Thursday, October 26, 2006

Costco Stands Out

Why does Costco work?

Fortune article on its CEO Jim Sinegal provides a lot of insight. An excerpt:

With $59 billion in sales from 488 warehouse locations, Costco, No. 28 in the Fortune 500, is the fourth-largest retailer in the country and the seventh-largest in the world.

In the 23 years since Sinegal co-founded Costco with Jeff Brotman (now chairman), it has never reported a negative monthly same-store sales result. Yet he's modestly compensated - Sinegal earned $450,000 in salary and bonus last year, chump change by CEO standards. Add in his stockholdings and he's worth $151 million. (One note on that: On Oct. 12, Costco disclosed that an internal review of stock-option granting identified one grant to Sinegal that was "subject to imprecision" and "may have benefited [Sinegal] by up to $200,000." Sinegal says he takes "full responsibility.")

The company counts nearly 48 million people as members, and those customers are not only slavishly devoted (averaging 22 trips per year, according to UBS analyst Neil Currie), but surprisingly affluent as well (more than a third have household incomes over $75,000).
Wal-Mart (Charts) stands for low prices and Target (Charts) embodies cheap chic, Costco is a retail treasure hunt, where one's shopping cart could contain a $50,000 diamond ring resting on top of a 64-ounce vat of mayonnaise. Despite having 82 fewer outlets than its nearest rival, Wal-Mart's Sam's Club, Costco generates about $20 billion more in sales.

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