Founder index · Costco · 1983–2011 as chief executive; director to 2018
Jim Sinegal
The lesson that travels
“Decide what you will not do to earn money, write it down as a rule, and let the rule outlast you. Sinegal's 14% cap is worth more than any single year of margin because it is the reason the members keep paying the fee.”
Sinegal did not set out to found anything. He took a job at Sol Price's FedMart in San Diego in 1954, at eighteen, unloading mattresses for $1.25 an hour, and stayed with Price for most of the next thirty years — through FedMart, its loss to Hugo Mann, and the founding of Price Club in 1976. He learnt the model from the person who invented it. When he opened the first Costco in Seattle in 1983 with the lawyer Jeffrey Brotman, the idea was Price's; what Sinegal added was the discipline of running it exactly the same way for forty years, and a set of rules that Price had practised but not quite written down.
The rules are the man. A markup of no more than 14% on branded goods and 15% on Kirkland Signature, held even when the market would bear more. A hot dog and a soda for $1.50, unchanged since 1985. Hourly pay well above the retail market, with healthcare for most part-timers, defended to Wall Street on cost grounds rather than moral ones — turnover, shrinkage and training, he argued, cost more than the wages saved. His own salary of $350,000 in his last years as chief executive was a fraction of what comparable retailers paid, and he made a point of it. He visited hundreds of warehouses a year and wore a name badge that said Jim.
The contested part of the record is not a scandal but a question of credit and of governance. Sinegal ran Costco for twenty-eight years as, in effect, an operating founder with the board's deference, and the 1993 merger with Price Club — the company of the man who trained him — was uneasy enough that the Price family left within a year. Critics on Wall Street said for two decades that Costco was run for its members and its employees rather than its shareholders; the shareholders, as it happens, did extraordinarily well, but that outcome was not guaranteed by the philosophy, and the philosophy has never been tested by a downturn severe enough to make the pay model a liability. Sinegal's successors have kept the rules so far. Whether they are rules or a culture that dies with its keeper is the open question in the case.
§01 — The hard calls
- 1983
Open a warehouse club in Seattle in the same year Sam Walton opened Sam's Club, using the model of the man who had employed him for three decades.
Costco reached $1 billion of sales faster than any American company before it, and by 1993 was strong enough to absorb Price Club rather than be absorbed.
- 1983
Cap the markup on any item at 14%, regardless of what the market would bear.
Merchandise margin has stayed near 11% for forty years and renewal rates near 90%. The cap turned a price into a promise, and the promise is what the membership fee actually buys.
- 1995
Launch Kirkland Signature as a single house brand across every category, with a rule that it must beat the national brand on quality and undercut it by at least a fifth.
Grew to roughly a quarter or more of Costco's sales — on the order of $60 billion a year by 2024 — and became the company's standing threat to any supplier who would not match its terms.
- 2005
Reject Wall Street's pressure to cut wages and benefits, and defend the pay model publicly as a cost advantage rather than a kindness.
Turnover after the first year stayed in single digits and the pay model became part of the brand. The argument has held for twenty years; it has not yet been tested by a downturn severe enough to threaten it.
- 2011
Hand the company to Craig Jelinek, a warehouse manager who had started in the stores, rather than to an outside chief executive.
The rules survived the transition and the one after it. Costco has had three chief executives in forty-two years, all of whom came up through the warehouses.
One of these is set up as a tutorial — you make the call before you find out what Jim did.
Face the decision§02 — Around this founder