Jim Sinegal: Costco CEO Focuses on Employees

Sinegal is one of America's Best Leaders because he's not a typical CEO.

By SHARE
FS_PR_091022_BL_Sinegal.jpg

Arlington, Va.—It's midmorning in Costco. Shoppers push Smart Car-size carts, politicos peruse the stack of Ted Kennedy books, and husbands disappear among 32-inch Sony televisions. And Jim Sinegal, a straight-talking, fast-moving 73-year-old, is ping-ponging around customers, employees, and tables loaded down with Michael Kors microfiber jackets, 10-pound bags of organic carrots, and packaged perfume sets. He's a man on a mission, one that might seem odd for the CEO and president of the third-largest U.S. retailer: See the store as customers see it. But then, Sinegal isn't your typical corporate executive—part of both his charm and the company's success.

In front of a pile of extra-large bags of potatoes, Sinegal stops. "How long have you been $8.49 on this?" he asks the location manager, John Rohr, who is, a little nervously, trailing his boss through the store. Two days, Rohr says. "What were you before, $7.99?" Sinegal asks. No, Rohr tells him, $8.99. "So you went down 50 cents?" Sinegal looks at the potatoes, looks back at Rohr, and nods approvingly.

During a recession, it might not seem much of a surprise for a CEO to applaud lowering prices. But since Sinegal cofounded Costco with Jeffrey Brotman in 1983, that's been his shtick even in the best of times: Keep prices so low that other stores can't compete. Items are marked up an average of just 10.5 percent, eking out razor-thin profit margins of less than 3 percent. Still, that was enough—especially when combined with Costco's membership fees—to turn a $1.3 billion profit in fiscal 2008.

Pushing low prices, though, isn't what really sets Sinegal apart. He also has a habit, which sometimes irks stockholders and almost certainly annoys his competitors, of taking excellent care of his employees. Eighty-six percent of them get healthcare and benefits, even though half are part-timers, and the average wage is $19 an hour. And Costco hasn't had any layoffs in the recession. Why such generosity?

"It's really pretty simple. It's good business. When you hire good people, and you provide good jobs and good wages and a career, good things are going to happen," Sinegal says. "We try to give a message of quality in everything that we do, and we think that that starts with the people. It doesn't do much good to have a quality image, whether it's with the facility or whether it's with the merchandise, if you don't have real quality people taking care of your customers."

Much-loved uncle. The attitude has won Sinegal the adoration of his employees. Because he tries to visit the Pentagon City store at least twice a year, part of the store-hopping tour he's on about 200 days out of 365, many have met him before. That includes Joseph Barbaro, who has worked for Costco on and off since 1990. But today, Barbaro is still so excited to see Sinegal that he asks him for his autograph and a picture. "I love this work. I love it," Barbaro says. "Costco is the best at everything, including the president and the board of directors." At the bakery, when Sinegal picks up a rose-festooned sheet cake and tells the workers, "It looks good enough to eat! Really, they look beautiful. Thank you," the smiles on the employees' faces radiate less relief than a pride akin to having pleased a much-loved uncle.

All of that helps keep Costco's employee turnover rate at 12 percent, remarkably low for retail. Rohr, for example, started as a return-to-vendor associate at 25. Now 48, he never left. "I was planning on a little bridge job," he says. "That's the culture. When you get hired, the first thing the manager tells you is that you can have a career here. If you choose it, you can have it."

Sinegal, meanwhile, is clearly pleased that he's made his career here—and not just because of his salary (which, at $350,000, is at the low end for the head of a $70 billion company). "I just love it. I like to come in and listen to the cash registers ring," he says, sitting down in the food court to chat. "It's just fun. That's the reason these guys stay with us." And, he adds, "if you've got to work for the rest of your life, you'd better do something you'll enjoy."