the

Costco Wholesale Corporation Co-Founder and Former CEO Jim Sinegal

good evening everyone hi thank you all

for coming

my name is Luiza and my name is Nora and

we are the presidents of the Georgetown

retail luxury Association tonight were

proud to host Jim Senegal the founder

and former CEO of Costco Wholesale

corporation mr. Senegal co-founded

Costco in 1976 and until his retirement

in 2011 he remained CEO and president of

the branch he began his career in the

retail industry in 1984 as an 18-year

old college student he went to work for

retail legend full price at a discount

store in San Diego he remained working

for price for almost 30 years before

going out on his own and starting Costco

today Costco is ranked number 14 in the

fortune 500 and ever since it was

founded it has revolutionized the

American retail space its revenues

exceed a hundred billion dollars and it

employs over a hundred ninety four

thousand people worldwide for decades

the company's mission has been a

never-ending quest for efficiency and

more importantly providing its members

with the best possible prices it is an

honor to have mr. Sinha go with us

tonight to talk about the origins of

Costco and how Costco has managed to

stay relevant in the fast changing world

of retail on behalf of GLA we would like

to thank mr. Senegal for being here and

sharing his invaluable life experiences

with us as well as the global business

initiative with dr. Ricardo Ernst and

mr. Wilbur Hidalgo we would also like to

thank Dean Patricia grant and Miss Maria

Anderson from the MSP undergraduate

office the McDonough School of Business

events team and journalist dedicated

members for putting this event together

now please join us in giving a warm

welcome to dr. Ricardo Ernst and mr.

Jimson ago

good evening it's a great pleasure I

want you to lose a great pleasure to

welcome Jim cynical to the McDonough

School of Business as was mentioned in

1976 mrs. sinico

co-founded price Club that later be

called Costco one of the world's largest

retailers creating a paradigm shift in

the retail industry his strategy and

leadership transform his store into one

of the most successful retailers in the

world gossip goes that the idea for

Costco came when mr. cynical took a job

at fete Mart in a 1954 during college

his particular job was unloading

mattresses his technique for unloading

mattresses was so unique that got the

attention of fed Mars chairman Sol Price

who is credited with inventing the big

box warehouse concept eventually mr.

Senegal became executive vice president

of the company that's what you call a

very nice career path from unloading

mattresses to VP he eventually helped

start price flow now mr. cynical started

Costco in 1983 and the rest is history

Costco has done what very few companies

have been able to do change consumer

behavior people use two by two two three

rolls of toilet paper

thanks to Costco we now buy 300 rolls

one shot you need to get a bigger house

so you can put all these toilet paper we

can safely say there is a world before

Costco and a world after Costco for

those that do not know me my name is

Ricardo Ernst I have been a Georgian for

over 32 years doing many things

including teaching operations and supply

chain management so you can imagine the

excitement of being with the former CEO

of Costco Costco is to supply chain

management to cysts what Apple and

Google is to innovators a continuous

source of learning and inspiration

Costco is a global social equalizer it

is like going to a sport event you see

there all kinds of

people from different social levels and

economic positions anybody and everybody

goes to Costco it is the perfect

one-stop shop for groceries gas home

goods and electronics let's do a simple

test how many of you have been to Costco

yes and how many of you have loved it

thank you we appreciate your business

now let's see let's see if you can guess

what is the best selling product at

Costco toilet paper ding ding ding ding

you're right Costco is the best selling

I mean the the toilet paper best selling

item is toilet paper they sell more than

a billion billion be like in big-boy

billion rows every year did you know

that Jim yeah it's checking man we have

you know we do all this research on

numbers you might be surprised yourself

the high quality I mean it's a product

that you don't think much about high

quality until you use it but they high

quality and warehouse price of Costco

toilet paper make it fly off the shelves

every day you're probably thinking about

only paper a little differently the next

time you use the bathroom now that there

is another product that out sells all

the rest which is the four point $99

rotisserie chicken you know that Costco

sells approximately 60 million chickens

over the course of a year so we can call

them the chicken company to set the

conversation in perspective I would like

to share a few figures with you Costco

open its first warehouse in 1983 in CRO

by the end of 2019 so from 83 to 2019

the company operated over seven operates

over 780 warehouse stores generating

over a hundred and fifty billion dollars

in revenue and expanding internationally

still then that is a topic of

conversation seventy percent of the

retail is in the US so let's find out a

little bit more about that later there

are over 90

a million cardholders 98 million I'm

sure many of the you or you know your

parents representing over fifty three

million households and a consumer

satisfaction so we love Costco so much

of 83 out of 100 also very important and

actually very close to the heart of Jim

245,000 full and part-time we are very

happy employees so in a single word we

can say that Costco is a WoW place even

though you are not the CEO anymore

you have continued a close affiliation

with the company I don't blame you I

also have a strong affiliation with

Costco in my house I always want to go

did you know that I love going to Costco

my wife finds it fascinating that it is

the only place that I even volunteered

to go is Costco knowing that it involves

carrying a lot of stuff at the end but

anyway the format of this conversation

is going to be I will be asking a few

questions and then letting the audience

also ask question given the level of

curiosity that I personally have and I'm

sure you all have we are planning to be

here until midnight which I hope it's

okay with all of you I start giving you

our purpose right

yeah is that okay with you guys no it's

not you told me no but anyway okay let's

say jump into this serious stuff I have

just to get the whole thing and going

how do you choose what products to sell

at a Costco typical so you know I'll

leave your figures a typical Costco

warehouse carries only about it's not

that many products 3700 Eska use

distinct products from treats 3700 to

4,000 while a typical Walmart so you get

a level of comparison carries

approximately 140,000 so Costco that

look so big to you has 4000 Walmart

140,000 how do you choose what products

itself well yeah first of all I have to

say you are a great lead-in man here I

learned some things that I didn't know

before

well you know when we started in

business our business was directed

toward the people who own businesses and

so we might have as a typical shopper or

somebody that ran a restaurant or

somebody that ran a gas station so we

selected the products to cater to that

type of customer and that was an

important customer force because we

appealed to them on kind of three prong

basis we appealed to them on the basis

of what they needed to supply in their

business maybe if it was a restaurant

food that they were gonna serve they

might also by their toilet paper at

Costco and maybe a television set for

their own use so we really appealed to

them on the basis of what they used in

their business what they consumed in

their business and then of course what

they had for personal consumption and

the direction of the company as it moved

on continued to drive toward that type

of customer but added more retail type

of selänne as we went on but clearly we

wanted to be very limited in the

selection that we had so you'll often go

in and find that there's just one item

in a category mm-hmm we would hope that

would be the very best item in that

category and the best value that was

available in that category so if you win

we're looking for peanut butter we're

gonna be able to supply it to you in

your favorite six pound package and then

we would also have maybe jiffy one time

and if jesse was not the best price

would go to Skippy peanut butter so we

move around so it's not necessarily a

loyalty to a particular brand depending

on the opportunistic and then how cute

land was born I mean you took us a bit a

little bit about having developed this

brand I am sure you all know cute land

signature register 39 billion dollars in

sales in 2018 so why did the companies

had to create this brand back in 95 Wow

and when we started we were all brand

name drops we can carry any and the

off-brand didn't carry any private label

and as a matter of fact private label in

1983 and late 80s was not very popular

on

u.s. basis but as we expanded over into

England and Scotland and was we expanded

in Canada we found that there was a

resurgence of private label product and

that was driven an awful lot by the fact

that the prices of brand-name products

were growing so rapidly the pressure

that manufacturers had to exceed

expectations from Wall Street made them

raise their prices on an ongoing basis

so you find crazy things like maybe a

commodity went down 5% but the price of

the finished product went up 6% in order

to meet the expectations

well that created an umbrella for

private label products and we found that

in London many retailers were very

successful and so we thought that we had

to get involved in that and we set some

criteria that the products that we would

develop would be as good or better than

the leading national brand that we had

to be able to save our customers at

least 15 to 20 percent off of the

national brand and that wasn't what the

national brand would sell for in a

department store or supermarket but what

the national brand would sell for at

Costco mm-hmm so the savings had to be

significant for the customers it had to

be a meaningful product and one that was

important for our customers and of

course we look for a name and you know

what kind of a name are we going to come

up with the conventional wisdom said

that you had to have a different name

for every class of product that you had

our Sears & Roebuck with the Kenmore

appliances and with the diehard

batteries and the Craftsman tools and JC

Higgins and and we looked at it and we

said you know we're in so many countries

and we have such a wide array of

products we'll have a room full of

attorneys that are doing nothing but

trying to clear these names for every

product so somebody came to us with the

name Kirkland Kirkland was where our

home office was and they did a design

for us that said Kirkland Signature and

we liked it we cleared it immediately

for every country and every product

category that we would have that made it

simple and then we promptly moved our

home office to Issaquah

yeah nobody could spell OS announcer we

just cannot do it I'm glad you didn't

change it but let me and who makes those

products at the Kirkland I mean he

suddenly do you find supply it what do

you get these supplies we find suppliers

on a worldwide basis and oftentimes they

are the I'm not going to tell you who

they honor but they oftentimes are the

leading manufacturer the family they

produce the brand products so well

oftentimes that's the case not always

but it is the case in many instances

that it's exactly the same formula the

brand that's being sold no I but you

have a very significant adventure in in

the price of your signature product but

you can also have it and sometimes I

have seen that you have the notch of the

national brand and keaghlan so in do you

have any preference for selling yours

over the other ones or at the end of day

you don't care no we generally like to

set them side by side uh-huh because

when we set them side by side you're

able to illustrate the value that you

have on the product they see the price

of the national brand and they see the

price of the private label and and not

without a lot of work and a lot of time

we've been able to build a lot of

confidence in the consumer that they

know if they see the Kirkland brand they

and their they've adjusted their minds

that they're going to get a good quality

product and oh by it takes a long time

to establish do you need to negotiate

with the national brands because they at

the end of the day you're selling

basically the same product but cheaper

do they get like you get any resistance

from them to developing these products

and actually showing them on the same

shelf well we certainly didn't in the

beginning but as the brand became more

popular we found that there was that

cooperation and also they wanted to

continue to do business with us and they

thought that perhaps in some instances

they could continue they have their

brand on the Shelf alongside the private

label and so they'd have a double hit

there if you would be doing business

with both the products and that has

developed over the years now that we're

a significant factor in the retail

business it's easier to get suppliers to

want to do that type of

and cooperate with us regarding the

membership model the membership mode is

something very interesting and very

unique to Costco you're known for

offering the best prices that's your

signature thing that you know you go to

Costco

it might same it may seem

counterintuitive to tell customers the

best way to save money is to pay upfront

I mean we pay a membership $60 and then

I'm gonna be recovering my $60 over time

I mean one shop trip in my case but in

any event how can you explain us a bit

about the membership model well we

thought and I have always felt the

membership model develops a degree of

loyalty the members feel like they are

part of the organization they feel like

they're gonna make that their first stop

as opposed to going to another store or

a retailer they have a tendency to buy

more we certainly do communicate to them

just as you mentioned that if they're

shopping intelligently they're gonna

wind up saving that membership fee on

one trip for the warehouse and we think

that we can conclusively prove that in

almost every instance now let's talk a

little bit about the international

expansion

overall the 780 warehouses 539 are in

the u.s. we have a hundred in Canada 39

in Mexico give and take 28 in the UK 26

in Japan but you also have operations in

South Korea Taiwan Australia Spain

Iceland France and China so how is it

the how was the evolution I mean what

are the challenges how do you deal with

that for us in the McDonough School of

Business global business is our middle

name so well I don't know that we

necessarily planned about that well we

were in Seattle and Canada was only a

hundred and twenty miles away and we

said you know how tough can it be well

we found out they were trying to act

like was a different country

they you know they had two languages up

there you had to put labels and two

languages they had a different system of

measurement they had a different

financial system and highly lift

different laws and regulations and so

that was a valuable lesson force thank

goodness it was very close to home and

we were able to watch it carefully and

grow it but we didn't know how

successful we would be in Canada Canada

was a small country at that time only 30

million people

I think our estimation was that maybe we

could eventually grow to ten Costco's

across the country today we have a

hundred we significantly underestimated

the market share that was available for

us not just in Canada but just about

every market that we've gone to and so

that's the reason you know in Japan we

never thought we'd have an opportunity

for 26 vocations and yet Wilbekin

continuing to grow that business on an

ongoing basis it got us involved in the

international business we found that the

concept of saving and having value was

was translated and could be translated

into those various countries and accept

it and it's very interesting that in all

of the countries where we do business

most particularly in Asia and in Mexico

American products are very popular they

are at least a third of the product

selection that we have and they are

considered premium products so we we

believe it or not wind up sending more

products to Asia then we import

ourselves what we directly import not

the clarify that a little bit because

products like Samsung and LG and that

are produced overseas and we don't

directly import them but we under that

we directly import we have a greater

influence for the other way and what

we're exporting to those countries

because the u.s. products are v so

popular I was telling somebody earlier

today the Japan the biggest selling

product that we have is downy prep

fabric softener well we thought what

they were drinking it

we didn't understand why we're so

popular and TV and we'd have customers

would come in and they would open it and

smell it and they'd say this smells like

America so we kept the project yeah we

didn't know the America had a smell

that's good

China China recently has been in the

news all the time you guys have what has

been very successful operation in China

but other companies other retailers like

Home Depot they close the operation

Carrefour the French company they close

their operation in China you guys on the

other hand has been extremely successful

so what is that you think the secret of

Costco in China well you know we we saw

what was happening with people like Best

Buy and with Home Depot and with car

floor there was at one time our partner

in Europe and we created a little bit of

anticipation and angst on our part

whether or not we were gonna be able to

be successful there and we look for

property as a matter of fact my first

trip to China was over 25 years ago so

it took us a long time to make a

determination that we could do business

there and getting permission to do

business there and so our first place

just opened as you know a couple months

back and of course got off to a great

start the authorities came and asked us

to close down because we had created an

adiabatic issue there's another part of

the story there was a day case day care

center immediately adjacent to our

building and the parents couldn't get in

and get their children and so the

authorities who we're very nice said

please close so that we can get the

children out of there and we did better

the news it went viral on screens on the

iPhones and everything the story that

Costco had to close because they were

too busy yeah they know they came our

way was that the Chinese parents rather

go to Costco than to picking up their

kids

that's what that I was so I'm very happy

you are your I was nervous I didn't want

to touch the topic but because you

brought it up and now yeah they you know

I'm really thinking appreciate that

now do you hire locals when you go to

all these countries like in China and

Korea and Japan so they generally send a

contingent of three or four management

people over to the country their

intention is to be there for four or

five years and to move out and for us to

develop a country team a team that would

run that business so I was speaking to

someone earlier who had just been over

to South Korea or had been working with

our South Korea people and he met

several of our Korean team over there

and they're still now their key

management people in their company is

the operation of the supply chain in

each one of these countries similar to

what you have in the US or each one of

these is kind of independent that China

has their own business model I mean we

know what is the message and the value

that you are selling and positioning the

Costco but the supply chain for each one

of these countries are they taking

synergies with the one you have in the

US or basically these are different

models there are synergies that are

available that's what's in the US of

course because we're a significant

purchaser so when we go to China our

ability to negotiate with LG as an

example is enhanced when in fact if we

do so much business in the US and as I

mentioned so many US products are so

very popular so we do just we do get

synergies we we try if you were to walk

into a Costco in China or in South Korea

you would think you were in a Costco in

the only except that you were begin to

see a lot of foreign products you begin

to see a lot of Korean products but your

initial impact would be that this is the

Costco trade wars it's a hot topic in

Washington DC maybe not in Washington

State but in Washington DC is kind of a

hot topic is that affected us Costco is

a global corporation 12 countries how

are trade Wars affecting your business

the trade war effect at the moment is de

minimis

but we expect that it's going to become

more and more

significant as time goes on at the

moment I think China has tried to do

some things to mitigate the cost

increases but that will only go so far

if the tariffs continue at the rate that

they are than the American consumer is

gonna pay or a lot of trade is gonna be

changed to countries like Vietnam and

other nations that will be producing the

product that you'll see a combination of

both those I think happening very

shortly but at the moment I would have

to say it's de minimis now let's talk

about e-commerce the company seems to

have embraced ecommerce a bit later

compared to other places and but this

segment out pays the company overall

growth with e-commerce in sites in the

US Canada Mexico UK Korea and Taiwan in

2018 for you guys in 2018 Costco's

ecommerce sales amounted to 4% of the

total net sales

what is the e-commerce strategy how do

you leverage your global supply chain

with e-commerce like a different

business I mean I buy we buy many things

to recover tell us how how was that

evolution of thing well actually we've

been in the e-commerce business for a

long time we had we started in about

1998 so much longer mm-hmm ago than you

might have thought one of the hallmarks

of our business as you recall Ricardo at

that time there were a lot of people

getting into the e-commerce business and

in many instances in most instances they

fail it didn't survive Amazon was an

exception but I think it was because

Amazon always had the idea that they

wanted to build a business for the long

run and a lot of people were in the

business looking for an exit strategy

there but Amazon survived one of the

hallmarks of our e-commerce businesses

we've been profitable since the day we

started it this year our e-commerce

business when you include everything

that we do with travel and with business

delivery and everything else will exceed

ten billion dollars long Oh still a

small share and I'm not trying to be a

big shot ten billion dollars is still a

lot of money would take it any minute

but but it's small relative to the total

picture which is 150 billion dollars but

it will continue to grow it'll be an

important part of our business and it is

an avenue for us to continue to be very

competitive but those people who are in

the e-commerce business they have to

watch our pricing very carefully is

managed separately the e-commerce I mean

are they synergies with the ispotter

part of the business where we and when

you well purchase do you have liked it

because some of the products are in this

store and then every next time you go

they might not be there so why or how is

it that you approach do you buy like a

bulk and then you get a good deal and

then after the that particular product

you sell at all then you don't if you

don't get a good deal next time then it

vanishes I mean it's not in this store

anymore how is the the idea of the 4,000

items roughly 4,000 items we carry about

3,000 of them are basic and you're gonna

find them in one form or another every

time you came in now use that peanut

butter example mm-hmm again you'll find

jiffy or you'll find Skippy but you're

gonna find peanut butter in the biggest

jar we can make now that's basic and

that's something you will find that's

3,000 of the items about a thousand

items are constantly changing and that's

what we think of as the treasure hunt

type of items the type of items that

when you come in you see them one time

maybe you come in and you see that we

have a North Face jacket and you come

back the next time and we don't have a

North Face jacket but maybe we have they

go for the handbag or maybe we have a

underarm or sweatshirt that we have and

we purposely run out of those things we

try to create an atmosphere and an

attitude that if you see it you better

buy it because it might not be there

right right and so constantly changing

those items are moving around creates

that treasure hunt thank you so you

aggressively have within the company

people that go and purchase I mean they

are in the look for what should be like

a good product I mean how what is the

criteria for choosing and buying there

are

always looking for that type of thing I

mean something like a north face jackets

pretty easy you don't you know doesn't

take a road scholar to figure out that's

going to sell at a Costco and will and

so will you know some of the other

brands a waterford crystal or some of

the other products that we talked about

so we but we're constantly looking for

them and now that we have become

successful in the beginning getting

those products was extraordinarily oh

now it's a little easier because we are

a a good form of distribution for the

product now sometimes you have branded

products like let's say you have a Bose

noise cancellation product at Costco how

is bose justifying that they can sell it

at Costco a significant discount when at

the end of the day they're selling it

full price another version or a minor

variation of the products that you sell

that happens you guys sell laptops you

guys sell computers you sell TVs so it's

not like kind of a categorization for

the branded products to use you as a

distribution channel well I mean there's

several answers to that I mean in some

instances there are enhancements that

are put on to the product that make it a

better value so that it's different than

what is being sold in the general retail

environment in other instances the

manufacturers have come to the

conclusion that if they're not gonna

sell Costco and they're not gonna sell

Walmart and they're not gonna sell on

Amazon who were they gonna sell mm-hmm

this is a very significant part of the

distribution of products across our

country and so it it's become more

channeled on that basis and they've

become very creative and trying to

figure out ways to do business with with

customers even though the price element

of it is always a challenge you know

it's difficult for somebody to look and

and suggest as an example that they're

gonna sell a pair of Calvin Klein Jeans

for $30 that will sell for $60 in the

department store are there any products

you would not sell we've never sold guns

or ammunition

we we have never sold marijuana events

it's legal even even though one time in

Riverside California

somebody was stopping he had a couple

big cans in the back of his car with

label-less

tomato juice and so the police opened

the cans and it was marijuana and he

said I don't know where that came from I

just shopped at Costco ha ha ha ha ha

course he was lying then they they

booked a minute huh but see those types

of pie waiting we won't sell seconds or

in your regulars it's all gonna be first

quality high quality merchandise as

cigarettes you stopped selling at some

point we we have in our business

delivery system we have cigarettes we

don't have them in there from general

warehouse is any longer and we've been

phasing out of those for a long period

of time interesting at one time when we

first started in business it was the

biggest selling product that we have

cereal well let's talk them now about

you are very famous because you're very

good to the employees I mean people at

Costco love you now we can see why just

talking with you with five minutes we

all love you but it's kind of

interesting that the company has two

hundred forty five thousand full and

part-time very happy employees one of

your quotes is Wall Street is in the

business of making money between now and

the next Tuesday we are in the business

of building an organization and

institution we hope we'll be here 50

years from now

Costco employees including about one

hundred and sixty three thousand US

workers are a very happy bunch the

turnover rate the turnover rate at

Costco is only five percent for

employees of over a year and it's more

like 60 percent for retail overall so

what do you do what is the magic of

keeping the employees so happy

certainly wages are a part of it

benefits are a part of it

that's just the part we've always had

the feeling that a few hire good people

and provide good jobs and good wages and

good career opportunities and we promote

almost 100% from within our company if

you provide those types of things people

like it enjoy what working for you and

they enjoy working for a company that's

going to try to do the right thing for

them and for the customers mm-hmm and so

we we don't want to turn our people we

want to turn our inventory what are the

challenges moving forward well if the

challenges are always difficult I mean

the the situation with the trade wars at

the moment is certainly gonna be a

challenge for all I think we'll figure

we will figure it out all of us

collectively and in the economy I think

that we have always underestimated the

amount of market share that we had

available for us i I told you the story

of Canada but we have consistently

underestimated that and I think we have

a lot more opportunities to succeed in

the future but disciplines I mean

selling merchandise at low prices

anybody can do that mm-hmm the secret is

to be able to do it and make a profit

and operate with the disciplines that

are necessary so if I had that point to

one single thing I would say the

discipline of cutting and containing

costs at every level of our business

will be the secret as to how well we're

doing 20 years from now great I would

like to open it for you guys I mean I am

enjoying this too much as you can see

but I would like to or any of you that

would like to ask questions we have

microphones here and there so please

tell us your name

make it like a short version of the

question and I'm sure Jamie is gonna be

more than happy to answer the question

good start

hi this is Roy first thank you for the

great talk going to Costco is like

Disneyland for me so the question is I'm

sure when you start the company there's

some resistance there's people like

mocking you or not

it's not gonna work how did you deal

with that and then the second thing was

there some books or some things you read

that inspire you to keep driving that

far and keep building this thank you I

couldn't hear the question okay

so what I'm asking is I'm sure when you

start building the company there's

resistance and objections of people in

front of you like telling you this not

gonna work this is not you know just now

working out and is there any books or

mentors or coaches that you had that's

helped you push this far that's assuming

there was the theory you're writing the

book guys of the theory so you know you

can if not like some advice that you

wish you told yourself when you're like

25 or 20 years old well I think yes I

wish I had done it but I wasn't smart

enough when I was 25 to do that I mean

that I mean I had to learn the craft of

the business I worked in the retool when

I was 18 years old and a sophomore in

college I wanted to be an attorney

they've erected my studies in that way I

had even selected the law school I was

going to go to they had not selected me

but I fell in love with the retail

business working part-time and so I had

to learn that business and I was

fortunate to learn it from a man that

Ricardo alluded to earlier

he's a Saul Price who became my lifelong

mentor and I learned an enormous amount

from him but it took years for me to get

as good as him if I don't think I ever

achieved that and the most interesting

book or did I read a book I remember a

book that I read once called

self-renewal written by the guy that

started the organization in town I'll

think of it when I leave here I'll think

of it yeah so we emailed you the name of

self-renewal was the name of the name of

the book and it was about 50 years ago

and

it was kind of enlightening and

inspiring excellent you you're the lucky

one cool thank you hi I'm well I won't

say my family loves the Costco food

court my dad's favorite pizza is Costco

pizza so I was just wondering what's

your favorite item and also what was the

rationale behind a warehouse store

opening up a food court with really low

prices opening like what was the

rationale behind opening a food court in

a warehouse store why did you open a

food court and he loves it okay well I I

heard the pizza part and well your part

of it was the fact that we had all of

these people running around in the

Costco I mean there's you know

schlepping very heavy stuff and

obviously they must be hungry we should

be feeding them they're here in addition

to the samples that we do and we decided

to put in the food court and that was 37

years ago we put in the hot dog and and

over the years we have enhanced that hot

dog it now is a still a dollar 50 cents

after all these years it's a hot dog and

a drink it's a quarter pound dog

actually it's slightly larger than a

quarter pound dog I can go on and on

about this and and and by the way people

will tell you that's probably my

favorite item I had one today because of

anagon City you know that that's one of

my favorite items one of my favorite

items also was the Costco Kirkland

Signature shirt so I buy I buy those

every time I see them so I got a lot of

favorite product sir thank you thank you

hello my name is Cooper Hanson I first

want to thank you for coming to

Georgetown today okay I first want to

thank you for coming to Georgetown today

both my parents work at Costco there's

25 year employees I helped get here with

the sunshine Brook foundation so it just

means a lot that you came here well I

want to start with a two-part question

I've been interested in being that the

company's approaching four years of

success what are cost goes play

to maintain its culture with much of its

core reaching retirement age and then

secondly with the expansion and growth

even that of China a few months back

what role does Costco take in the

sustainability of all its products

especially in regards to consumables you

kind of went over it but I didn't know

if you go further in depth first okay

why don't you come again but it looks

like another thing yeah sorry what part

did you hear what we're gonna make your

life easier why don't you repeat the

whole okay so both my parents are twenty

five-year plus employees yeah we got

that okay I got here with the sunshine

Brook foundation so special thanks to

that okay so my first part of my

question was being that the company's

approaching 40 years of success what our

Costco's plans to maintain its culture

with much of its core reaching

retirement and then secondly with the

expansion and growth even that of China

a few months back what role does Costco

taken the sustainability of all its

products especially in regards to

consumables you know the culture aspect

of it is you know I have a saying that

culture is not the most important thing

it's the only thing culture of a company

drives it were an organization or an

institution like this drives every

decision that you make and if you have a

culture where you try to survey and and

convince everyone that doing the right

thing in every instance is is the way

you want to operate your business then

everyone feels more comfortable in

dealing with that and that culture

either exists or it doesn't exist and

we've seen examples of countries or

companies that have had a bad culture

where people started doing the wrong

things because they thought that was the

way that we're supposed to act you know

it's not easy to sustain I think it will

be sustained because I think the people

that are managing the company now in my

I'm gone now I'm retired their longtime

employees they believe 100%

what the culture of our company is and I

think they will sustain it over the

periods of time as far as sustainability

itself we are very conscious of that I

mean we have as an example you've

probably noticed we don't have grocery

bags you know we know we put everything

back in the boxes that the most advice

came from we do everything that we say

we have we have solar systems on the

roof of about 25% of our buildings now

wherever there sunshine we can't do it

in Seattle much but we can there so we

try to save on energy in that fashion we

have skylights in all of our buildings

we do that we're trying to use every

form of sustainability that we can kind

of end there where we can be competitive

and also keep our business running in

the right direction we follow up on we

we have an entire department within

Costco the deals with sustainability not

just in the US but in every country

where we do business all right

my name is shall we - originally from

Taiwan I can attest that people Taiwan

love Costco Pizza and the inside looked

exactly the same as the cost goes here

thank you very much for spending your

time with us today I have two questions

first question is I saw I read online

that there were studies saying that the

business model of Costco majority the

profit comes from the membership fees

not from the margins from the products

so I'm not sure if you can elaborate on

that a little bit and the second

question is since you formally stepped

away last year how active you are you

still with Costco and if you're not so

active you know what are you spending

your time doing nowadays thank you well

the membership fee is very important

obviously we mentioned to you before

there it you know within grains a

certain element of loyalty to the

business people feel like they're part

of the organization and have a vested

interest it is a good portion of the

profit to the extent that we get the

membership fee where if we use that

those dollars to lower prices and over

the years as we have increased the

membership fee we have consistently

taken and and put every dollar back into

the lower prices of the product so it's

part of the formula it's part of the

stress

that we have for running our business

you second question is these receptive

wait now that I'm retired

what makes you think I'm doing anything

here's how you speak well I'm I I am on

the board of business schools at three

universities it's Seattle University and

Notre Dame University and at San Diego

State University where I went to school

I'm on the board of the Fred hutch

Cancer Research Center on the board of

another scholarship program in the state

of Washington I speak at about ten

universities a year so but can you admit

that this is the one that you're the

happiest in the early I I guess I'm

happy with all of them and and I would

and I still go into a Costco and every

city that I'm in so I Tuesday I was in

Chicago at Costco and yesterday I was in

Boston Costco and today at Pentagon City

so I still get got to take a look at him

do you go to check the bases or to eat

the pizza what today was for a hot day

hi my name is Catherine win and I'm at

Georgetown alum thank you for coming

today I'm sorry I lost my voice but um

growing up I was a daughter of

Vietnamese immigrants I'm one of six so

we loved Costco but I probably shouldn't

tell you this but my mom would always

take us during lunch time and she would

set all six kids free to eat samples for

lunch while she shopped so that was one

of the reasons we love Costco but we do

love your store my question so I used to

practice law and I recently launched a

company it's a food company and my

question is close to my heart which is a

lot of companies and rude stores

nowadays are creating programs to bring

in innovative products and new products

does Costco have any plans to bring in

emerging products and innovative

products or your does your business

model really only allow for those

tried-and-true brands that you can bring

value to your

customer's review if you want to if one

of the targets is to bring innovative

products to Costco innovative innovative

products of course we're constantly

looking for innovative products as a

matter of fact we love them we love them

because we like to be first with

something but when you only have four

thousand items you only have so much

space to those items but we're

constantly scouring the market looking

for what we think is the next exciting

product we would love to be the first

one we would have loved them in the

first one to sell an iPhone as an

example gotcha

I think thought I'm sure a lot of people

would make that statement so and is it

how do you find I guess those questions

been asked but logistically do you have

summits to find new products or are your

buyers out there looking for the

products themselves we're all over the

world looking for products whether

there's you know very few countries that

we don't travel to today we bring

products in from all over the world and

all over our country all over North

America certainly and we've got buyers

in about eight different locations

across North America that are doing just

that looking for those types of products

thank you thank you hi thanks so much

for coming out I have about a hundred

questions I could ask about the beer

Kirkland Lite okay 50 oh I'm gonna I'm

gonna save everyone some time there so a

lot of the cases we read in our program

business case after business case so a

big lesson is keep to your core

competency as a business stick true to

what you do well but at the same time

you need to innovate you need to do what

you do better and a lot of times you'll

feel like your competitors are doing

something so you have to do that it can

feel very urgent so my question you is

really about leadership how do you as a

leader stay true to your company's

strengths well at the same time kind of

keeping that core group of executives

around you you know interested in

innovative innovation and things like

that well as you know the world is

changing I mean look at uber look at

iPhones look at all the changes that are

taking place but generally speaking

innovation is

incremental it happens step at a time

and becomes incremental we're looking

for innovation I mean when we started in

business selling film and film

processing was a very big part of the

business I mean it was crazy we'd loved

it it was you know a customer would come

in and buy the film and then they had to

bring it back to get it developed and

then they had to come back and pick it

up I mean three trips wouldn't about

that but pretty soon that all went away

the film went away the processing went

away everybody takes pictures on the

telephones now you have to be smart

enough in business to recognize how

those changes are taking place and not

make the mistake of hanging in there and

we saw mistakes made by many people who

didn't change and didn't make the

innovation it was necessary but

innovation is as I mentioned incremental

I mean Kodak film didn't drop off the

shelf one day it dropped off over a

period of about three years and when it

happened it was gone and you have to be

prepared to change your business or

you're not going to survive you you

won't be you'll be a dinosaur for sure

and a classic example of that

unfortunately is Sears this is a company

that was they say icon it was a knight

an American icon yeah

at one point in time it was the company

that was the Costco of the land

everyone shot yeah all of Middle America

shop there today Sears is irrelevant

unfortunately and it's a sad thing

because they were an American icon and

if you think about it they were the

leaders they had the Sears catalog

you're all too young to remember the

Sears catalog Idol the Sears catalog was

a credible the whole country waited for

that catalog to come up when these

thousands and thousands of products I

just think how easy that would have been

to translate into e-commerce business

right but they did so they didn't take

advantage of the innovation at that

point and as they say today

unfortunately they are irrelevant thank

you we have a couple more running out of

time but go ahead hi my name is Adam

Roth I'd like to know a little bit more

about the pharmacy

cool side of the business so you know

why Costco decided to enter that and if

there were any specific regulatory

challenges there or dealing with the

distributors there and then you know I

know I think that part of the business

you don't have to be a member to use the

pharmacies so that's an also interesting

aspect that I like to get your your

opinion on by the way years I think you

may be the only person in the room

besides me that knows that you don't

have to be a member to use the pharmacy

my two grandchildren didn't know today

when I took them over to us so that is

the Kasich state laws in many states

require you to be able to service anyone

who walks in to get a prescription and

they do that because oftentimes people

that are sick can't travel long

distances and they have to be able to

take advantage of the closest place

where they can get a prescription we got

into the prescription business because a

colleague of mine at Fed Mart who was an

expert to it run 47 stores and

pharmacies and understood the business

we recognized the value that we could

bring to the customers I mean it's

legendary the pricing that goes on with

prescription drugs most particularly

generic drugs we've had stories done on

us free I mean done on six o'clock and

11 o'clock news touting our prescription

prices and they will use examples of

different pharmacies where a thirty days

supply would be 360 dollars in another

place it was 290 dollars and another

place it was a hundred and sixty-seven

dollars and a Costco was twelve dollars

and 18 cents I mean it was that dramatic

picture and so it was we were able to

show an enormous value and those types

of products and we love to do that I

mean and I mean we love to do it because

we like to build the reputation for

doing it but we think we also provide a

great service by doing that thank you

thank you good evening gentlemen thank

you both for your time mr. cynical a

question for you - you know guide some

of the entrepreneurs that we may have in

this room just wanted to see if you

could elaborate on some of the

he experiences in your own

entrepreneurial journey when you started

this entrepreneurial wisdom that he

would like to share well I mean you know

one of the things and I didn't really

answer and make a comment about work but

the other gentleman said about focus

like you're taught in school that you

should be focusing on something your

core competency don't don't

disband your core competence competency

stay with it and again keep it and there

is a tendency oftentimes in business to

do exactly that to find the next new

thing and then we forget about what your

core competency is so that's a danger

not focus focus is very important in

business really zeroing in on what you

want to do and making sure that you're

delivering on that promise Costco has

you know the fact that we only have

4,000 products compared to 140,000 items

shows the focus that we have and paying

attention to that we're going to deliver

the best product that we can I'm not

going to worry about carrying a lot of

other products in the show so the best

business plan is that I would suggest

two things for people who are in

business school number one if you have a

chance to get a mentor take advantage of

how lucky was I to have a mentor who I

considered to be the smartest person I'd

ever know and I've known a lot of smart

people but he was the smartest and I

know how lucky that I had that

experience during the lifetime and then

the second thing is if you get involved

in something that's drudgery and that

you don't like and you hate going to

work get out of there run as fast as you

can to the fastest exit and get out of

there because the longer you stay the

more toxic it's going to become and

you're not doing the organization any

good and you're not doing yourself any

good so find something that you truly

love and can become passionate about and

you'll never have to work another day in

your life

thank you thank you let's take this too

quickly because you know we promised we

were gonna finish on time so go ahead

quick and quick and then we go okay so

you know that Costco is also in the

online travel agency business and I

personally booked my Christmas tree

bound Costco so my question has two

parts so first of all how does Costco -

it does a is it contracted to some other

company or does Costco to buy yourself

and second part is why costs going using

dead pieces because ot a so I mean I'm

not hearing the question in what

business we don't travel on a Costco

travel I travel travel

so how and why Costco do that well you

know we we got into the travel because

there was a travel business in Seattle

that had been pretty successful and we

looked at the package and we bought the

company I mean it was a very small

company I mean it couldn't be had in

making eight eight employees we bought

the company they had some pricing on

packages that we thought were attractive

and after we talked to some various

people who produced these packages we

thought that we could show a 30 40 50

percent savings on some travel so we

bought the company and right after we

bought the company 9/11 occurred and of

course travel stopped completely so we

almost went out of out of business

before we got it off the ground here but

we stuck with it and today it's a very

big part of what we offer to our

customers in the annal and a great

satisfaction level not only do we have

some terrific cruise packages and travel

packages resort packages that are

available but the element of

satisfaction on the part of our

customers is tremendous we get like a

96% rating on favorable rating on the

packages that we've produced for them so

they like it now did I miss the first

part of your question first part of

question is so my question is two part

one part is how the other part is why so

I think my question is answered thank

you thank you last question

so everybody's been asking to that's why

it's gone on so long and I will keep it

to one since it's the last one or tight

on time one question was about the

relish and the onions consumption in

different countries at the bar but the

main question is you know what do you

feel like your specific talent what were

you excellent at that allowed you to be

as successful in business as you are

what was your superpower the secret

sauce I mean we know that you were

unloaded mattress well you know I read

that help I was I was going through a

warehouse in Chicago one time and a

woman was on the shopping cart and she

was looking over her glasses at me like

this and kept looking and she finally

said are you who I think you are and I

said George Cloney she said exactly

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