Costco's Co-Founder on Retail Today

Join The Motley Fool for a conversation with retired Costco  (NASDAQ: COST  ) CEO Jim Sinegal. In love with retail since his first job as a bagger in 1954, Jim co-founded Costco and served as president and CEO of the retail giant from 1983 until his retirement in January 2012.

Jim recalls Costco's beginnings and what's changed, then takes a look forward to the future of retail, why Best Buy and others are struggling, and how e-commerce fits into the picture.

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Brendan Byrnes: When you look back at Costco over all the years from when you co-founded it to today, what do you think is the biggest thing that's changed over those years?

Jim Sinegal: I think we've gotten better at doing our job. I think that we've been able to instill the types of things in the corporate DNA that are going to ensure that we're successful in the future, and that we understand as well today as we ever have the disciplines that are necessary in our business.

Anybody can sell merchandise for low prices. The trick is to be able to do it well and to make money while you're doing it. I think that we've matured. We've become better. We've become better merchants. We've become better at selecting the right type of merchandise for the customers. I think we've improved some of our departments significantly over those years.

Brendan: Taking more of a 30,000-foot view of this space, obviously e-commerce is getting much more popular, with the likes of Amazon. Where do you see retail going, over the next decade or so? Do you see e-commerce getting more popular and becoming a threat to Costco, or do you think you both co-exist and do separate things?

Sinegal: I think e-commerce will become more popular, but I think there's always going to be a place for Costco. I think that people have been going to the marketplace for millenniums, and I think it's a social thing as well.

One of the comments that we get oftentimes, from women shoppers is, "Costco is the only place where I can get my husband to shop with me."

I think that as long as we're doing our job... there are no annuities in this. The guarantee for us is if we continue to do our job and we do it well. E-commerce is going to survive, just as other retailers are going to survive.

There are other competitors out there, like Aldi, who are going to continue to grow and do well. Trader Joe's is going to continue to grow and do well. Some of the supermarkets like Wegmans are going to continue to grow and prosper, and there are others as well. Home Depot recently has shown some very significant improvements, so there's kind of a resurrection that's taken place there.

There's always going to be tough competition from every aspect. E-commerce is just one aspect of the competition and we watch an awful lot of people. You'd probably be amazed at the number of people that we go to look at, relative to competition.

Brendan: When we look at retail overall, some retailers are struggling. Best Buy maybe not doing so well as they have in the past, RadioShack along the same lines, Circuit City going out of business.

When you look at retail overall, is that just kind of what happens in the space? Some companies get better, some companies get worse, or do you see big monumental shifts that are happening right now in retail?

Sinegal: If you study the evolution of the retail business, if you go back far enough, years ago Sears, Roebuck was the Costco of the land. My parents, everybody in middle America, shopped at Sears and Roebuck.

They've obviously changed over the years, as has J.C. Penney, but the graveyard of retailers, 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.


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