More than 87 million people are Costco Wholesale members, paying either $60 or $120 a year for full access to the wildly-popular warehouse club.
But if you haven’t stepped foot inside one before, you may not understand why people love it.
Behind the scenes with Costco’s CEO
As you probably know, Clark is a big fan of the retail giant, but there’s one person who knows even more about Costco than he does – its CEO Craig Jelinek.
Having been with the company since 1984, the executive said it’s not a complicated business.
“All you see is merchandise. That’s what we do. We buy and sell merchandise,” Jelinek told Clark in a rare interview just outside Seattle, where Costco is headquartered.
Here are 13 things we learned about Costco from their conversation!
1. Low overhead = Low prices
Unlike other major retailers that have elaborate window displays with mannequins, Costco prefers to keep things simple and clean – even down to the concrete floors.
“You have to wax marble. You don’t have to do much to concrete floors,” said Jelinek.
And he said the money that Costco saves by keeping overhead expenses to a minimum goes right back to the member because prices are kept low.
2. There are fewer employees, but they’re paid well!
Retail jobs don’t typically pay much, but Costco starts its employees at $13 an hour. After less than five years, they’re up to $23 or $24 an hour. Benefits include health coverage, 401(k) and paid vacation.
The company is able to pay workers well because they have fewer employees on the floor to assist customers.
3. Low markups
Since Costco makes a great deal of money on membership dues, it’s able to charge a minimal markup of 14% on its private label and sometimes less on brand names.
The CEO said 15% is the ceiling, but he likes to stay below that if he can.
4. Volume, volume, volume
Throughout Clark’s interview, Jelinek stressed over and over again that sales volume is one of the keys to the company’s incredible success.
“Our view is to figure out how to sell it for less and how to sell more,” Jelinek said.
For example, made from scratch breads are being tested in the bakery section. Two loaves sell for $6, but a smaller competitor may charge around $15.
Costco can charge less by making a lot of the product and moving it quickly.
5. Kirkland Signature rules
Kirkland Signature, or “KS” for short, is Costco’s private label that’s seen in every corner of the store.
During Clark’s tour of Costco, the CEO revealed that its popular Kirkland Signature batteries are actually made by Duracell, but sold for a much lower price.
“We feel that we’ve been very fortunate in building the Kirkland Signature brand and we’ve put it on everything from luggage to wine to meat to produce to food items,” said Jelinek.
Any guess what the top-selling liquor item is? Kirkland Signature’s vodka!
6. Merchandise will change frequently
Here today, gone tomorrow. Jelinek told Clark that people tend to get burned out on certain items, so some merchandise may disappear after three or four months in stock.
7. Not everything is supersized
Acknowledging that shoppers don’t like to waste food, the CEO told us that the retailer has actually downsized some items, including grapefruits.
The old 15-pound bag was cut in half, which has actually led to higher sales.
8. Costco.com is growing
Costco doesn’t seem too worried about Amazon, likely because its own online business is doing just fine.
Jelinek said large TVs, patio furniture and exercise equipment are big sellers on Costco.com because people can’t lug them home in the car. But he said that folks will always go to the physical store for the “treasure hunt.”
“We’re not going to be an Amazon. I don’t think Amazon is going to be a Costco. I think there’s room out there for both,” Jelinek said.
The key is to learn from your competitors, he added.
9. Quality matters
Speaking of those competitors, the CEO challenged Clark to compare the flowers sold at Costco to the ones from Sam’s Club.
“If you look at toothpaste and things like that, you’re not going to see a big difference between us and our competitors,” Jelinek said. “If you look at the meat, you look at the bakery, you look at the apparel, look at the detailed things – the flowers. You see a big difference.”
He said Costco will always have a place as long as it delivers quality and value.
10. About the clothing section…
Clark isn’t the only one who buys his shirts at Costco! Jelinek said they sell a lot of apparel, but he admitted that it’s mostly an impulse buy.
“Your purpose wasn’t to come to Costco to look at clothes,” he said.
His personal favorite clothing item? Kirkland Signature’s dress shirts, which sell for $17.99. He said it’s a well-made shirt with buttons that won’t break.
11. CEO gets final say on new products
Before any new Kirkland Signature product hits the shelves, the CEO has to sign off on the item.
Jelinek showed Clark a protein bar that he was initially skeptical about, but it’s turned out to be a huge success since it was recently rolled out in stores.
“This is a very clean bar and people who buy these bars really appreciate it,” he said.
12. Generous return policy
Costco has one of the most generous return policies in retail, guaranteeing satisfaction on everything they sell, including the $60 or $120 membership itself.
Don’t like something? Bring it back for a full refund, excluding only a few items.
13. If the price ends in 97, it’s a bargain!
If you see a price that ends in 97, like $9.97, know that the item has been marked down.
“The 97 only means one thing, we didn’t make a very good buy. We don’t want to fool anybody. If you see the 97, you learn that it’s a marked down price,’ Jelinek said.
And if you see a “00” at the end of the price, it’s the last one.
Clark’s savings tip
There’s so much merchandise at Costco that you can easily go over your budget if you’re not careful.
“One of the things we like is when people come in and say, ‘I hate you guys. I came in to buy three things and I spent $300.’ That’s kind of a good thing if you’re selling merchandise,” Jelinek said.
To avoid overspending, do what Clark does and skip the cart, buying only what you can carry.