Costco CEO talks store openings, inflation, the holiday season, and the labor pool
Costco CEO Craig Jelinek speaks with Yahoo Finance about the success of his company in 2022 and his reaction to Costco being named Yahoo Finance's 2022 Company of the Year.
Video Transcript
BRIAN SOZZI: Yahoo Finance's company of the year for 2022 is Costco. I got a chance to sit down with Costco CEO Craig Jelinek to take a look back at the company's performance this year.
CRAIG JELINEK: Never gets old. It never gets old. Now, I remember when we opened up the sixth location, we certainly didn't do much volume. I think we had a $150,000 day. And normally, we do that in a lot of new openings every hour. So it doesn't get old. You get to see the customers. You get to see our employees. And it creates opportunity for our employees. I love it.
BRIAN SOZZI: What is it like-- this is a huge store. 150,000 square feet?
CRAIG JELINEK: This one's about 160,000.
BRIAN SOZZI: 160,000. What is it like to open a store like this?
CRAIG JELINEK: Well, I mean, it takes a lot of work. Obviously we're very good at it now because we've opened up a lot of Costcos. In a market like this, all of our employees come from transfer. We create more opportunities. So we have a lot of long-term employees in here. So it's relatively a smooth operation as long as we can get the goods, we get the construction done. It's an easy operation to open up.
BRIAN SOZZI: So Craig, you won the coveted Yahoo Finance Company of the Year award. We really give it out to those companies that are best in class operators in a given year. And certainly, Costco delivered on all those marks.
CRAIG JELINEK: And I really appreciate that, but I got to tell you, this goes to all the people in the organization. They truly are what makes this company go. And I'm very blessed and fortunate just to be part of it. So I really owe it all to them. But it's been really a long three years when you started with-- it's kind of like COVID started, and then it's been a hangover from COVID for, I think, the last three years in terms of challenges with getting merchandise, keeping your employees safe, keeping your members safe. So it's been a tough three years for everybody, for the country. And I think you continue to have a little bit of hangover from all the things that's transpired. But we've persevered. And we're very pleased that we've been able to get merchandise and continue to create value for our members and grow our membership base and drive sales.
BRIAN SOZZI: Is it that consumers are trading down from grocery stores in an environment where inflation has been through the roof? Eggs, butter, toothpaste, you name it. Are you, in fact, the low price leader in most of these categories?
CRAIG JELINEK: Well, we believe that we are. Now, I'm sure others out there believe that they are. The proof is what the consumer says. And we believe we're the low price leader. Our markup's about 13%. So any rebate money we get, we pass right on to the consumer. We're a top line company. We drive sales. We're not a margin company.
BRIAN SOZZI: Any signs from all the data you are collecting right now that we are past the worst in inflation in this country?
CRAIG JELINEK: There's a couple of ways to look at that. I don't know we're past the worst. I believe we are. I felt that we are for the last two or three months because at some point, when you start to see container costs coming from Asia, I think in non-food, the container costs are starting to bring prices down. Because transportation is starting to come down. There's still a shortage of things like eggs. I don't see the egg market deflating at the moment.
BRIAN SOZZI: Well, there goes my breakfast, Craig. Thank you. Appreciate it.
CRAIG JELINEK: So I think there'll be some consumables that there may be a problem. But I think overall, you'll start to see some decrease in inflation-- deflation, I should say.
BRIAN SOZZI: Your rate on the holiday season so far?
CRAIG JELINEK: I was very concerned about November. After Thanksgiving, I think things are going to be a little bit better than we thought.
BRIAN SOZZI: Do you see consumers pulling back at all? Are they still-- I was walking the store. I saw $2,000 bottle of wine. I saw you selling electric bikes for $3,000. Are those moving?
CRAIG JELINEK: Yes, they are moving. But it's a certain economic class where things are things are moving.
BRIAN SOZZI: So you cater to the higher end consumer?
CRAIG JELINEK: Well, we think we do. Yes, we do.
BRIAN SOZZI: So you mentioned workers a couple of times. And Costco has long gotten really high marks on its employees, how it treats them, how it pays those workers. Where did that come from?
CRAIG JELINEK: Well, I think that came from really our founders, Jim Sinegal, Jeff Brotman. You want to have a good company, you need good people, you have to pay good wages. And you have to build loyalty. And we don't have much of a turnover in our organization. So we want people to stay long term. We want people to make higher wages. We want people to be able to afford homes. It's just the right thing to do.
BRIAN SOZZI: The economy, in November, created 263,000 jobs. Everybody was looking for a slowdown but didn't get it. Can you find the workers you need to open stores like this?
CRAIG JELINEK: We can find the workers we need. They're probably a little bit less experienced in the workforce than what we would like to have, but you can find workers. It's not as easy as it was, say, 10 years ago. It's a much different environment. More people, I think, like jobs where they can work from home. This is a business that you cannot work from home.
BRIAN SOZZI: A lot of your competitors in retail-- Walmart, Target, you name it-- they've now invested a lot in higher wages for their employees. Do you feel like you have to make a new investment in your employees to take those wages even higher to just, I guess, reestablish that gap with them?
CRAIG JELINEK: We always want to make sure that our employees are at the higher end of the scale. And we believe that they are at the top end. Of course, that starting wage has narrowed for everybody, but we want to also pay for longevity. We do not want to turn people. We want to keep our employees.
BRIAN SOZZI: Do you see any signs of recession in the United States?
CRAIG JELINEK: A little bit. A little bit. I think, especially when you look at things like jewelry, our jewelry business has slowed down. If you look at the really high end television sets, they've slowed down unless you start to take some markdowns on some goods. You'll see the TVs start to move. So I think right now, people are very, very valuable-- they're always value-conscious, but I think more so now than ever.
BRIAN SOZZI: So let's do a little quick around the horn. Your favorite Kirkland product?
CRAIG JELINEK: Kirkland-- whether it's a combination between the white cake and the hot dog.
BRIAN SOZZI: The one competitor that keeps you up at night?
CRAIG JELINEK: I think all competitors keep you up at night to tell you the truth. But what you really got to worry about is how you run your business. That's what you have to worry about the most. Competitors-- fine. But you have to figure out and do what's best for your business. Take care of your member, take care of your employees, continue to figure out how to create value, and that will take care of itself.
BRIAN SOZZI: Charlie Munger, big fan of Costco, on your board, a shareholder. He's said this once, this quote, "I wish everything else in America was working as well as Costco does. Think what a blessing that would be for us all." Any funny Charlie Munger moments you can share?
CRAIG JELINEK: I could share many with Charlie. Charlie's got a photographic memory. He says it just takes him a little bit longer to get it printed.
BRIAN SOZZI: Fair enough. Recently, too, something that caught my team's eye is that you promoted Ron--
CRAIG JELINEK: Vachris.
BRIAN SOZZI: --Vachris. Succession? Next Costco CEO? What can you tell us, Craig?
CRAIG JELINEK: Well, let's put it this way. He's president, and we'll let it go at that.
BRIAN SOZZI: How long do you see yourself as Costco's CEO?
CRAIG JELINEK: For a while.
BRIAN SOZZI: For a while. OK, well, all right, I can read between the lines. Two more for you. Next 10 years of Costco, where do you think this brand goes?
CRAIG JELINEK: We'll continue to expand. We think over the next 10 years, God willing, we could double the size of the company, and we'll focus a lot more on international.
BRIAN SOZZI: As we flip back, reflect back on your career, your biggest achievement in your view?
CRAIG JELINEK: I don't get too caught up in achievements. I think I was very blessed to be able to be the second CEO of this company after Jim Sinegal. And I think we moved the company forward. So I just consider that I had some big shoes to fill. And I think as a team, we've done pretty good at moving the company forward over the last 12 years.
BRIAN SOZZI: Craig Jelinek, it has been a pleasure to follow your career. Costco CEO. Let's maybe go out and buy one of those 93 inch plush bears?
CRAIG JELINEK: You should. They're a very hot item.
BRIAN SOZZI: My brother would kill me if I bought that for my niece for the holiday season. There's nowhere to put it, Craig. There's nowhere to put it.
CRAIG JELINEK: I bought one for my grandkids. And the first time we had it was over in Australia. And I flew it back from Australia. Great item. That's probably one of the craziest things I've done.
BRIAN SOZZI: Those bears are 93-- they're huge, and they're $300. It's just a big product. Look, very interesting what Craig said there about succession. And what you don't see there-- I got to spend a couple of minutes with Ron Vachris. He was promoted, like Craig mentioned, to president earlier this year. He was walking the store floor. I had maybe two or three minutes, just caught up with him briefly. That is very likely to be the next CEO of Costco, whether it happens next year, early next year, or within the next year-- it's probably likely to happen within the next two years.
Ron has the key DNA of all Costco CEOs have had. And Craig is the second one. He's a merchant. He started at this company early '90s, came over with the merger of Price Club and Costco. Strong merchant. And that's how Costco picks its CEOs.
JULIE HYMAN: I loved your call-out of Price Club, the mention of that background.
BRIAN SOZZI: That was a game changer. I remember Price Club.
JULIE HYMAN: I remember Price Club. That's going back to the very early days of these kinds of warehouse clubs. I mean, you get such an old-school vibe from an executive like that, but it's worked for them.
BRIAN SOZZI: This guy, he was-- and he wasn't doing it for the cameras. He was walking the whole store, greeting employees, checking out the merchandise, and CFO Richard Galanti was doing the same thing. Over the past month, they've had, I think, maybe four to seven store openings. He's been pretty much at all of them walking the floors. I mean, he's been the CEO for 12 years. It's just in their blood. It's just a different company. I bet any other retailer could be opening up stores today, let's say, Dollar Tree, Dollar General, CEO is not there walking the store.
BRAD SMITH: Well, the stat that he mentioned, too, was astounding. $150,000 an hour is what they're used to doing on some store openings. And that goes to the strength of the brand, the number of consumers that perhaps are waiting for them to open up because, yeah, you see the store getting constructed. And now that builds up enough of that word of mouth traffic in a local region to say, hey, we've got a Costco that's on the way, we're ready to sign up in advance in order to be able to take advantage of this on day one.
BRIAN SOZZI: One final thing. It was amazing to see. So this Costco was really in the middle of nowhere. Dark road and, plop, they put a Costco. Store open, nice crowd. But within about two hours, this place was mobbed. It was just absolutely packed. It felt like Costco on the weekend.
BRAD SMITH: Real question is, do you have to buy an extra seat for the teddy bear if you fly it on the plane, like Craig was saying?
BRIAN SOZZI: Two seats, I think. It's huge. It's 93 inches. It's giant. It's huge. I would have nowhere to put it. That's taking up some space.
