How Costco Makes Its Stakeholders Happy

The Fool chats with Costco's (NASDAQ: COST  ) new CEO, Craig Jelinek. Craig first joined the company as a warehouse manager in 1984, quickly rising to become a regional manager, and then through various executive posts over the years. He became president and COO in 2010, and took over from longtime CEO Jim Sinegal in January 2012.

Emloyees, customers, shareholders... everyone seems to love Costco. Jelinek explains the company's approach to business, and how it balances the interests of all its different stakeholders, with nearly 90% renewal by customers, and stock returns upwards of 15% a year.

To watch the full interview, click here.

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Austin Smith: You guys are one of the rare companies that left all your stakeholders very happy -- your customers, your employees, your shareholders. As you think about all the people who are affected from Costco's day-to-day operations, where do you start? Is it with the customer? Is it with your employees? Who do you start with?

Craig Jelinek: Well, it's a combination of both. Obviously, before you ever open up your doors, you have to start with your employees, and you have to have suppliers. But, the bottom line is, if you look at our mission statement, you take care of your customer, your member. You take care of your employees. You take care of your suppliers. Actually, the first thing is always, obey the law.

Then, if you do all those things, you're going to reward the shareholders. That's always been our philosophy. If you get too shortsighted, and you want to reward your shareholders as the most important thing, chances are you're not going to be in business in five, or 10, 15 years.

Our view is, we want to have a company for the long haul, and continue to grow the sales, and grow the profits fairly, and make sure there's always opportunity for our employees to grow. If you look at the last 30 years, our stock has grown about 15 to 16% a year in value, and we think we've got a pretty fair return for our shareholders.

Austin: Pretty good clip. You can't be upset with that sort of return.

Craig: No. We think it's been more than fair, and we think we've got a business model that's going to last us for a long time.

Austin: One of the, in my opinion, most impressive statistics that I see about your company is the amazing renewal rates -- upward of 90%, I believe, most recently.

Craig: Right. We're 89 high, so we're close. If you round it, we're at 90% in the U.S., and in Canada, and we're in the mid-70s in our international part of the business, which is Asia, which actually is considered to have improved considerably.

Austin: Interesting. How do you guys achieve that amazing retention? It's absolutely phenomenal customer retention. How do you guys cultivate that number year after year after year?

Craig: Well, the consumer pays for a membership, and they make that decision based on what they figure the value of the membership is. I think if you continue to bring value to the consumer, and bring quality to the consumer, and know the consumer knows if the item doesn't perform well, they can bring it back.

You build trust with the consumer, and I think it's really that simple. They like what they see, and they continue to renew. If they won't like us, they don't like what they see, they're not going to renew, so I think if you look at it, they like it, so they're renewing.

Austin: Right.

Craig: It's kind of simple. I don't know how else to put it.

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