If you just can’t get enough of Jim Sinegal or Craig Jelinek, then you’ll be thrilled with the latest series of interviews with each of them on The Motley Fool. They have videos of each interview (snipped into different parts) and then they have them transcribed so you can just read the text of it if you don’t have the time, or desire, to watch the videos. It seems that they have taken each long interview and separated it out into smaller parts . So far they’ve got two interview sections with Craig Jelinek posted and two with Jim Sinegal. However, I did find the link to the entire Jim Sinegal interview in one big chunk, along with a very long video (over 50 minutes). Unfortunately, you do have to register with The Motley Fool to see the interview in its entirety. But don’t worry The Motley fool just asks for an email address, so nothing too invasive and they haven’t even sent me a bunch of email (yet).
The first interview piece with Craig Jelinek hits on how Costco seems to get such great prices on things, especially when compared to Wal-Mart or Amazon that seem to have so much more purchasing power. The short answer is that it is about the number of products they sell which is far, far fewer than Wal-Mart or Amazon and they also have much lower administration costs. All of that, according to Jelinek, is what allows them to have great prices with lower markups than the competition.
When talking to Jim Sinegal, they also asked about Costco’s pricing strategy and he goes into quite a nice amount of detail, I think. Jim Sinegal points out that they have two big categories that their 4,000 items in stores are broken down into – everyday items and treasure hunt items. Everyday items make up the bulk of products you’ll find in the stores, at about 75%, and the treasure hunt items are then just the remaining 25% or so. Their key goal is to get you the best prices on an item, no matter what it is and that is why sometimes they have to change the brands of everyday items. Jim points out that while the brands might change, the everyday items are standards that will always be there. So, sometimes you’ll find Bumblebee tuna in the stores and sometimes it will be Chicken of the Sea tuna, but you’ll always find an 8 or 10 can pack of tuna on their shelves. And of course, with treasure hunt items they do want to instil that sense of urgency for shoppers that you need to take advantage of that deal on this special item because it probably won’t be there next time (but we all knew that already, didn’t we?).
The other big thing they talked to Craig Jelinek about is the possible or potential threat of Amazon to Costco. Basically, Jelinek thinks there will always be a place for a bricks-and-mortar store like Costco and points out that everyone selling something is a threat, whether they are online or down the block. Here’s a quote that I think sums up his view:
The key is being the low-cost provider. That’s going to be the key for anybody winning the battle long-term. It’s whoever can bring value and bring the best quality of merchandise to the marketplace at the best price. I think that’s really the key.
And naturally, he thinks that winner will be Costco. But clearly, they are watching all of these people and trying to figure out the right strategies to compete with, and beat, the competition in all forms.
They also touch on the e-commerce/Amazon threat while chatting with Jim and he has a very similar view to Craig Jelinek. They keep their eyes on the competition, the obvious and the not so obvious, alike. But according to Jim Sinegal, the key is about changing with the times and keeping up with the shopping trends and needs of consumers, while still maintaining an understanding of what your niche in the overall marketplace is, whether it is online retailer or bare bones shopping experience, if you lose your way you will start losing customers and we all know where that leads.
…but the graveyard of retailers, [is filled] with people like Mervyn’s and W.T. Grant and many, many others that we could name — Montgomery Ward and others — are filled with people who didn’t stay up with the times, and who lost their way relative to what their original concept was.
We’re pretty mindful of that. We look at the history and the evolutionary process of business and we say, “Boy, you’d better recognize why it is that customers shop with you.” They don’t shop with us because we have a Santa Claus at the front door, or fancy window displays or escalators or piano players. They shop with us because we have great value on great products, and you’d better not forget that.
I don’t know about everyone else here, but I shop at both Costco and Amazon and don’t find that there’s a conflict there or that I can only shop at one place. They each have different items and different places where they excel. Just like I buy food items at Costco but also at Ocado (UK grocery delivery service), they both offer value to me, just in different ways on different items. I doubt there will be a day when we all go back to shopping at just one or two places, like when the Sears & Roebuck catalog, as Jim mentions, was the major outlet for shopping.
You can find all of the interviews here:
- The Motley Fool: What’s Costco’s Pricing Secret? (Craig Jelinek)
- The Motley Fool: Is Amazon a Threat to Costco? (Craig Jelinek)
- The Motley Fool: Jim Sinegal on Costco’s Pricing Magic
- The Motley Fool: Costco’s Co-Founder on Retail Today (Jim Sinegal)
- The Motley Fool: An Interview with Jim Sinegal, Costco’s Co-Founder (the entire interview, registration required)