all out to please customers at the expense priced about 20 percent below comparable name-brand of increasing profits for shareholders. One retailing items. Except for Walmart, Costco's prices for fresh analyst said, "They could probably get more money foods and grocery items ranged 20 to 30 percent below for a lot of the items they sell." During his tenure as of the leading supermarket chains. Aside from being CEO, Sinegal had never been impressed with Wall lower-priced, Costco's Kirkland Signature products- Street calls for Costco to abandon its ultra-low price which included vitamins, juice, bottled water, coffee. ing strategy, commenting: "Those people are in the spices, olive oil, canned salmon and tuna, nuts, laundry business of making money between now and next detergent, baby products, dog food, luggage, cookware. Tuesday. We're trying to build an organization that's trash bags, batteries, wines and spirits, paper towels going to be here 50 years from now."He went on and toilet paper, and clothing- ere designed to be of to explain why Costco's approach to pricing would equal or beller quality than national brands. remain unaltered during his tenure: As a result of its low markups, Costco's prices When I started, Sears, Roebuck was the Costco of the were just fractionally above breakeven levels, product ountry, but they allowed s ne else to com ing net sales revenues (not counting membership under them. We don't want to be one of the casualties. fees) that exceeded all operating expenses by only We don't want to turn around and say, "We got so fancy $1.0 billion to $1.4 billion in fiscal years 2016-2019. we've raised our prices, and all of a sudden a new come As can be verified from Exhibit 1, Costco's revenues petitor comes in and b ats our prices." from membership fees accounted for 69 to 72 percent Product Selection Whereas typical supermar of the company's operating profits in fiscal years 2016 kets stocked about 40,000 items and a Walmart to 2019 and exceeded the company's net income after Supercenter or a SuperTarget might have 125,000 to taxes in every fiscal year shown in Exhibit 1 except for 150,000 items for shoppers to choose from, Costco's fiscal year 2019-outcomes that were a direct result of merchandising strategy was to provide members with the company's ultra-low pricing strategy and practice a selection of approximately 3,700 active items that of capping the margins on branded goods at 14 per- could be priced at bargain levels and thus provide cent and private-label goods at 15 percent. members with significant cost savings. Of these. Jim Sinegal explained the company's approach about 75 percent were quality brand-name products to pricing: and 25 percent carried the company's private-label We always look to see how much of a gulf we can cre Kirkland Signature brand. The Kirkland Signature ate between ourselves and the competition. So that the label appeared on everything from men's dress shirts competitors eventually say, "These guys are crazy. We'll to laundry detergent, pet food to toilet paper, canned compete somewhere else." Some years ago, foods to cookware. olive oil to beer. automotive 10:39 AM Cloudy Q B. ENG US 27/10/2022ODE Costco Wholesale in 2020.pdf X + X G f of 24 Q + CD Page view A Read aloud T Add text MeJO A V Highlight Erase C14 PART 2 Cases In Crafting and Executing Strategy products to health and beauty aids. According to or multiple-pack quantities. In a few instances, the Craig Jelinek. "The working rule followed by Costco selection within a product category was restricted to buyers is that all Kirkland Signature products must a single offering. For example, Costco stocked only a be equal to or better than the national brands, and 325-count bottle of Advil-a size many shoppers might must offer a savings to our members." Manageme Find too large for their needs. Sinegal explained the believed that there were opportunities to increase the reasoning behind limited selections: number of Kirkland Signature selections and gradu- If you had 10 customers come in to buy Advil, how ally build sales penetration of Kirklar 1-branded item many are not going to buy any because you just have to at least 30 percent of total sales-in 2018 Kirkland- one size? Maybe one or two. We refer to that as the brand sales exceeded 28 percent of total sales. intelligent loss of sales. We are prepared to zi Costco executives in charge of sourcing Kirkland that one customer. But if we had four or five sizes of Signature products constantly looked for ways to Advil, as most grocery ores do, it would make our make all Kirkland Signature items better than their business more difficult to manage. Our business can brand name counterparts and even more attractively only succeed if we are efficient. You can't go on sell priced. Costco members were very much aware that ing at these margins if you are not. one of the great perks of shopping at Costco was the In the last several years, organics had become a opportunity to buy top quality Kirkland Signature fast-growing category in both the fresh produce sect products at prices substantially lower than name tion and the grocery items section, and Costco buy- brand products. ers were devoting increased attention to growing the Costco's product range covered a broad spectrum- selection of organic items. In the fresh meats cate rotisserie chicken, all types of fresh meats, seafood. gory, Costco was pursuing increased vertical integrat fresh and canned fruits and vegetables, paper prod- tion, constructing a second meat plant in Illinois and acts, cereals, coffee, dairy products, cheeses, frozen a state-of-the-art poultry plant in Nebraska capable foods, flat-screen televisions, cell phones and assorted of processing 2 million chickens per week-in fiscal other electronics products, jewelry, fresh flowers, fine 2019 Costco warehouses sold almost 100 million wines, baby strollers, toys and games, musical instru rotisserie chickens annually at a very attractive price ments, ceiling fans, vacuum cleaners, books, apparel. of $4.99. A baking commissary had been opened in cleaning supplies, DVDs, light bulbs, batteries, cook- Canada that supplied warehouses in much of Canada ware, electric toothbrushes, vitamins, office supplies. and the United States with bread and cookie dough and home appliances-but the selection in each prod- for on-premise baking. The approximate percentage act category was deliberately limited to fast-selling of net sales accounted for by each major category of models, sizes, and colors. Many cons mable products Items stocked by Costco is shown in Exhibit 2. like detergents, canned goods, office supplies, and soft Management believed that Costco's ancillary drinks were sold only in big-container, case, carton. offerings gave members reasons to shop at Costco EXHIBIT 2 Costco's Sales by Major Product Category, 2016-2019 2019 2018 2017 2016 Food and Sundries (dry foods, packaged foods, groceries, snack foods, candy, 40% 41% 41% 43% alcoholic and nonalcoholic beverages, and cleaning sup Fresh Foods (fresh produce, meats and fish, bakery and dell products), 13% 14% 14% 14% Hardlines (major appliances, electronics, health and beauty aids, hardware, office 16% 16% 16% 16% supplies, garden and patio, sport meras, and automotive supplies) softlines (Including apparel, domestics, jewelry, housewares, books, movie DVDs, 1 1% 1 1% 12% 12% video games and music, home furnishings, and small appl Ancillary (gasoline, pharmacy. food court, optical, one-hour photo, hearing aids, 19% 18% 17% 15% and travel) Sureur Company 10-K reports, 2017 and 2019. 10:40 AM B W ENG Cloudy US 27/10/2022ODE Costco Wholesale in 2020.pdf X + X G f of 24 Q + CD Page view A Read aloud T Add text A Draw v Highlight Erase CASE 3 Costco Wholesale in 2020: Mission, Business Model, and Strategy C-25 more frequently and make Costco more of a one-stop In many cases, Costco did not obtain its upscale shopping destination. Headed into fiscal 2020. over treasure hunt items directly from high-end manu- 600 warehouses had inside food courts, pharmacies facturers like Calvin Klein or Waterford (who were photo centers, and optical centers. Costco's pharma unlikely to want their merchandise marketed at deep cies were highly regarded by members because of the discounts at places like Costco): rather, Costco buy- low prices. The company's pract ers searched for opportunities to source such items at discounted prices (often as m uch as 20 to 30 cents legally on the gray market from other wholesalers per gallon) at those store locations where there was or distressed retailers looking to get rid of excess or sufficient space to install gas pumps slow-selling inventory. frequency with which nearby members shopped at Management believed that these practices kept Costco and made in-store purchases (only members its marketing expenses low relative to those at typical were eligible to buy gasoline at Costco's stations). retailers, discounters, and supermarkets. Almost all new Costco locations in the United States and Canada were opening with gas stations; glob- Low-Cost Emphasis Keeping operating costs at a ally, gas stations were being added at locations where bare minimum was a major element of Costco's strat- local regulations and space permitted. Costco oper- egy and a key to its low pricing. As first explained by ated 593 gas stations as of September 2019: the steep Jim Sinegal and later reiterated by Craig Jelinek: discounts on gasoline generated about 11 percent of Costco's total net sales in fiscal 2019 (Costco did not Costco is able to offer lower prices and better values by eliminating virtually all the frills and costs histori sell gasoline in South Korea, France, or China)." cally associated with conventional wholesalers and Treasure-Hunt Merchandising While Costco's retailers, including salespeople, fanc product line consisted of approximately 3,700 active ery, billing, and accounts receivable. We run a tight operation with extremely low overhead which enables items, some 20 to 25 percent of its product offerings us to pass on dramatic savings to our members. 14 were constantly changing. Costco's merchandise buy- ers were continuously making one-time purchases While Costco management made a point of of items that would appeal to the company's clien- locating warehouses on high-traffic routes in or near tele and likely to sell out quickly. A sizable number upscale suburbs that were easily accessible by small of these featured specials were high-end or luxury- businesses and residents with above-average incomes, brand products that carried big price tags; examples It avoided prime real estate sites in order to contain included $1,000 to $4.500 big-screen TVs, $800 land costs. espresso machines, expensive jewelry and diamond Because shoppers were attracted principally by rings (priced from $10,000 to $400,000+), Omega Costco's low prices and merchandise selection, most watches, Waterford Crystal, exotic cheeses. Coach warehouses were of a metal pre-engineered design. bags, cashmere sports coats, $1,500 digital pianos. with concrete floors and minimal interior decor. $800 treadmills, $2.500 memory foam mattresses. Floor plans were designed for economy and effi- and Dom Perignon champagne. Many of the featured ciency in use of selling space, the handling of mer- specials came and went quickly. sometimes in several andise, and the control of inventory. Merchandise days or a week-like Italian-made Hathaway shirts was often stored on racks above the sales floor and/ priced at $29.99 and $800 leather sectional sofas. or displayed on pallets containing large quantities of The strategy was to entice shoppers to spend more each item, thereby reducing labor required for han- than they might by offering irresistible deals on big ling and stocking. In-store signage was done mostly ticket items or name-brand specials and, further, to on laser printers; there w ere no shopping bags at the keep the mix of featured and treasure-hunt items con- checkout counter-merchandise was put directly into stantly changing so that bargain-hunting shoppers the shopping cart or sometimes loaded into empty would go to Costco more frequently rather than only boxes. Costco warehouses ranged in size from 73,000 for periodic "stock up" trips. to 205.000 square feet; the average size was about Costco members quickly learned that they 146,000 square feet. Newer units were usually in the needed to go ahead and buy treasure-hunt specials 150,000-to 205,000-square-foot range, but the world's that interested them because the items would very largest Costco warehouse was a 235,000 square-foot likely not be available on their next shopping trip. store In Salt Lake City that opened in 2015. ENG 10:40 AM Cloudy B US 27/10/2022ODE Costco Wholesale in 2020.pdf X + X G f of 24 Q + CD Page view A Read aloud T Add text MeJO A V Highlight Erase C-26 PART 2 Cases in Crafting and Executing Strategy Warehouses generally operated on a seven- closing hours on the weekend; the gasoline operations day, 70-hour week, typically being open between outside many stores usually had extended hours. The 10:00 a.m. and 8:30 p.m. weekdays, with earlier shorter hours of operation as compared to those of EXHIBIT 3 Images of Costco's Warehouses Source: Supplied by Costco and used with Costco's permission. FRESH PRODUCE JUICY ge Courtesy of Costco Wholesale COSTCO age Courtesy of Comics Who mage Courtesy of Coutco Wholesale Q B W ENG 10:40 AM Cloudy US 27/10/2022Costco Wholesale in 2020.pdf X + X G f 10 of 24 Q + CD Page view A Read aloud Add text A Draw v Highlight Erase CASE 3 Costco Wholesale in 2020: Mission, Business Model, and Strategy C.17 traditional retailers, discount retailers, and super- special promotional offerings and sales events at markets resulted in lower labor costs relative to the warehouses, occasional direct mail to prospective volume of sales. By strictly controlling the entrances new members, and regular direct marketing pro- and exits of its warehouses and using a membership grams (such as The Costco Connection, a magazine format, Costco had inventory losses (shrinkage) well published for members), in-store product sampling. below those of typical retail operations. and special campaigns for new warehouse openings. For new warehouse openings, marketing teams Growth Strategy Costco's growth strategy was to personally contacted businesses in the area that increase sales at existing stores by five percent or were potential wholesale members; these contacts more annually and to open additional warehouses. both domestically and internationally. Average were supplemented with direct mailings during the period immediately prior to opening. Potential annual growth at stores open at least a year was 10 percent in fiscal 2011, six percent in both fiscal Gold Star (individual) members were contacted 2013 and 2014, seven percent in fiscal 2015, four per- by direct mail or by promotions at local employee associations and businesses with large numbers of cent in 2016 and 2017, seven percent in 2018, and six employees. After a membership base was estaba percent in 2019. lished in an area, most new memberships came Costco had been aggressive in opening new from word of mouth (existing members telling warehouses and entering new geographic areas. As of December 2000, the Company operated a chain friends and acquaintances about their shopping of 349 warehouses in 32 states (251 locations). experiences at Costco), follow-up messages distribe juted through regular payroll or other organizational nine Canadian provinces (59 locations), the United communications to employee groups, and ongoing Kingdom (11 locations, through an 80 percent- direct solicitations to prospective business and owned subsidiary), South Korea (four locations). Gold Star members. Taiwan (three locations, through a $5 percent-owned subsidiary). and Japan (two locations). as well as 19 warehouses in Mexico through a 50 percent joint Website Sales venture partner. Ten years later, in December 2010. Costco operated websites in the United States. Costco was operating 585 warehouses in 42 states Canada, Mexico, the United Kingdom, Taiwan, and (425 locations). nine Canadian provinces (80 loca- South Korea-both to enable members to shop for tions). Mexico (32 locations), the United Kingdom many in-store products online and to provide mem (22 locations), Japan (nine locations). South Korea bers with a means of obtaining a much wider var- (seven locations). Taiwan (six locations). and lety of value-priced products and services that were Australia (one location). Some nine years and three not practical to stock at the company's warehouses. months later, Costco had opened an additional 203 New websites in Japan and Australia were expected warehouses, had 546 warehouses in 45 states, and to be operational by early 2020. Craig Jelinek was 236 warehouses in 11 countries, including a recently- committed to a website strategy that provided except opened warehouse in Shanghai, China. tional service and value to Costco members who Exhibit 4 shows a breakdown of Costco's geo wanted to shop online. In recent years, online mer graphic operations for fiscal years 2017-2019. chandise offerings had expanded significantly. and the company was continuously exploring oppor Marketing and Advertising tunities to deliver added value to members via a broader array of online offerings. Examples of Costco's low prices and its reputation for making value-priced items that members could buy online shopping at Costco something of a treasure-hunt included sofas, beds, mattresses, entertainment cen- made it unnecessary to engage in extensive advertis ters and TV lift cabinets, outdoor furniture. office ing or sales campaigns. Marketing and promotional furniture, kitchen appliances, billiard tables, and activities were generally limited to monthly coupon hot tubs. Members could also use the company's mailers to members, periodic e-mails to members websites for such services as digital photo process- from Costco.com publicizing "hot deals" and other ing, prescription fulfillment, travel, the Costco auto 10:40 AM Cloudy Q A B ENG US 27/10/2022Costco Wholesale in 2020.pdf X + X G f 11 of 24 Q + CD Page view A Read aloud T Add text MeJa A v Highlight Erase C28 PART 2 Cases In Crafting and Executing Strategy EXHIBIT 4 Selected Geographic Operating Data, Costco Wholesale Corporation, Fiscal Years 2017-2019 ($ in millions) United States Canadian Other Operations Operations International Total Year Ended September 1, 2019 Total revenue (including membership fees) $111.751 $21,366 $19,586 $152,703 Operating Income 3.063 924 750 4,737 Capital expenditures 2.186 303 509 2998 Number of warehouses (as of September 1, 2019) 543 106 139 782 fear Ended September 2, 2018 Total revenue (induding membership fees) $102.286 $20.689 $18,601 $141.576 Operating Income 2.787 939 754 4.480 Capital expenditures 2046 268 2 96 Number of warehow sos jas of September 2, 2018) 527 100 762 Year Ended September 3, 2017 Total revenue (including membership fees $ 93.889 $18.775 $16,361 $129.025 Operating Income 2644 841 626 4,11 Capital expenditures 1,714 277 511 2.502 Number of warehouses (as of September 2017) 518 98 130 746 Note: The dollar numbers shown for the "Other I ha "Other International" categories represent only Costco's ownership share, since all foreign paparations were joint ventures (although Costco was the majority comer of the Imernational category at the end of fiscal 2019 included Mexico, United kingd majonty armor of these ventures). Countries with warehouses in the Other Mexico, United Kingdom, Japan, South Korea, Taiwan, Australia, Spain, Iceland, France, and China, Costco's two warehouses in Puerto Rico were included in the United States Operations categ Source: Company 10-K reports, 2017-2019. program (for purchasing selected new vehicles with and in 2017 car rentals became available to members discount prices through participating dealerships). in Canada and the United Kingdom. Additionally, the and other membership services. In 2018, Costco annual two percent reward for Executive members sold 650,000 vehicles through its 3,000 dealer part- was extended to apply to Costco Travel purchases in ners (up 25 percent over the $20,000 vehicles sold the United States and Canada. Lastly, the company in 2017); the big attraction to members of buying a launched Costco Grocery, a two-day delivery on dry new or used vehicle through Costco's auto program grocery items, and a same-day delivery offering both was being able to skip the hassle of bargaining with fresh and dry grocery items through partnering with the dealer over price and, instead, paying an attract Instacart. tively low price pre-arranged by Costco. At Costco's In 2018, Costco began opening business centers online photo center, customers could upload images in selected warehouses; at the end of fiscal 2019, it and pick up the prints at their local warehouse in had opened 18 business centers in the United States little over an hour. Website sales accounted for four and two in Canada. As many as 40 new business cent percent of Costco's total net sales in fiscal 2019, ver- ters were planned for 2020. sus three percent in 2014. In 2017, Costco made improvements in web- site functionality. search capability, checkout, and Supply Chain and Distribution delivery times. New offerings were added at Costco Costco bought the majority of its merchandise dir Travel, and the company introduced hotel-only book- Jectly from manufacturers, routing it either directly to ing reservations. Costco Travel's rental car rates were its warehouse stores or to one of the company's cross consistently some of the lowest in the marketplace docking depots that served as distribution points ENG 10:41 AM Cloudy Q A B () O US 27/10/2022Costco Wholesale in 2020.pdf X + X G f 12 of 24 Q + CD Page view A Read aloud T Add text A Draw V Highlight Erase CASE 3 Costco Wholesale In 2020: Mission, Business Model, and Strategy C-29 for nearby stores and for shipping orders to mem- subscribers to the company's monthly Cosken bers making online purchases. In 2018, Costco had Connection magazine had an average annual income more than 20 geographically-scattered cross-docking of $156,000)." Many members were affluent urban- depots with a combined space exceeding 11 million ites, living in nice neighborhoods not far from Costco square feet in the United States, Canada, and vari- warehouses. One loyal Executive member, a criminal ous other international locations. Depots received defense lawyer, said. "I think I spend over $20,000 container-based shipments from manufacturers. to $25,000 a year buying all my products here from transferred the goods to pallets, and then shipped food to clothing-except my suits. I have to buy them full-pallet quantities of several types to goods to indi- at the Armani stores." Another Costco loyalist said. vidual warehouses via rail or semi-trailer trucks, gen- "This is the best place in the world. It's like going to erally in less than 24 hours. This maximized freight church on Sunday. You can't get anything better than volume and handling efficiencies. Depots were also this. This is a religious experience." used to ship bulky merchandise to members that Costco had two primary types of memberships, had been ordered online; members often picked Business and Gold Star (individual). Business mem up online orders that would fit in their vehicles at berships were limited to businesses, but included nearby warehouses. individuals with a business license, retail sales When merchandise arrived at a warehouse. fork license, or other evidence of business existence. A lifts moved the full pallets straight to the sales floor business membership also included a free house and onto racks and shelves (without the need for hold card (a significant number of business mem multiple employees to touch the individual packages bers shopped at Costco for their personal needs). cartons on the pallets)-the first time most items Business members also had the ability to purchase were physically touched at a warehouse was when "add-on" membership cards for up to six partners or shoppers reached onto the shelf/ rack to pick it our associates in the business. Costco's current annual of a carton and put it into their shopping cart. Very fee for Business and Gold Star memberships was little incoming merchandise was stored in locations $60 in the United States and Canada and varied off the sales floor in order to minimize receiving and by country in its Other International operations. handling costs. Individuals in the United States and Canada who Costco had direct buying relationships with did not qualify for business membership could pur- many producers of national brand-name mer chase a Gold Star membership, which included a chandise and with manufacturers that supplied its household card for another family member (addi- Kirkland Signature products. Costco's merchandise tional add-on cards could not be purchased by Gold buyers were always alert for opportunities to add Star members). All types of members (including products of top quality manufacturers and vendors household card members) could shop at any Costed on a one-time or ongoing basis. No one manufacturer warehouse. supplied a significant percentage of the merchandise Business, Business add-on, and Gold Star mem- that Costco stocked. Costco had not experienced diff bers in the United States and Canada could upgrade ficulty in obtaining sufficient quantities of merchant to Executive membership for an additional $60 (an dise, and management believed that if one or more annual membership fee of $120); upgrade fees to of its current sources of supply became unavailable. Executive memberships elsewhere varied by country. the company could switch its purchases to alternative The primary appeal of upgrading to Executive mem- manufacturers without experiencing a substantial dis- bership was eligibility for a two percent annual reward ruption of its business. ( rebate) on qualified pre-tax purchases. Reward certif- icates were issued annually and could be used toward Costco's Membership Base ases of most mer the front-end regis- ters of Costco wareho Is could not be and Member Demographics used to purchase alcohol and tobacco products, gaso- Costco attracted the most affluent customers in line, postage stamps, and food court items. The two discount retailing the average annual income off percent rebate for Executive members was capped at Casted members was approximately $100.000 (In $ 1,000 for any 12-month period in the United States 2015 Costco management believed the 8.6 million and Canada (equivalent to annual qualified pre-tax Q A B ENG 10:41 AM Cloudy () O US 27/10/2022Costco Wholesale in 2020.pdf X + X G f 13 of 24 Q + CD Page view A Read aloud T Add text Draw V Highlight Erase C-30 PART 2 Cases In Crafting and Executing Strategy purchases of $50,000): the maximum rebate varied in Warehouse Management other countries. Executive members also were eligible for savings and benefits on various bu and con Costco warehouse managers were delegated con- mer services offered by Costco, including merchar siderable authority over store operations. In effect. credit card processing, small-business loans, auto and warehouse managers functioned as entrepreneurs home insurance. long-distance telephone service. running their own retail operation. They were check printing, and real estate and mortgage services. responsible for coming up with new ideas about these services were mostly offered by third-party pro- what items would sell in their stores, effectively mer- viders and varied by state-Executive members did chandising the ever-changing lineup of treasure-hunt not receive two percent rebate credit on purchases products, and orchestrating in-store product loca of these ancillary services. In fiscal 2019. Executive tions and displays to maximize sales and quick turn- members represented 39 percent of Costco's card- over. In experimenting with what items to stock and holders (including add-ons, but not holders of what in-store merchandising techniques to employ. household cards) and accounted for approximately warehouse managers had to know the clientele who two-thirds of total company sales. Costco's member patronized their locations-for instance, big-ticket renewal rate was 91 percent in the United States and diamonds sold well at some warehouses but not at Canada, and 88 percent on a worldwide basis at the others. Costco's best managers kept their finger on end of fiscal 2019. Recent trends in membership are the pulse of the members who shopped their ware shown at the bottom of Exhibit 1. house location to stay in sync with what would In general, with variations by country, Costco sell well, and they had a flair for creating a certain members could pay for their purchases with certain element of excitement, hum, and buzz in their ware debit and credit cards, co-branded Costco credit houses. Such managers spurred above-s cards, cash, or checks; in the United States and volumes-sales at Costco's top-volume warehouses Puerto Rico, members could use a co-branded Citi/ ran about $5 million to $7 million a week, with Costco Visa Anywhere credit card for purchases sales exceeding $1 million on many days. Successful at Costco and elsewhere. Costco Cash cards, and managers also thrived on the rat race of running a all Visa cards. Since the June 2016 launch of Citi, high-traffic store and solving the inevitable crises of Costco Visa" Anywhere Card. 1.8 million new the moment. member accounts (approximately 2.4 million new credit cards) were opened. The enhanced cash- back Visa Anywhere rewards included earning Compensation and four percent on gas; three percent on restaurant. Workforce Practices hotel, and eligible travel; two percent at Costco As of September 2019, Costco had 149,000 full- and Costco.com; and one percent on all other time employees and 105,000 part-time employees. purchases, exceeding the company's previous Approximately 16,000 hourly employees at loca- co-branded credit card offering with American tions in California, Maryland, New Jersey, and Express. Executive Members using the new Visa New York, as well as at one warehouse in Virginia. Anywhere card continued to earn a two percent were represented by the International Brotherhood rebate on qualified purchases. of Teamsters. All remaining employees were Costco accepted merchandise returns when non-union. members were dissatisfied with their purchases. In March 2019, Costco raised its minimum Losses associated with dishonored checks were min- wage for hourly employees to $15 per hour and also imal because any member whose check had been pumped up pay scales for a variety of other jobs. dishonored was prevented from paying by check or including supervisory positions. Hourly pay scales cashing a check at the point of sale until restitution for warehouse jobs ranged from $15 to $19 in the was made. The membership format facilitated strictly second half of 2019. The highest paid full-time ware controlling the entrances and exits of warehouses house employees could earn close to $25.00 per resulting in limited inventory losses of less than two- hour after four years. Front-end supervisors averaged tenths of one percent of net sales-well below those about $26 per hour. Compensation averaged $ 16-$18 of typical discount retail operations. per hour for pharmacy technicians and $62.56 per Cloudy Q 10:41 AM B W ENG () O US 27/10/2022Costco Wholesale in 2020.pdf X + X G f 14 of 24 Q + CD Page view A Read aloud T Add text A Draw v Highlight Erase CASE 3 Costco Wholesale In 2020: Mission, Business Model, and Strategy C31 hour for licensed pharmacists., and about $146,000 exams and could purchase eyeglasses from any annually for pharmacy managers." in-network source and submit claim forms for Salaried Costco employees earned anywhere reimbursement. from $30,000 to close to $200,000 annually, depend- A hearing aid benefit of up to $1,750 every four ing on job type. " For example, salaries for merchant years (available only to employees and their eli- dise managers, membership managers, and meat gible dependents enrolled in a Costco medical department managers reportedly were in the $55,000 plan, and the hearing aids had to be supplied at a to $85,000 range, salaries for supervisors ranged Costco Hearing Aid Center). from $45,000 to $75.000; salaries for database, com- A 401 (k) plan open to all employees who had come puter systems, and software applications develop- pleted 90 days of employment. Costco matched ers/analysts/project managers were in the $85,000 hourly employee contributions by 50 cents on to $125,000 range. Average salaries for pharmacy the dollar for the first $1,000 annually (the maxi- managers were in the $146,000 range. Average total mum company match was $500 per year). The compensation (including bonuses) for assistant gen- eral managers of warehouses ranged from $78,000 to company's union employees on the West Coast qualified for matching contributions of 50 cents $97.000 and reportedly averaged about $88,000. on the dollar up to a maximum co mpany match of Average total pay for general managers of ware $250 a year. In addition to the mat hing contribu houses ranged from $90,000 to $180.000 and report- edly averaged about $135,000.2 tion, Costco also normally made a discretionary Employees enjoyed the full spectrum of bene contribution to the accounts of eligible employees fits. Salaried employees were eligible for benefits based on the number of years of service with the on the first of the second month after the date company (or in the case of union employe on the straight-time hours worked). For other of hire. Full-time hourly employees were eligible than union employees, this discretionary contri- for benefits on the first day of the second month after completing 250 eligible paid hours; part-time bution was a percentage of the employee's com hourly employees became benefit-eligible on the pensation that ranged from a low of three percent first day of the second month after completing 450 (for employees with one to one years of service) to a high of nine percent (for employees with 25 eligible paid hours. The benefit package included or more years of service). Company contribu the following: tions to all the various employee 410(k) plans were $489 million in 2016, $543 million in 2017, . Health care plans for full-time and part-time $578 million in 2018, and $614 million in 2019. employees that included coverage for mental ill- ness, substance abuse, and professional counsel- A dependent care reimbursement plan in which Costco employees whose families qualified could ing for assorted personal and family issues. pay for day care for children under 13 or adult day A choice of a core dental plan or a premium den- care with pretax dollars and realize savings of any- tal plan. where from $750 to $2.000 per year. . A pharmacy plan that entailed (1) co-payments Long-term and short-term disability coverage. of $3 for generic drugs and $10 to $50 for brand- Generous life insurance and accidental death and name prescriptions filled at a Costco warehouse dismemberment coverage, with benefits based on or online pharmacy and (2) co-payments of $15 to years of service and whether the employee worked $50 for generic or brand-name prescriptions filled full-time or part-time. Employees could elect to at all other pharmacies. purchase supplemental coverage for themselves. A vision program that paid up to $60 for a refract their spouses, or their children. tion eye exam (the amount charged at Costco's An employee stock purchase plan allowing all Optical Centers) and had $175 annual allowances employees to buy Costco stock via payroll deduct for the purchase of glasses and contact lenses tion so as to avoid commissions and fees. at Costco Optical Centers. Employees located more than 25 miles from a Costco Optical Center Although Costco's longstanding practice of could visit any provider of choice for annual eye basing good wages and good benefits was contrary B ENG 10:42 AM Cloudy US 27/10/2022Costco Wholesale in 2020.pdf X + X G f 15 of 24 Q + CD Page view A Read aloud T Add text MeJa A V Highlight Erase C32 PART 2 Cases In Crafting and Executing Strategy to conventional wisdom in discount retailing. co- the company's vice presidents had started in entry- founder and former CEO Jim Sinegal, who originated level jobs. According to Jim Sinegal, "We have guys the practice, firmly believed that having a well- who started pushing shopping carts out on the park- compensated workforce was very important to execut- ing lot for us who are now vice presidents of our com- ing Costco's strategy successfully. He said, "Imagine pany." Costco made a point of recruiting at local that you have 120,000 loyal ambassadors out there universities; Sinegal explained why: "These people who are constantly saying good things about Costco. are smarter than the average person, hardwork It has to be a significant advantage for you. . . . Paying ing, and they haven't made a career choice." On good wages and keeping your people working with another occasion, he said, "If someone came to us you is very good business." When a reporter asked and said he just got a master's in business at Harvard. him about why Costco treated its workers so well we would say fine, would you like to start pushing compared to other retailers (particularly Walmart. carts?" Those employees who demonstrated smarts which paid lower wages and had a skimpier benefits and strong people management skills moved up package). Sinegal replied: "Why shouldn't employees through the ranks. have the right to good wages and good careers. . But without an aptitude for the details of dis absolutely makes good business sense. Most people count retailing, even up-and-coming employees agree that we're the lowest-cost producer. Yet we pay stood no chance of being promoted to a position the highest wages. So it must mean we get better pro- of warehouse manager. Top Costco executives ductivity. Its axiomatic in our busines who oversaw warehouse operations insisted that you pay for."23 candidates for warehouse managers be top-flight Good wages and benefits were said to be why merchandisers with a gift for the details of making employee turnover at Costco typically averaged Items fly off the shelves. Based on his experience about 5 percent or less after the first year of employ as CEO. Sinegal said, "People who have a feel for ment. Some Costco employees had been with the it just start to get it. Others, you look at them and company since its founding in 1983. Many others it's like staring at a blank canvas. I'm not trying had started working part-time at Costco while in high to be unduly harsh, but that's the way it works." school or college and opted to make a career at the Most newly appointed warehouse managers at company. One Costco employee told an ABC 20/20 Costco came from the ranks of assistant warehouse reporter. "It's a good place to work; they take goo managers who had a track record of being shrewd care of us." A Costco vice president and head baker merchandisers and tuned into what new or differ said working for Costco was a family affair: "My ent products might sell well given the clientele that whole family works for Costco, my husband does, my patronized their particular warehouse. Just having daughter does, my new son-in-law does." Another the requisite skills in people management, crisis employee, a receiving clerk who made about $40,000 management, and cost-effective warehouse oper- a year, said, "I want to retire here. I love it here." ations was not enough. An employee with over two years of service could not be fired without the approval of a senior company Executive Compensation Executives at Costco did officer. not earn the outlandish salaries that had become customary over the past decade at most large cor Selecting People for Open Positions Costco's top porations. In Jim Sinegal's last two years as Costco's management wanted employees to feel that they CEO. he received a salary of $350.000 and a bonus could have a long career at Costco. It was company of $190,400 in fiscal 2010 and a salary of $350,000 policy to fill the vast majority of its higher-level and a bonus of $198,400 in fiscal 2011. Craig openings by promotions from within, at one recent Jelinek's salary as President and CEO in fiscal 2019 point, the percentage ran close to 98 percent, which was $930,000 (which was increased to $1 million meant that the majority of Costco's manager for calendar year 2019), and he received a bonus team members (including warehouse, merchandise. of $ 190.400 and a stock award worth $6.7 million administrative, membership, front end, and receiving Richard Galanti's salary as Executive Vice-President managers) had come up through the ranks. Many of and Chief Financial Officer