Recently, The Motley Fool chatted with Costco (NASDAQ:COST) CEO Jim Sinegal. To stay ahead of competitors such as Wal-Mart (NYSE:WMT), BJ's Wholesale (NYSE:BJ), and Target (NYSE:TGT), Costco is keeping its focus on value. See what the company's co-founder has to say about wages, Wall Street, and even wipes (yes, the baby kind).

TMF: Jim, let's start with an overview for those who may not be terribly familiar with Costco and the Costco experience. What differentiates your company from other membership-club retailers?

Jim Sinegal: Well, I think one of the hallmarks of our business certainly is the amount of volume that we do per unit. We generate something in the neighborhood of $125 million a year in sales on a worldwide basis. [Editor's note: $125 million a year in sales per store.] That is substantially above where any of our competitors are, and I think the other hallmark of our business is that we have developed such a high-end clientele with a high-end product selection and assortment that is available for our customers.

TMF: And let's talk a little about the Costco customer experience. I know in the past that you have really stressed that Costco is all about value and that there is a difference between value and price. Can you elaborate on that?

Jim Sinegal: Sure. When we talk about value, we talk about offering the very best product that we can find, and that includes every category of merchandise we have, whether it is in our meat department or in our pharmacy or in our electronics department. So when we sell someone a 40-inch television set, it is going to be fully loaded with all of the latest features, as opposed to a bargain price. When a customer comes in to Costco, they can expect that they are going to probably spend as much money as they expected for a 40-inch television set, but they are going to get one of the best brands and one of the best featured sets that they can find. That is where the value concept comes in.

TMF: Along the same lines, I must tell you that I am a big fan of flea markets, and I think part of the reason why I love that flea market experience is the excitement of never quite knowing what I may come across. To what extent does Costco consciously tap into that flea market dynamic?

Jim Sinegal: Well, we refer to it as a treasure hunt. We refer to the concept that customers come into Costco and they always expect to find something new and something exciting. We have used the analogy in the past that one time they may come in and see that we have some Coach handbags and they come in the next time and the Coach handbags aren't there, but perhaps there are some Fila jackets. The attitude is that if you see it, you have got to buy it because it may not be there next time.

We purposely try to merchandise to that type of mind-set. There is always something new; there is always that treasure-hunt experience that is available in our buildings. We think that is what makes our business exciting. We think that when we are doing the best job of merchandising is when we are doing the best job of taking care of that part of our assortment that applies to the treasure hunt. We carry about 4,000 stock-keeping units, and about 1,000 of them are constantly in that changing mode, where they provide that treasure-hunt atmosphere.

TMF: As you well know, Costco has taken some heat on Wall Street for being overly generous to its employees. According to a recent New York Times story, Costco store workers earn an average of around $17 an hour, which is 42% more than employees at Sam's Club, which is owned by Wal-Mart. You have said Costco's pay structure makes for good business. Explain.

Jim Sinegal: Well, first of all, we have a very low turnover in our company. Our turnover is something in the 20% range, and that is including a lot of seasonal hires that we have both in the summer and at Christmas. After employees have been with us for more than a year, that turnover rate goes below 6%, so we take great pride in the fact that people join us and they stay with us. Our attitude has always been that if you hire good people and provide good wages and good jobs and more than that -- if you provide careers -- that good things will happen to your company. I think we can say that that has been proved by the quality of people that we have and how they have built our organization.

TMF: And following up on that a bit more -- in 2004, Wall Street analyst Bill Dryer of Deutsche Bank criticized you. He said that it was better to be a Costco employee or a Costco customer than a Costco shareholder. So I am curious: To what extent do you feel that you have to prioritize between Costco employees, Costco customers, and Costco shareholders?

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