Costco Canada: A Success Story

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 occupying various executive posts over the years. He became president and COO in 2010, and took over from longtime CEO Jim Sinegal in January 2012.

Craig discusses Costco's disproportionate success in Canada and how it expects to bring those results to bear in the U.S. market. He also shares the company's approach to doing business outside of North America and its projections for growth.

To watch the full interview, click here.

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Austin Smith: Looking at some of your operating metrics, it's hard to miss the extreme efficiency you guys seem to be getting out of Canada, compared to your U.S. business. I think the average sales per Canadian citizen compared to a U.S. citizen are about two times, approximately. What are you guys doing up in Canada that's working so well?

Craig Jelinek: Well, there's a couple things.

If you compared Canada to the West Coast, you would probably see that they're pretty similar because we're so well entrenched in the West Coast. We're not really going into any new markets in Canada. Everything's basically tied around the Vancouver, the Winnipeg, smaller markets.

If you look at the Midwest and the Southeast, some of those buildings are doing less sales volume, which brings it down, because we're relatively new in those marketplaces. If you look at Canada, the expansion has been less. We've been entrenched a lot longer in just that Canadian market, in terms of the big markets in there, where we just open up buildings close by.

You open up another building anywhere from here to San Diego, and they start out very strong from day one. When you go into places like Fargo and Rochester, Minnesota, and East Peoria, Illinois, those buildings it just takes time to build because you don't have any membership base.

We don't open up a building in Canada where we don't already have a huge membership base nearby.

Austin: Interesting. Do you expect over time those numbers to maybe converge a little bit?

Jelinek: Absolutely. No question. No question.

Austin: What sort of different dynamics have you seen operating internationally? We know that many retailers when they try and go abroad it can be the kiss of death, because they try and apply the same strategies, with difficultly. Have you guys run into that?

Jelinek: Well, what you have to do is -- when we went international -- what you have to do is just be who you are, what got you there. We know the model that works. Now, you may sell a little bit different product line, but the packages are big.

One of the things that we've done is brought U.S.-type goods over there. You didn't see many people eat bagels in Japan when we went in there. We took the same bagel recipe that we have here and created it in Japan and it's one of our biggest items over there.

What makes us successful in these countries I think is because we're different than everybody else. Just like when we start in the U.S., we're just different than everybody else. In Canada we're just different than everybody else. Mexico, we're different. It's a unique type of business that there's not a lot of people that look the same and do business the same.

Whenever you're different and you can bring value, the consumer tends to like it.

Austin: Great.

Analyst: Just a follow-on to that; you look at a Wal-Mart going international, it's because they're running out of U.S. space. You look at a map of your company -- Seattle we might have 15 locations; Boston, we might have two or three over on the East Coast -- basically, what kind of upside do you think you still have in America? Could you see Costco doubling its presence from this point?

Jelinek: Over a period of time, I think that's very possible to do. I would think that we could... you never know what's going to happen in the marketplace. You never know what's going to happen in the economy. You never know what kind of situations could happen in different countries.

But we feel very comfortable, over the next 15-20 years, we could double the size of the company. We think there's a lot of opportunities still left in the U.S.

Austin: That's just doubling domestically.

Jelinek: No. I would say domestically... we could probably come close in 20 years.


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