Costco prioritizes customers, employees over shareholders

This the first of a four-part series on companies exemplifying superior customer service and employee treatment—and the rewards accruing to their bottom lines and shareholders in the process. It’s a win-win model that exposes the zero-sum gain model of “I win, you lose” as an absurd and ineffective way of doing business. You listening, Donald Trump?

Costco’s legendary customer service policies and employee retention work so well in part because of the firm’s refusal to put shareholders first, customers and employees second—as is commonplace in commerce today. And surprise, their service-centric approach has resulted in their ranking as the second-largest global retailer.

Costco is a shining example of how to achieve stellar sales success supported by key stakeholders—customers and employees—instead of piling second-rate policies and procedures upon them.

According to Costco CEO Craig Jelinek in a 425.com article earlier this year,

“Last year, the company recorded $126 billion in sales, making it the second-largest global retailer behind Walmart’s approximately $485 billion…‘We have never been a company that puts the shareholders on top. You have a responsibility to a shareholder — you do — but if you take the shareholder first, you are going to be in it for the short-term. We had a difficult time (with Wall Street) with the wages that we paid (and) our refund policy, but we’ve gotten past that because have been able to grow the business.”

The article continues,

“Today, Issaquah-headquartered Costco has 749 stores worldwide, and employs approximately 239,000 people. According to Jelinek, the average Costco worker earns $22 per hour, and 42 percent of the company’s employees have been with Costco for more than 10 years. The company’s employee loyalty is just as fierce as customer loyalty, according to Jelinek. The company’s 92.2 million members pay annual dues to shop at its stores.”

Jelinek points out that membership growth and renewals are critical to continuing success:

“Obviously, if you are someone like me, that’s your biggest fear — you start losing memberships, you start losing traffic, and nothing good can happen. We are very paranoid about making sure we always do what’s best for our members.”

Doing what’s best for members permeates every level of the operation, starting with the “business lesson of a $1.50 hot dog and soda”.

“I came to (Jim Sinegal) [former CEO] once and I said, ‘Jim, we can’t sell this hot dog for a buck fifty. We are losing our rear ends.’…if you raised (the price) to $1.75, it would not be that big of a deal. People would still buy (it). But it’s the mindset that when you think of Costco, you think of the $1.50 hot dog (and soda)…What we figured out we could do is build our own hot dog-manufacturing plant (in Los Angeles) and make our own Kirkland Signature hot dogs. Now we are doing so much hot dog business that we’ve opened up another plant in Chicago…By having the discipline to say, ‘You are not going to be able to raise your price. You have to figure it out,’ we took it over and started manufacturing our hot dogs. We keep it at $1.50 and make enough money to get a fair return.”

Given Costco’s phenomenal level of success, satisfying key stakeholders including shareholders along the way, why isn’t every corporate model tuned into great customer service and exemplary employee rewards and retention?

I believe much of the problem stems from tunnel-vision bean counters and shareholder suck-ups who only concentrate on the bottom line, often at the expense of their most important assets—customers and employees. They typically only deviate to promulgate customer or employee centric policies when their bottom lines suffer from negative customer reports, fueled in part by a lack of employee competence because of high turnover and low morale.

Costco proves you can do it the other way around. Do right by the people who form the fundamental framework of your organization, and they’ll do right by you. In the process, shareholders get their rewards, too—except for those who are obsessed with greed-driven gains without any regard for “capitalism with a conscience.”

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Mark Lusky is a veteran writer, storyteller and author, with 40+ years of public relations, advertising, marketing and journalism experience. Author of A Wandering Wondering Jew… and co-author of Don’t Get Mad, Get Leverage,  Mark (aka The Happy Curmudgeon) is the owner of a Denver-based marketing communications firm celebrating 36 years in business in 2018.

 

One thought on “Costco prioritizes customers, employees over shareholders

  1. My favorite blog so far. The zero-sum game theory currently in favor in the American corporate world is based on a short-term perspective of quarter end profits rather than sustainable growth. Thank you.

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