and development
department. All of
our employees are the research and development department.
Another aspect is being transparent with our vendors. If you’re a small, regional company doing $4 million in sales, we’re not going to be able to accommodate you because our appetite is so large; we never want you to double your business just for us, in case we ever decide not to use you. But by the same token, the key is coming in and understanding our quality, understanding that we’re not necessarily as interested in what’s the hottest-selling item in the department store today, but understanding the entire cost structure and the supply chain costs, and how we can work together to lower those costs,
increase the quality of the
merchandise and ultimately lower the price to our members.
It’s also recognizing that we’re not looking to sell at a price point. A lot of manufacturers will say, we can sell you this item at $11, and with shipping $12.50, and you can sell it at $19.99 to make a 50 percent markup. First of all, we’re not interested in a 50 percent markup. If everybody else is selling it for $24.99, and you’re trying to get us to sell it for $19.99, we want to figure out how to do a two-pack for $14.99. And we’ll make our 10 or 12 percent, thank you very much. And if it sells a lot and we may end up making more money, let’s figure out how to take that item and improve it and lower the price even further and drive more business.
Q. What’s the primary incentive, then, for a vendor to want to sell to Costco, since you’re looking to pay them a lower price?
A. Te primary incentive is volume, and volume not in 27 different versions of the item. If you think about it, using the simple example of toilet paper, well, first of all there’s only three or four big suppliers out there that can accommodate our volume. A lot of times, if we can be 5, or 10, or 20 percent of one of their facility’s production capacity, it eliminates a big hurdle for them in getting to efficient capacity utilization.
If we tell them what they need to do and we expect quality, then they know that’s what they need to do. Tey don’t need to try to sell us six other things.
Q. Looking at it from an entirely different
perspective, what kinds of
incentives can Costco offer its employees to encourage efficiencies?
A. We don’t have commissions anywhere in the company. A lot of the incentives are growing through promotion and merit, being promoted to the next-level position—for example, if you start off as an hourly inventory control specialist in merchandise, which is making sure the product is flowing through the system, to the assistant buyer, to the buyer, to the assistant merchandise manager, to the general merchandise manager, which is typically at the VP level.
At Costco, it’s one message: We all work hard. I think part of it is that we start
by recognizing that 90 percent of our employees are hourly. Of the 300 people employed in an average warehouse, with a warehouse manager, 20 are salaried; the rest are hourly. Te philosophy of our founders was, and still is, to pro- vide a good living wage and affordable health care benefits. So in an hourly envi- ronment where many part-time hourly employees at other retailers don’t even get health care, all of our employees do.
Our average hourly wage in the U.S., for example, is a little over $21 an hour. By comparison, across big retail, whether it’s Home Depot, Walmart, Target, Best Buy, the supermarket chains, the averages range anywhere from $13 to $15 an hour. Tat’s the average, whether you started yesterday or 20 years ago.
Our starting hourly wage is $11. If you’re full-time, working 38 to 40 hours a week, in your fifth year of service you’ll get to the top of the scale. After an employee has worked for the company for about 10 years, there are some added increases every five years besides the usual annual cost-of-living increase, up to the 25-year mark. But you’ll get up to the top of the scale, which is $21.50 right now, in four to five years instead of over a lifetime.
So if we’re paying such a higher premium, darn near 40 to 50 percent higher, we’d better be hiring better people to start with, who want to stick with us and work hard. We looked at our inventory shrinkage numbers, which are very low. Part of it is, nobody’s stealing toilet paper. At Costco, many times when we catch an employee
WE WANT THE BEST QUALITY AT A GREAT PRICE, AND THEY WON THE BUSINESS BASED ON THAT.
ASC.ARMY.MIL 111
CRITICAL THINKING
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