Jim Sinegal 2007

ELLIOT ZWIEBACH

Jim Sinegal
President and CEO
Costco Wholesale Corp.

Sinegal led warehouse clubs into new territory with such innovations as upscale merchandising, high-quality perishables and a strong store brand. With annual sales of $63.1 billion, the chain has become a feared rival of the traditional supermarket channel.

For Jim Sinegal, being named to SN's Hall of Fame is a distinction he'd rather share with his senior executives than keep for himself.

“The greatest accomplishment I've made in my career is working with my partner to assemble the right team,” the president and chief executive officer of Costco Wholesale Corp. in Issaquah, Wash., told SN.

“Anything I've accomplished is a result of what they have done.”

What Sinegal and his team have accomplished is to create one of the largest sellers of grocery products in the country by melding high quality with competitive pricing in a “treasure hunt” shopping environment.

Costco generates more than half of its $63.1 billion in annual sales from groceries, and has become one of traditional supermarket operators' most feared rivals through its focus on upscale merchandising, private-label offerings and high-quality perishables.

Sinegal's eagerness to share the credit for his company's success isn't false modesty, according to people who know him.

“Jim is a good thinker, but he pulls together ideas from a lot of different people,” Sol Price, founder of Price Club and Sinegal's mentor, told SN.

According to Mitch Lynn, a former president of Price Club who worked for Sinegal after Costco and Price Club merged, “Jim knows the value of surrounding himself with the right people.”

To Jonathan Ziegler, a Santa Barbara, Calif.-based analyst with Dutton Associates, El Dorado, Calif., Sinegal is simply “the best retailer in America because he recognizes that people are what makes a business work — employees, vendors, shareholders and customers — and as a result, he's constantly aware of doing what's right for all of them.”

Sinegal told SN the key to Costco's success over the years is the trust it's created with members and the bonds it's developed with its workers. “Our members trust us, so we're always looking for ways to exceed their expectations,” he said. “As for our employees, I'm very proud of them. I've always had the attitude that if you have good people and provide them with good wages and a career, then good things will happen in the business.”

That feeling is mutual, Ziegler pointed out, recalling a Costco annual meeting he attended several years ago where Sinegal was asked if he had plans to retire. “When he said he did not, the audience, made up largely of Costco employees, gave him a spontaneous standing ovation, which tells you a little about the kind of fellow he is.”

Sinegal, 71, told SN he still has no plans to retire.

Costco — founded in 1983 by Sinegal and his partner, Jeff Brotman — operates 520 warehouses in the U.S., Canada, Mexico, Puerto Rico, the United Kingdom, Japan, South Korea and Taiwan.

“Costco reflects everything I've learned in business over the years,” Sinegal said, “and Sol Price was certainly a big influence. I learned everything from him, and I have a tremendous amount of respect for him.”

Sinegal began working for Price at age 18, unloading mattresses for Fed-Mart, a membership discount store Price had founded in San Diego. It was an association that lasted 23 years.

Two years after Price sold Fed-Mart and started a competing business — called Price Club — in 1976, Sinegal went to work for him again “because I liked and admired Sol, and because he wanted me. And I thought it was an exciting business.”

Sinegal stayed at Price Club only a year, however, “because I wanted to start my own business,” he said. In 1983 he and Brotman launched Costco as a Price Club clone; in 1993, the two companies merged.

“Many of the things we do at Costco began back at Fed-Mart and Price Club and simply evolved, including the concept of membership, limited selection, pricing and the strong private-label program,” Sinegal told SN. “We've simply refined those programs over the years.”

The Kirkland Signature private-label program, for example, has been growing at a rate of almost 1% per year, so that it now accounts for about 17% of sales. For many products, the chain's only private-label brand is the best seller, the company has reported.

One of the keys to Costco's ongoing success, industry observers maintain, is the “treasure hunt” nature of the warehouses — the idea customers will stumble on something totally unexpected at any moment on any visit.

“We take pride in that,” Sinegal said, “and we try to create the attitude that if they see it, they'd better buy it because it may not be there on their next visit.”

Treasure hunts extend to the grocery section as well, he said. “Of 4,000 grocery items, 3,000 are basic and the other 1,000 are constantly changing,” he said.

Groceries have always been a key element of the membership warehouse concept, Sinegal said, with categories carried by conventional supermarkets — fresh foods, packaged groceries, paper products, cleansers, liquor and candy — accounting for about 60% of Costco's total sales.

“At Fed-Mart, we started with a few simple items like cases of tuna fish that we got on special buys,” he explained. “Gradually we offered a full-line food department, with 30,000 items, but over the years, at Price Club and then Costco, we've reduced that number and now have food down to about 4,000 items.”

Sinegal and Brotman chose to establish Costco in the Pacific Northwest “because Seattle and Portland were the least competitive markets on the West Coast,” Sinegal said.

The original Costcos were 105,000 square feet, and the chain didn't get into groceries in a big way until 1986, when it acquired a 200,000-square-foot building in Tukwila, Wash., that give it the opportunity to test fresh foods, Sinegal said.

“We utilized 30,000 square feet to put in meat and seafood departments, a bakery and a produce section, and that brought people in to shop with us weekly.

“At the beginning we didn't have a clue about what we were doing, and productivity wasn't very good, but as we were able to improve food comps by 30%, we quickly expanded groceries to all existing Costcos.”

According to Ziegler, “Sinegal has created — or perhaps developed is a better word — the most forward-thinking, cost-effective, consumer-friendly approach to retailing I've ever seen. I mean, think about it: Costco is able to charge admission, just like Disneyland.”