In 2010, Costcos reputation for rock-bottom pricing and razor-thin profit margins helped the…

In 2010, Costcos reputation for
rock-bottom pricing and razor-thin profit margins helped the company maintain
its position as the nations fourth-largest retailer and the No. 1 membership
warehouse retailer, with 572stores (425 in the United States), 142,000
employees, and 55 million members. Sales reached $76 billion, up
9.1percent, reflecting, in part, a unique corporate culture that doesnt
just pay lip service to the value of its employees, but maintains a reputation
for honoring that value. CEO Craig Jelinek, successor to founder and longtime
CEO James Sinegal, believes

In 2010, Costcos reputation for
rock-bottom pricing and razor-thin profit margins helped the company maintain
its position as the nations fourth-largest retailer and the No. 1 membership
warehouse retailer, with 572stores (425 in the United States), 142,000
employees, and 55 million members. Sales reached $76 billion, up
9.1percent, reflecting, in part, a unique corporate culture that doesnt
just pay lip service to the value of its employees, but maintains a reputation
for honoring that value. CEO Craig Jelinek, successor to founder and longtime
CEO James Sinegal, believes that the secret to Costcos success lies in the
many ways the company overturns conventional wisdom. Despite Wall Street criticism,
the company is devoted to a well-compensated workforce and scoffs at the notion
of sacrificing the well-being of its employees for the sake of profits. Average
hourly wages of around $20 smash those of competitors ($10$11.50 per hour).
Costcos competitors attempt to improve profits and shareholder earnings by
keeping wages and benefits low. As a result, Costco enjoys a reputation of
having a loyal, highly productive workforce, and store openings attract
thousands of high-quality applicants. Jelinek is a no-nonsense CEO whose annual
salary ($650,000) is a fraction of the traditional pay for large corporate
executives and dramatizes an organizational culture that attempts to minimize
disparity between management and workers. Luxury corporate offices are out of
the question. It is the in the trenches together mind-set that defines
Costcos corporate culture, contributing to a level of mutual support,
teamwork, empowerment, and rapid response that can be activated for confronting
any situation. A dramatic example occurred when employees instantly created a
Costco emergency brigade, armed with forklifts and fire extinguishers, whose
members organized themselves and rushed to offer first aid and rescue trapped
passengers following the wreck of a commuter train behind a California
warehouse store. Whether attracting employees or customers, the need for public
relations or advertising is nonexistent at Costco. Sinegal told a reporter for
ABC News that the company doesnt spend a dime on advertising, with over
140,000 enthusiastic employee ambassadors spreading the word about Costco to
friends and neighbors. Equal care has been given to organizational design.
Jelineks belief in a flat, fast, and flexible organization encourages
delegation of great authority to local warehouse managers who have the freedom
and authority to make quick, independent decisions that suit the local needs of
customers and employees. Moreover, Costcos new store location efforts seek
fit between the organization and the community that it serves. Typical
suburban locations emphasize the bulk shopping needs of families and small
businesses, and Costco has extended its own private label, Kirkland Signature.
The private label provides additional savings of up to 20percent off of
products produced by top manufacturers, such as tires made by Michelin
specifically for the Kirkland label. The rapid expansion from having one store
in Seattle to becoming Americas warehouse club leader and a top global
retailer has come with its share of growing pains, as the organization attempts
to adapt to its various environments. In the face of rapid growth, Costco
management has come up against a myriad of new problems ranging from complaints
of a lack of notification for management job openings to persistent complaints
of a glass ceiling, providing few opportunities for the advancement of women
within the organization. In response, the company has instituted online job
postings, automated recruiting, the use of an outside vendor for hiring, and a
recommitment to equity in promotion. International issues are often more
complex and often run up against local needs and perceptions. For example,
efforts to expand into Cuernavaca, Mexico, were viewed from the company
perspective as a win-win situation, opening a new market and also providing
jobs and highquality, low-priced items for area shoppers. When the site of a
dilapidated casino became available, Costco moved quickly, but suddenly found
itself facing charges of cultural insensitivity in Mexico. Accusations that
Costco was going to build a parking lot on land in Cuernavaca with significant
artistic and national heritage led to negotiations under which the company set
aside millions of dollars to preserve the landscape, restore murals, and work
alongside city planners and representatives of the Institute of Fine Arts and
Literature in Mexico City in the construction of a new, state-of-the-art
cultural center and museum. Indications are bright for Costcos future. New CEO
Jelinek believes in maintaining the modest levels of compensation for top
management and the companys above-average wages and benefits for employees.
But questions loom on the horizon: How will increased globalization alter the
strong corporate culture? Will Costco be able to maintain and expand its loyal
customer base in the face of shifting consumer interests, as reflected in the
decline of shopper traffic in physical stores and increased sales via the
internet?