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Jim Sinegal Quotes

Article Overview: Jim Sinegal Quotes

Jim Sinegal Quotes

Competition makes you stronger. If our top competitor didn’t exist, we would have to make them up.

Just about the time you teach a horse to eat hay, the horse dies.

You have to schedule it. You have to plan the opportunity to think about your business and plan what you're going to do. Otherwise you're just a hamster running on a treadmill; you're never going to get anywhere. You've got to schedule it. Strategic planning is an important part of running any business and the more so for businesses that operating in multiple states and countries.

We're not kamikaze pilots. We want to do things in a sensible fashion. If we can speed up our growth, without outdistancing our management team, and provide a quality product, then we will do so. Aside from the quality issues and wanting to grow the business in a sensible fashion, we don't have any grand scheme that says, for example, that we have to be in Latin America by the year 2015 or have 1000 Costco's in ten years.

A good example of that is that ninety percent of our book sales are unplanned. A customer walks by the book table, sees a book, picks it up, looks at the jacket, says "hey this looks kind of interesting," and buys it.

If a customer’s calling and they have a gripe, don’t you think they kind of enjoy the fact that I picked up the phone and talked to them.

If warehouse managers know that their own regional bosses have open door policies and will talk to any employees about their issues, then they are going to be a little faster to talk to the troubled employees themselves. They don’t want the problems to come back to them through their bosses.

We have said from the very beginning. We’re going to be a company that’s on a first-name basis with everyone.

Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you.

Our business was founded so that small businesses could come in and buy essentially everything they needed for their business under one roof. Café owners could purchase all of their food and drink, cigarettes and candy, cleaning supplies, pots and pans, toilet paper and towels, pads and pencils, and so on.

Technology has made us much more productive. With computers, fax machines, and cell phones we have more productive time during the course of the whole day and can react to situations more immediately.

Sometimes we have so much information it’s more than we can deal with. Our web site and our e-commerce business are also profitable on a fully allocated basis, and that is somewhat of a milestone.

Technology helps us become more efficient and productive but our business still has a lot of art as opposed to strictly science.

The reason that the dot-com companies didn't succeed is that they were very good at the science end but they didn't understand anything about the art of buying and selling merchandise. They thought that was the easy part but it turned out to be the most difficult.

If you don't have the right merchandise in the right place at the right time you can forget about everything else. All the satellites in the world aren't going to help you.

People are still going to want to go out and have that social exchange.

We only have one bullet in our gun, the right product at the right price.

One time [customers] may come in and see that we have some Coach handbags and they come in the next time and the Coach handbags aren’t there, but perhaps there are some Fila jackets. The attitude is that if you see it, you have got to buy it because it may not be there next time.

One hallmark of our business is that we have developed such a high-end clientele with a high-end product selection and assortment.

We’re low-cost operators, and it would be a little phony if we tried to pretend that we’re not and had all the trappings.

The one constant is value. Value is appreciated no matter where you go.

Our attitude has always been that if you hire good people and provide good wages and good jobs and more than that – if you provide careers – that good things will happen to your company. I don’t see what’s wrong with an employee earning enough to be able to buy a house or have a health plan for the family.

We have guys who started pushing shopping carts out on the parking lot for us who are now vice presidents of our company.

Wall Street is in the business of making money between now and next Tuesday. We're in the business of building an organization, an institution that we hope will be here 50 years from now. And paying good wages and keeping your people working with you is very good business.

I think the biggest single thing that causes difficulty in the business world is the short-term view. We become obsessed with it. But it forces bad decisions.

We expect to open about 18 or 19 stores this year and next, then grow to about 25 or 30 a year worldwide after that.

My test scores were good, but my grades weren't that good, because I needed focus.

It was at San Diego Junior College (now City College) where I regained that focus, and paid attention, because deep down I knew education was important.

It wasn’t that great a job. I was getting a buck and a quarter an hour. But it was exciting.

I’ve never been told I’m a most distinguished anything.

This is almost like show business. I mean, every day you're opening up and it's show time.

We take great pride in the fact that people join us and they stay with us.

We pay much better than Wal-Mart. That's not altruism. It's good business.

If you’re a big-picture guy, you’re not in the picture. Retail is detail.

It makes no sense to do inexpensively what we shouldn’t be doing at all.

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  Lesson #2: Keep Your Costs Low and Your Quality High
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  The Good CEO: The Early Years of Costco's Jim Sinegal
  Lesson #1: Respect Can Reel In Greater Returns

Article Tags: ambassadors, competitor, costco, grand scheme, gripe, hamster, jim sinegal, kamikaze pilots, latin america, management team, open door policies, quality issues, quality product, running on a treadmill, sensible fashion, small businesses, strategic planning, warehouse managers



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Facebook application - Hi Kevin - thanks for the suggestion! The two that we were thinking of were Famous Entrepreneur Quotes and Which famous entrepreneur am I most like? I like your idea as well. We've got a rollout schedule of new features for the site that we are working on first before we can get to the Facebook app. We're also not sure how hard it is to integrate into Facebook. It looks like there is a php way to do it which is great because that is our core competency.
Facebook applications - ....[quote:36s714h1]The two that we were thinking of were Famous Entrepreneur Quotes and Which famous entrepreneur am I most like? [/quote:36s714h1] So far my own foray into Facebook has been a complete bust, though I expected that from the start. But if I do an Application for my own particular field of interest, such as Your Favorite Sci Fi movie...that might get people going. So Evan when you figure out how to do this please let me know how complicated it is!!
How about discussing Costco's biz model?? And CEO - Here's a recent article that covers both.............. Costco: The 'anti-Wal-Mart' The warehouse-club retailer 'has figured out the big, simple things': Hold down expenses and prices, treat employees well, make discount shopping fashionable and keep shareholders happy. By Barron's "Membership has its privileges." That slogan belongs to American Express, but it might better apply to Costco Wholesale, the leading warehouse-club operator in the U.S., whose determination to deliver value and innovative products to its 23 million members has made it one of the country's top retailers. Costco (COST, news, msgs) has succeeded by flouting industry norms. The big-box retailer charges customers a base yearly fee, now $50, to shop in its sprawling stores, which offer quality goods at low markups. Consequently, its margins are among the slimmest in retailing. The privileges also extend to employees, who are paid well and enjoy generous health-care benefits. This formula has generated fierce loyalty among both shoppers and workers while rewarding long-term investors. Costco shares, which traded Thursday around $58, are up from a split-adjusted price of $1.67 when the company went public in 1985. True, they no longer are dirt-cheap, but in view of the company's superior management and opportunities for growth, neither are they rich. Small businesses are big customers at Costco, but the company also has managed to make discount shopping fashionable for affluent Americans by offering fine wines, books and big-screen televisions at low prices, and staples such as paper towels and razor blades in bulk. By offering one-time specials like discounted Prada bags or Callaway golf clubs at individual outlets, Costco has created what it calls a "treasure-hunt" atmosphere in its stores. Not the Wal-Mart way Costco is among a handful of retailers that has flourished despite Wal-Mart Stores' (WMT, news, msgs) onslaught; Wal-Mart's more downscale Sam's Club chain runs second to Costco. With its strong labor relations, low employee turnover and liberal benefits, Costco has been called the "anti-Wal-Mart." Its approach has paid dividends because Costco, based in Issaquah, Wash., hasn't encountered the same community resistance as Wal-Mart when it has sought to open stores. "Retailing isn't rocket science. Costco has figured out the big, simple things and executed with total fanaticism," says Charles Munger, a Costco director for the past 10 years. The outspoken Munger, 82, is better known as Warren Buffett's longtime partner at Berkshire Hathaway (BRK.A, news, msgs), where he serves as vice chairman.Crucial to the chain's success is CEO Jim Sinegal, who co-founded Costco in 1983 with Jeff Brotman, the company's chairman. "Jim would be on any intelligent list of the top 10 retailers of the past century," Munger says. Sinegal, 70, also is one of the biggest bargains among big-company CEOs: In an era of seven- and eight-figure pay packages for CEOs, Sinegal earned a salary of $350,000 in Costco's latest fiscal year, which ended in August. He garnered other compensation of about $100,000. What's more, Sinegal got no bonus last year, after the company determined that it had failed to measure properly the appropriate date for certain option grants from 1996 to 2002, although no evidence of fraud or falsification of records was found. "Jim wouldn't let the board give him a bonus. His view was that the option glitch happened on his watch," Munger says. "How many people behave like that? No wonder everyone loves him." Unlike Buffett, who draws a salary of just $100,000 as the CEO of Berkshire, Sinegal isn't a billionaire. He owns Costco stock worth about $135 million and has options on 1.2 million shares. Sinegal's compensation and demeanor offer a welcome contrast to former Home Depot (HD, news, msgs) CEO Robert Nardelli, who alienated employees with his autocratic style and whose gargantuan exit package of $210 million didn't sit well with shareholders. Video: Behind the scenes at Costco None of this has been lost on the investment community. At nearly $58, Costco trades for 22 times fiscal 2007 projected earnings of $2.58 a share. It has one of the highest price-earnings ratios among major retailers. Target (TGT, news, msgs) shares, at nearly $63, trade for 17 times estimated 2007 earnings, while Wal-Mart, at $48, commands 15 times projected 2007 profits. Though some retailing analysts deem Costco shares expensive, the company seems to qualify under one of Buffett's investment dictums. Buffett has said he'd rather buy a good business at fair price than a fair business at a good price. Berkshire owned 5 million Costco shares at the end of September. Growth and more growth This is a genuine growth story. Earnings per share have increased at a 12% annualized rate in the past five years. Neil Currie, a retailing analyst at UBS Securities, believes the company is capable of generating 13% growth in earnings per share in the next few years and an even higher rate if it gets more aggressive in repurchasing shares. The bullish Currie carries a 12-month price target of $66. With large annual buybacks, Costco could earn more than $4 a share in fiscal 2010, Currie estimates. That could support a stock price of $80. The company plans to open 36 to 40 stores in the current fiscal year and about 35 annually in subsequent years. The store base totaled 474 on Dec. 31, including 371 in the United States. Costco says domestic and international markets ultimately can support more than 1,000 stores. Outside the U.S. and Canada, the most promising markets are likely Mexico, the United Kingdom and Japan. Costco's merchandise sales in its most recent fiscal year rose 14% to $59 billion, while membership fees generated $1.2 billion in revenue. This year, sales are expected to rise more than 10%, reflecting lower prices for gasoline. Sales at stores open at least year, a key gauge of retailing success, were up a healthy 8% in fiscal 2006. Could the company be a candidate for a leveraged buyout? Costco does possess some of the key characteristics that private-equity players seek. It has a strong balance sheet, a predictable cash flow and a durable franchise. Its market value is a hefty $26 billion, but LBOs of that size are doable these days. Costco bought back $1.5 billion of stock in its latest fiscal year and $400 million in the quarter that ended Nov. 30. But it has resisted a large debt-financed buyback like the one under way at Home Depot, and to date it hasn't sought to raise funds through the sale of its real estate. The company takes pride in its impressive financial condition. "Have we gotten to the point in America that balance-sheet strength is a negative?" Munger asks.Currie argues that Costco could keep LBO operators at bay by launching a more aggressive buyback program and taking on a moderate level of debt. "The best way for Costco to protect its independence is to have a high multiple on its stock," the analyst says, adding that an augmented buyback would help achieve that goal. He believes Costco comfortably can repurchase $2 billion or more of stock annually. The dividend yield on the stock is a low 0.9%. Most income from members' fees Its cooperativelike operation makes the retailer's business model unusual. In its latest fiscal year, Costco generated pretax income of $1.75 billion, about 70% of which came from membership fees. An additional $125 million was kicked in by the interest income on the company's cash. Costco earned just $400 million from its stores, for a retailing operating margin of less than 1%. The low margin is intentional and reflects the company's commitment to low prices. As a matter of corporate policy, Costco refuses to mark up any product by more than 15% above its cost. When the company signed a new contract in 2005 with a supplier for Brooks Bros.-style men's cotton and button-down shirts, and got a significant price reduction for a massive two-year order, it immediately cut the price of the shirts to $12.99 from $17.99, notes Richard Galanti, Costco's chief financial officer. Other retailers might have phased in the reduction and captured added profit, but that's not the Costco way. The shirts now cost $14.99 because they are made with better-quality cotton. One attraction in the eyes of a potential buyer would be the opportunity to lift margins. Costco leads Sam's Club in most financial measurements, including total sales, sales per store, sales per square foot of retail space and sales per employee. But Sam's operating profit margin of 3.5% tops Costco's 2.8%. Some complaints on Wall Street If Costco were to raise its margins to Sam's level, it would translate into an additional 65 cents a share of net income -- a large amount relative to the current-year consensus estimate of $2.60 a share. Sinegal has talked in the past about lifting Costco's margins to 4%, but little progress has been made. This has led to some criticism on Wall Street. An analyst report in December, after Costco reported its fiscal-first-quarter profits, was entitled "Still No Margin." Galanti says management has no interest in going private. "The public model has worked for us. We have no plans to change," he says. Video: Behind the scenes at Costco Many Costco shareholders are also happy with the current situation. "Costco refuses to be undersold and thinks so long term that the company will not even remotely degrade the value it gives customers, even if it would fuel a healthy increase in margins and earnings and very few customers would notice," says Ken Charles Feinberg, a co-manager of the Davis New York Venture Fund (NYVTX) and Selected American Shares (SLADX), both run by Davis Selected Advisors. "That's how a great management builds a great business franchise that's built to last." The Davis funds are Costco's largest shareholder, with a 12% stake. Feinberg says that Costco's effective valuation is lower than its stated price-earnings ratio because of the company's conservative approach to depreciation. He recently calculated that Costco trades for about 16 times his projection of calendar "owner earnings." This profit measure adds to operating earnings depreciation expense in excess of what is needed to maintain the existing store base. Feinberg believes Costco is a "compelling bargain" for long-term investors. Sinegal doesn't talk much to Wall Street and wasn't available to speak with Barron's. Even at 70, he maintains a grueling schedule. He aims to visit each Costco store twice a year and is about 70% successful in that goal, Galanti says. This means he's on the road 40 to 45 weeks a year. Costco executives jokingly refer to Sinegal's weekly travels as a "death march" because he usually begins each day at 7 a.m. and finishes at 10 p.m. Dressed in sneakers, khaki pants and Costco's now-$14.99 button-down shirts, Sinegal asks store managers what's selling, what's not and how Costco prices compare with the competition. He has no set plans to retire, although he has talked casually about holding the job for five more years. Because he hasn't set a retirement date, there is no heir apparent. But Costco has a strong group of managers who share Sinegal's passion and vision. Unlike most CEOs, Sinegal has no severance or golden parachute in his contract, which runs less than a page. He insists on one-year contracts, believing the Costco board should have the opportunity to evaluate him annually to determine if he's still up to the job. Sinegal's view is that the restrained terms of his contract send an important message to employees. In the view of Berkshire's Munger, one of Costco's great strengths is that its two founders, Sinegal and Brotman, are still active. Brotman, 64, focuses on real estate. "There is no better site acquisitor in the retailing industry," Munger says. "I'd like to see Jeff get more credit. He deserves it." Costco has chosen to focus on more affluent coastal markets; California alone is home to 30% of its stores. Finding sites for new outlets in densely populated areas is one of Brotman's specialties. The company features products that offer its members large cost savings over what they would pay at traditional retailers. The chain carries just 10% of the items in a typical supermarket, which might stock 40,000 products.The formula works. Costco sold 1.5 million TVs last year and has successfully built what it calls ancillary businesses such as prescription drugs and eyeglasses, filling 26 million prescriptions in 2006. Hungry Costco members bought 63 million hot-dog-and-soda combinations last year at in-store snack bars -- priced at only $1.50 and with free soda refills. The dogs are even kosher. Costco's customer-focused strategy is apparent in its 87% membership-renewal rate. The retailer allows returns on nearly all items at any time, with no questions asked; computers are the lone exception. It doesn't even need to see receipts. This liberal policy has proved costly in the past year because the company is seeing returns of an unusually large number of big-screen TVs. Analysts suspect that many members are taking advantage of the sharp drop in TV prices to return models bought in the past 12 months so they can buy new ones at lower cost. Costco said it is evaluating its TV-return policy but emphasizes that no change will be retroactive and that it still plans to maintain the industry's most generous return policy on electronics. Low turnover among employees Workers get a relatively good deal at Costco -- a point of emphasis for the company, which contends it's also a matter of good business. Despite fewer stores, Costco's sales are about 50% above those of Sam's Clubs, and sales per employee are about $500,000 a year versus $340,000 at the Wal-Mart unit, UBS' Currie calculates. Sinegal was asked in a recent Bloomberg TV interview about the company's health-care benefits. Costco provides health insurance to its 93,000 domestic employees and pays 90% of the cost, which runs about $6,000 annually per employee. Video: Behind the scenes at Costco "We're 100% committed to maintaining this program," Sinegal said. "It works for us, and our people count on it. We think they're entitled to that security." Costco has one of the lowest turnover rates in retailing. Among employees who have been with the company for at least a year, just 6% leave annually. That may be because store employees such as cashiers can earn more than $40,000 a year after only four years on the job. Costco shares aren't a bargain at current levels, but patient investors could be rewarded because the company is an industry leader with top-notch management, a loyal customer base and solid growth prospects in the U.S. and abroad. In Street-speak, Costco may be "under-earning," meaning its profit margins are lower than they need to be. Management is loath to tinker with a successful formula, but margins probably have only one way to go: up. In time, the shares are likely to follow. This article was reported and written by Andrew Bary for Barron's


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