The Costco Story

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Costco enjoys generally positive press coverage, even without seeking it. Today I read this Bloomberg BusinessWeek article on the company, wherein the reporter analyzes the formula for its success in business and PR.

The most telling statistic:

“Eighty percent of its gross profit comes from membership fees; customers renew their memberships at a rate of close to 90 percent, the company says. It raised its fee by 10 percent in 2011 to few complaints.”

Who else can boast this level of return customer?

It is not the retail environment, which is bare bones warehouse. It is not the cool factor, since it does not specialize in covetable high design goods.

It is in large part due to the high quality of its goods. Costco doesn’t sell “cheap.” It sells value. I don’t go there often, but when I do, I’m always surprised and delighted at what new and desirable product is on the shelves. Bufala mozzarella! Farro! Mary’s Gluten-free crackers!

It is also a company with a corporate culture based on values. (The importance of company culture as a “secret sauce” is explained in this article by Sohrab Vossoughi of Ziba Design, who I’ve been fortunate to work with.) It is known for happy employees who earn a living wage and receive generous company benefits.

Costco does profit, but its executives are content with enough. They are paid well, but not excessively so. That lack of ego rubs off on how customers are treated and how employees make them feel, which is generally good. So it’s no surprise that members renew. All of that translates into shareholder value. This is the story the press loves to tell about Costco over and over.

It takes guts to make these choices, and resist pressure to dilute its values, particularly since Costco is publicly held.

“Costco went public in 1985, and over the years, Wall Street repeatedly asked it to reduce wages and health benefits. Sinegal instead boosted them every three years.”

There is another mass retailer who does sell “cheap.” It is famous for treating its employees in a miserly fashion. That’s their story. It serves in part to make Costco’s positive attributes stand out more starkly.

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