In the world of retail, few names command as much respect and admiration as Costco. While some may be larger, arguably none are better. To truly understand the magic behind this $400 billion retail giant, there’s no better way than to walk the warehouse floors.
We recently had the opportunity to do just that during a meeting with Jim Sinegal, co-founder and former CEO, and Richard Galanti, Costco’s first and 40-year tenured CFO. Our goal was to gain insights into the discipline, values, and culture that have made Costco an enduring consumer brand and share this wisdom with our CEOs so they can apply it in their own businesses.
The day kicked off with a guided tour of a Costco warehouse led by Galanti and concluded with a dinner hosted by Sinegal, featuring a menu made up entirely of Kirkland Signature products. It may come as a surprise, but Kirkland Signature is the world’s largest consumer packaged goods brand by revenue, bringing in ~$56 billion last year — surpassing major brands like Nike at ~$51 billion and Coca-Cola at ~$45 billion.
Jim Sinegal and Jeff Brotman co-founded Costco in 1983, with Richard Galanti joining a year later to lead the finance function. While both Sinegal and Galanti have since stepped away from their roles, what stood out to us was the clarity and intentionality with which they described the company’s core values and operational philosophy. This unwavering commitment has kept Costco consistent in its approach, from its first retail warehouse to its 890th. It’s no surprise that Costco is consistently ranked as one of the most beloved brands by both employees and customers, boasting a 93% employee retention rate and a 92% membership renewal rate. In today’s world of challenged employee loyalty and omnipresent consumer distraction, these figures are unprecedented and highlight Costco’s remarkable ability to foster workforce dedication and customer loyalty.
This unwavering commitment to core values and operational excellence is what we at Maveron refer to as the right “psychological contract,” established by the founders and woven through the entire organization, ultimately extending to every employee and customer.
What that means in practice is a deliberate focus on three key principles:
- Remaining humble;
- Staying disciplined;
- Driving culture.
Below are insights shared by Jim Sinegal and Richard Galanti to a roomful of retail CEOs.
Remaining Humble
Jim Sinegal told us that, as CEO, he consistently:
- Visited 200 Costco stores each year.
- Attended nearly every store opening, missing only two out of 600, before he retired.
- Conducted weekly warehouse walkthroughs every Tuesday from 11 a.m. to 1 p.m., where General Managers were expected to discuss detailed item-level sell-through rates and store P&Ls during these visits.
Growth can be intoxicating, particularly when it is validated by consumer demand and financial markets. But here’s a counterexample we rarely hear in Silicon Valley: In its first round of financing, Costco raised $7.5 million at a $7.5 million pre-money valuation. Since going public in 1985, just three years after its founding, the company has delivered a compounded annual return of 12%. In comparison, Walmart, Target, and Home Depot have achieved returns of 3%, 8%, and 6%, respectively. This underscores Costco’s commitment to steady, sustainable growth rather than pursuing the title of the largest retailer.
“Our goal was never to become the biggest retailer but the best.” — Jim Sinegal
Staying Disciplined
Although many retailers can offer low prices, Costco’s success stems from its disciplined approach to profitability. This commitment is reflected in several key practices:
- Costco maintains an average inventory of 3,800 SKUs, a stark contrast to the 30,000–40,000 products found in a typical supermarket and the over 100,000 products available at a Walmart Supercenter. These SKU counts are monitored monthly, as the limited selection is a core component of Costco’s business model.
- Costco enforces a strict 15% limit on markups, whereas most retailers apply markups between 25% and 50% or higher. This leads to slimmer profit margins — around 2% for Costco, compared to 4% for Target and 10% for Home Depot. Unlike other retailers, Costco can sustain these low markups due to its membership-based business model.
- On resisting the temptation to raise prices for higher margins: “Once you start optimizing for margin, it’s like taking heroin. You can’t stop. We have one job: reduce the price of what we sell.” — Jim Sinegal
- On the difference between Amazon and Costco: “Amazon’s technology could send someone to Mars. We stay focused on being good at the basic stuff.” — Jim Sinegal
Surprisingly, Costco’s original business plan only anticipated operating 12 warehouses, but today, they’ve grown to 890 locations. This growth reflects Costco’s focus on quality and disciplined, long-term expansion rather than rapid scaling.
Driving Culture
Every decision at Costco reflects its deep commitment to its employees, customers, and shareholders. This culture-driven approach is demonstrated in several key ways:
Commitment to Customers
- Costco stands out as one of the few retailers that consistently delivers exceptional value across the board, with fan favorites like the $4.99 rotisserie chicken and $1.50 hot dog and soda combo. Impressively, these prices have stayed consistent since 2000 and the company’s founding in 1984, respectively.
Commitment to Employees
- When asked about the last time Costco closed a location: “It was in the 90’s. It was never in our best interest to close locations because what would we do with our employees.” — Richard Galanti
- 35% of U.S. employees have 10+ years of service. By contrast, most companies these days see employers churn out after an average of three to four years.
- Tenure is recognized in various ways, such as assigning parking spots based on the length of service and offering accelerated vesting schedules for those with greater tenure, at 25, 30 and 35 years. It’s not often you see accelerated vesting schedules tied to tenure.
- “Promote from within” is a core value at Costco, exemplified by stories such as Michael’s, the general manager of the Issaquah warehouse, whose only job has been at Costco for the past 19 years. He started his career as a cart pusher, following in the footsteps of his father, who also rose through the ranks to become an executive vice president.
While every company and founder is unique, Costco’s journey offers valuable lessons for building an enduring consumer brand. The key takeaway is the importance of staying true to your core principles and values.
In both good times and bad, this unwavering commitment to foundational values will guide your company through the winding path of business growth and evolution. As we witnessed firsthand, this commitment permeates every facet of Costco’s operations and every employee we encountered — a true embodiment of what we at Maveron believe defines a great brand: the ability to seamlessly integrate into our daily lives.
Correction: A prior version of this article misstated Nike’s 2023 revenue as ~$12 billion. This figure reflects Nike’s U.S. sales for 2023; the company’s global revenue in 2023 was ~$45 billion.
