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Low-Cost Leader

Costco's CEO spends 200 days a year in the field, walking through stores and scouting locations.

May 29, 2004
Related Topics: Compensation, Benefits

P ity the poor retail CEO.

    May Department Stores Co. chief executive Eugene Kahn was forced out in mid-January after holiday sales missed estimates. The same month, Lee Scott, president and CEO at Wal-Mart Stores Inc., kicked off an ambitious ad campaign to buff up the behemoth retailer’s image after months of bad press over poor working conditions and a sex discrimination lawsuit.

    Former Federated Department Stores chairman and CEO James Zimmerman retired in early 2004, but faces perjury charges stemming from an antitrust investigation of the company.

    No need to pity Jim Sinegal. For the CEO of Costco Wholesale Corp., life is anything but rough. Healthy holiday sales pushed December revenue at Costco warehouses open more than a year up 9 percent from 2003, compared with a retail industry average of 6.4 percent. All told, Costco owns almost half of the $101.1 billion warehouse club industry, ahead of Wal-Mart’s Sam’s Club division and BJ’s Wholesale, which operates predominately on the East Coast and in the South.

    Sinegal has withstood his fair share of criticism in the past year, mainly from Wall Street analysts who claim that the company’s high hourly wages and generous benefits cut into profits. But with Costco’s stock trading near its 52-week high, critics aren’t as vocal as they once were. Even Deutsche Bank analyst Bill Dreher, who last year famously stated that it’s better to be a Costco employee or customer than a shareholder, more recently praised Costco for its "stellar" December results, though he still rates the stock a "hold."

    Sinegal isn’t bothered. He’s a longtime subscriber to the "What goes around comes around" theory of doing business.

    "You hire good people and give them good jobs and good wages and the net result is you’re going to get good results," Sinegal says from his office at Costco’s Issaquah, Washington, headquarters.

    A professed hands-on manager, Sinegal spends 200 days a year in the field, walking through stores and scouting out new locations. He parses sales numbers for up to an hour every morning and goes to all the store openings.

    Sinegal has spent his entire career in retail. As an 18-year-old attending San Diego City College, he worked part time at Fed-Mart, a discount store run by Sol Price, the man who became his mentor and, later, business partner. When Price started Price Club, the original warehouse discounter, Sinegal followed, working there until Costco’s original investors approached him in 1981 to become the startup’s CEO. He accepted, and a dozen years later he helped orchestrate the merger of Costco and Price Club into the company that it is today

    One thing’s for sure: Shareholders get their money’s worth out of him. His fiscal 2004 salary of $350,000 hasn’t changed in five years, though he did get a $200,000 bonus last year, and $150,000 in stock options. That’s still cheap compared to Wal-Mart’s Scott, who in fiscal 2004 earned $12.4 million in salary, bonuses, stock grants and other compensation, plus 630,413 stock options.

    Before Kahn departed May Department Stores, he earned $2.3 million in salary and other compensation and 85,000 stock options in fiscal 2003.

    For as much as he gets, Sinegal believes in giving back. He and his wife, Janet, are major donors to a number of causes, including Seattle Children’s Hospital and Regional Medical Center, which recently named a $60 million addition after Janet Sinegal to recognize the couple’s contributions.

    It’s a philosophy Sinegal shares with Costco, which sets aside 1 percent of its annual pretax profit for philanthropic activities.

    "He recognizes we all have an obligation to our community and employees," says Arthur Jackson, Costco’s vice president of general administration, who oversees the company’s philanthropic efforts. "It’s not just about the bottom-line profit for the corporation."

    At 68, Sinegal is old enough to retire, but he isn’t ready to quit. When that day comes, there’s a succession plan in place, though he’s mum on the details.

    Until then, he’s happy to be the public face of Costco.

    "If it were possible for me to stock every shelf, buy every item, greet every customer and ring every register, I would," he says. "Obviously you can’t do that, so you want to make sure you have people who’ve been taught how to do the job, then they’ll do it just as though you were doing it."

Workforce Management, April 2005, p. 43 -- Subscribe Now!

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