Jim Sinegal on Costco's "Promote From Within" Strategy and Why It Needs to Think Like a Small Company

Jim Sinegal is the founder, chairman, and former longtime CEO of Costco (Nasdaq: COST  ) . Known for his integrity and fondness for Costco’s $1.50 hot dogs, Sinegal grew Costco from a single warehouse to a now-$39 billion chain.

Last month, The Motley Fool’s own founder and CEO, Tom Gardner, ventured to a Costco warehouse in Florida for a conversation with Sinegal on business, leadership, and company culture. In the clip below, Sinegal explains why Costco likes to promote from within its own ranks. (A transcript is provided below; running time: 4:29.)

Tom Gardner: For the fun of it, could you just track through the career of a buyer at Costco? Somebody who arrives let’s say at age 25, if that would be a realistic arrival of like a junior super assistant buyer, and if they’ve been at the company 12 years, what path they might have taken?

Jim Sinegal: Well in almost every instance, very rarely do we hire somebody from outside the company, and in most instances, these are young people who have started working for us in our Costcos. They might have had a job pushing shopping carts out in the parking lot, going to college and working part-time, and have decided they want to make a career out of retailing. Have stayed with us, have progressed with the company, and it was determined, they determined that they would prefer a career in the purchasing end of the business as opposed to the operational end of the business. And so we have them going both ways. Our average warehouse manager is much the same. The average warehouse manager probably started with us when they were about 19 or 20, going to college, pushing shopping carts out in the parking lot.

Gardner: So if you want to work at Costco, having worked at other retail organizations as a manager and then coming over when you’re 37 is a very rare thing, if ever. Most of the time it’s someone’s been here 10 years and has woven their way through the organization.

Sinegal: We would never dream of hiring a manager for one of our Costcos from outside the company. It has to be somebody who has worked their way up in our system. Now that doesn’t mean we wouldn’t hire a manager from outside and train them for two years and develop them, but we would not hire them and put them immediately in charge of a Costco.

Gardner: You said something that I just want to jump on. You said it is determined, no, actually they determine that they were interested in going into the purchasing route. How is that call made on somebody’s career inside of Costco? Are they getting 360-degree feedback? Do they get to opt in and say, Hey, even though I may not have demonstrated skills in this yet, I’m really particularly excited in managing a store someday, or becoming a purchaser. How does somebody get developed and get choices and get guidance and determine their career?

Sinegal: Well it’s succession planning, as you might imagine in a company like ours that’s (unclear) is a very important thing. You’d probably be shocked at the amount of time that we spend on succession planning. If you’re going to promote almost 100% from within the company, you have to pay attention to exactly that type of an issue. People develop different attitudes relative to how they’re working. They see opportunities in the buying office and maybe they tell their manager, Gee, I’d really like to see if I could start over in the buying office. That generally begins in the clerical-type of position there. Or they may say, Hey, I want to become a warehouse manager someday. And then they matriculate, if you will, through all the various jobs in the warehouse.

When I came in here this morning, or just about 40 minutes ago, I met our pharmacy manager, a fellow by the name of Ray. Ray started with us about 15 years ago pushing carts and working up at the front end. Decided he wanted to become a pharmacist. Became a pharmacist. Went to pharmacy school while he was working for us, and now is the manager of our pharmacy here in this location, so that’s not an atypical type of story.

Gardner: This question, sir, is a nice segue from our conversation. It seems to me that some of the most successful American companies have working environments that are focused on their people. Google, Southwest Airlines, BMW, Whole Foods, so I’m curious about how you feel about the importance of corporate culture, particularly in terms of the ability of a company of this size, how many Costco employees are there today?

Sinegal: About 160,000.

Gardner: So 160,000, an organization of 160,000, how can you even pretend to see the individual employee in an organization of that size?

Sinegal: It’s difficult, but you have to try to force yourself to think like a small company. You want to try to be adroit and you want to recognize people wherever you go, and that’s one of the reasons that so many of us are out in the field on a continual basis. We’re traveling all the time. You know that, and know that from past experience, but in the last five weeks I’ve been to Japan for an opening, I’ve been to Toronto for an opening, I’ve been to Texas for an opening. I was just in Puerto Rico and Georgia…

Gardner: But Jim, you retired on January 1st.  (Laughs.)

Sinegal: (Laughs.) Well I’m helping to get through; you’ve got to do this slowly.

The Motley Fool owns shares of Whole Foods Market and Costco Wholesale. The Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Southwest Airlines, Costco Wholesale, Google, and Whole Foods Market. The Motley Fool has a disclosure policy.

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  • Report this Comment On June 26, 2012, at 10:31 PM, prginww wrote:

    While promote from within may work best for traditional businesses (and personal opinion it is the best overall) most hi tech companies in Silicon Valley will tell you they don't have the time/luxury to train and grow people. Reqs are crazy specific to get an individual who can fill the immediate vacancy on day one. It could be an aggregation of things that several existing people are not able to keep up with or replacing a person who moved on. Companies would rather leave a req open than hire someone who doesn't fill all the squares.

    The result is bogus resumes. Candidates put X in their resume because X is in the req, but you ask them a question about X and they are clueless.

    That they have to put X in their resume to get past HR just discredits the whole thing.

  • Report this Comment On June 27, 2012, at 11:56 AM, prginww wrote:
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