Costco Wholesale has been around for more than 30 years. A $55 or $110 membership fee buys a bare bones bulk shopping experience.
“All you see is merchandise,” Costco CEO Craig Jelinek told Channel 2 Consumer Advisor Clark Howard. “That’s what we do, we buy and sell merchandise. The floors, it’s not what they're made out of, it's whether they're clean. You know there's cost to marble, there's cost to mannequins, there's all sorts of costs of parts of the business.”
Jelinek has been with Costco since 1984. He told Howard that low overhead and markups help keep prices low.
For instance, the ceiling on all of their Kirkland signature private label items is 15 percent, and 14 percent on all brand names.
“Our view is to figure out how we can sell it for less, and sell more,” Jelinek said. “We don't want to know how much more we can make, we want to know how little we can make and sell more and pay the bills and make a little profit.”
He said it’s a value customers see, and that’s why they continue to pay for a membership.
“They see the value, you know, the membership fee is part of the equation. And the more membership fees we generate, the more that we turn around and try to lower our prices,” Jelinek said.
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Howard said he might be on to something. Worldwide, Costco boasts 720 warehouses and 86.7 million members. That number includes their free household memberships -- but not a lot of employees in the store.
“We don’t have a lot of people here running around to help you, you're not going to find a lot of sales clerks unless you're buying a diamond or you're buying a television set or you're going over to get a prescription,” Jelinek explained to Howard. “You see the item and you see the sign how much it’s going to be."
The average employee starts at $13 an hour, then jumps to $23 or $24 within four years. The company offers health benefits and a 401k after two years.
Jelinek said treating employees well just makes sense. It’s a business model Walmart recently started using, and they’ve seen increased sales because of it.
“Your employees are part of what makes this company go,” Jelinek said. “It's not about me, it's not about the chief financial officer, but it's your employees that deal with the consumers day in and day out. They're a very important piece.”
Standing in front of a table full of fresh-baked goods, Jelinek explained that after providing value, knowing what customers want is key.
“This is an item that we'll move in and out. We'll have this item in here for probably about three or four months, and then we'll go to another loaf. People get burned out on things,” He explained.
From knowing their No. 1 selling liquor is Kirkland Signature vodka, to how many grapefruits are in a sack, Jelinek can speak about almost every item on Costco’s shelves.
“I have to sign off on all the Kirkland signature items,” he said.
Kirkland Signature is Costco’s brand. It’s plainly packaged and you won’t see any commercials for it. The cost of those extras are ultimately passed down to the customer, something Jelinek said he tries to avoid.
Pointing to Kirkland Signature batteries, he explained, “Now, this brand here is no advertising, there's no overhead, there's just packaging. We don't advertise it. It’s just a brand.”
He also told Clark that Duracell makes Kirkland Signature batteries.
If you’re looking for deals, Jelinek explained why looking for items marked down to $9.97 or $19.97 might be a good idea.
Looking at the jewelry case, he explained, “The 97 only means one thing, we didn't make a very good buy. We don't want to fool anybody. If you see the 97, you learn that it's a marked down price.”
Another tip: If you see a “00” on the end of a price, it’s the last one.
Clark asked Jelinek if he’s concerned about competition online, like companies such as Walmart and Amazon.
“You don't lose sleep over Amazon, you don't lose sleep over Walmart, you just do what you do and you do it better. Where you lose sleep is when you start thinking you're not executing the way that you should be,” he said. “I don't think Amazon is going to be a Costco, so you know, there's room out there for both.” he said.
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