Bloomberg Businessweek Case in the News

2023 Words Mar 20th, 2016 9 Pages
BLOOMBERG BUSINESSWEEK CASE IN THE NEWS [LO 1-1, 1-2, 1-3, 1-6]
Costco CEO Craig Jelinek Leads the Cheapest, Happiest Company in the World
Joe Carcello has a great job. The 59-year-old has an annual salary of $52,700, gets five weeks of vacation a year, and is looking forward to retiring on the sizable nest egg in his 401(k), which his employer augments with matching funds. After 26 years at his company, he's not worried about layoffs. In 2009, as the recession deepened, his bosses handed out raises. “I'm just grateful to come here to work every day,” he says.
This wouldn't be remarkable except that Carcello works in retail, one of the stingiest industries in America, with some of the most dissatisfied workers. On May 29, Wal-Mart
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After accounting for expenses such as real estate costs and wages, Costco barely ekes out a profit on many of its products. Eighty percent of its gross profit comes from membership fees; customers renew their memberships at a rate of close to 90 percent, the company says. It raised its fee by 10 percent in 2011 to few complaints.
“They are buying and selling more olive oil, more cranberry juice, more throw rugs than just about anybody,” says David Schick, an analyst at Stifel Nicolaus. And that allows Costco to get bulk discounts from its suppliers, often setting the industry's lowest price. Even Amazon can't beat Costco's prices, which means that “showrooming,” or browsing in stores but buying online for the better price, isn't much of a concern for Jelinek.
Costco's constitutional thrift makes its generous pay and health packages all the more remarkable. About 4 percent of its workers, including those who give away samples and sell mobile phones, are part-time and employed by contractors, though Costco says it seeks to ensure they have above-industry-average pay. And while Walmart, Amazon, and others actively avoid unionization, Costco, while not exactly embracing it, is comfortable that the International Brotherhood of Teamsters represents about 15 percent of its U.S. employees. “They are philosophically much better than anyone else I have worked with,” says Rome Aloise, a Teamsters vice president.
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