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An Interview with Craig Jelinek, Costco President & CEO, part 1

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As of January 1, 2012, Craig Jelinek became the President and CEO of Costco Wholesale Corp (NASDAQ: COST).  Raised in California’s Mojave Desert, in 1984 at age 30 he migrated up to the rainforests of the Pacific Northwest to manage a warehouse for the remaining 40 years of his professional career.  Now he oversees almost 600 warehouses as head of one of the most beloved retailers in America – and increasingly the world.

While former CEO and President Jim Sinegal was well-covered by the media during the past couple decades, I wanted to know more about the not-so-new new guy.  So I called him up.

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Nick Slepko:  You have chosen to stand firm on the $1.50 hot dog.  Are there any changes coming for Costco’s liberal return policy?  Will anything be done differently in the new era?  Or is it even a new era?  

Craig Jelinek:  Sure, there’s been a change in leadership, but it has not been major.  It is mostly business as usual.  It’s not like we brought in someone from the outside and they have to turn the company around.  Also, it’s not like I just rolled in six months ago.  I have been around longer than most of the people in the company.  I think if we continue to run the business and do what is best for the consumer, things will continue to go well.  To change the way we do business now, there’s no reason to do that.  I think the key is that we retain our talent so the positive of that is that the next level down completely understands the culture of the company.  Along with the culture, they know what has made us a success.  They already know it and understand it.  We don’t have people from the outside in senior positions that need to learn who we are. 

In addition to a management team that has worked together since the beginning (and many who worked together back in the FedMart days), we have a number of vice presidents in their forties that started as cart pushers and front end assistants, and have been with the company for twenty years.  A VP in operations is responsible for $3-$4 billion in sales and 6,000-8,000 employees – and this would make them a senior level employee in almost any company.  A Warehouse Manager for Costco often handles over $200 million in annual sales and has 400 to 500 employees, which is a pretty good sized business on its own.  We give our managers a lot of autonomy and teach them to run the business as if it is their own.  This creates entrepreneurship, as well as responsibility so that when they move to the next level the learning curve is much less.

Will the market change?  Of course it’s going to change.  For example, we will be expanding Costco online as it’s a growing business, and maybe experiment with different types of delivery.  But I know that people are always going to have to eat and are looking for quality at a great value.  If we focus on being the “low-cost” operator, and bringing the best quality goods and services to our members, at the lowest possible price, then we’ll be around a long time. 

Slepko:  Costco is famous (and adored by The Motley Fool) for ignoring/standing up to Wall Street -- and you could say that Costco has been more effective than the Occupy crowd in achieving results.  What has been your experience dealing with Wall Street?

Jelinek:  First of all, when shareholders and people who analyze our stock come and see us, they are our guests and you treat them with respect.  Now they are not always going to want to hear what you have to say, but I think everyone respects you when you tell them how you are going to run your business.  Where you get in trouble is when you say one thing and then do something different.  You just don’t give people from Wall Street confidential information because – first off, it’s illegal – but they always want to know how you are going to manage your benefits, and tell you your benefits are high, but we have to figure out how to keep all employees healthy.  So let’s focus on employee health instead of cutting the benefit.  Wall Street knows our membership income and information like that; that’s not going to go away.  But even though they are often critical of things we do, we have been able to grow our business and our stock has continued to grow year over year. 

Slepko:  Are there currently any other public companies that you admire? 

Jelinek:  Well, most of my investments obviously are Costco.  I believe in the company, and I know where the company is going.

When I talk about companies that I respect, although we aren’t necessarily on the same page right now, I would have to say Apple (NASDAQ: AAPL).  They have been incredibly innovative and created great products for the consumer.  They are a company that focuses on its business, and is not trying to do everything.  They don’t worry so much about what others are saying and stick to just running their business.

I like International Expeditors (NASDAQ: EXPD). They are a Northwest company.  I have to say I think they are a good, sound company in how they run their business.  I think [Chairman and CEO] Peter Rose is concerned about the people in the company.  I think he runs a pretty good company.  I have respect for companies like that.

A company that takes care of their people, and takes care of their customers may not make a lot of money in their stock the first couple years, but they are going to be around a long time.

Slepko:  What did you know about Costco when you joined?

Jelinek:  Costco opened up its first warehouse in September of ’83, and I flew up in January of ’84 to meet with Jim.  I was thirty years old, single and not really concerned about the weather or other things people tend to take into consideration.  I just made a decision to move after talking with Jim.  Jim had said, “Look we’ll probably have 20 of these Costcos, and one day, there will probably be a little profit sharing of some kind, who knows.”  So I figured, who knows, I’ll come up and live there for the next thirty or forty years running a warehouse.  So I wrapped up some things in California, and moved up to Seattle to start on April 1st of 1984.  And shortly thereafter, I opened up the sixth warehouse [in Tukwila, WA].

Slepko:  What was your first job? 

Jelinek:  My first job was what used to be called a box boy.  I used to box groceries for FedMart starting in June 1969.  I was in junior high school at the time.  A friend of mine was a box boy there, and he told me they needed another one.  So, I put on a tie, went down there and was asked if I could start the next day, which I did, boxing groceries.  I would come in at six o’clock in the morning on Saturdays and Sundays, clean the bathrooms first, sweep the floors, and then box groceries.  Then ninety days later I was promoted to food stocker, and stocked foods while I went to junior college and San Diego State University.  The day I got out of college in ’75 I became a food manager.

Slepko:  What was your first car?  What are you driving now?

Jelinek:  My first car was a 1970 Mustang.  Now, I have a 2005 BMW.  I have had six cars my whole life.  I buy a car and keep it until it doesn’t run anymore and then I finally go out and get my next car.

Slepko:  When you were stocking shelves, what did you think you'd be doing at 59?

Jelinek:  Well, actually, when I was stocking shelves it helped me learn the business. When I started going to college, I was going to be a psychologist, and that lasted about one semester since I realized it wasn’t going to be a good fit for me.  But I was enjoying what I was doing at FedMart.  However, some of those studies did come in handy, especially when there have been times that we’ve worked with some employees on getting them into new careers.  Sometimes you have to do those things for everyone’s best interest, including the individual since you have a responsibility to them to help them get into something they are going to enjoy.  Eventually I ended up majoring in business and marketing.  I enjoyed the merchandising part of the business, and found I really enjoyed working.

Slepko:  Was college worth your time?

Jelinek:  Most definitely, but at the time I didn’t think it was since I thought college was all about having fun.  Looking back, I wish I would have applied myself more with classes and the experience of learning.  I think as you get older in your business career you have a tendency to be a lot more focused in school and can relate more to what you are studying.  Coming out of high school you can pick up a lot of text book stuff, but you need some experience before you can ever apply it.  I wouldn’t have taken more classes, but I would have focused more on what I was already taking and paid more attention in school.

Slepko:  Is a university education essential to work at Costco now, or can a person still push carts all the way to the top?

Jelinek:  Not necessarily, although the more you can learn certainly helps in competing for jobs.  In our business you have to be able to lead, manage, and relate to people in all levels of responsibility.  Just because you are very smart and educated doesn’t necessarily mean you can manage people.  It’s a combination of things.  Most people learn by practical experience.  The question with education and experience is how are you using them?  Any time you have more education and more real-world experience, it is certainly going to help you in your career.

Slepko:  Did sharing a San Diego State University education have anything to do with you connecting with Jim Sinegal [also an SDSU alum]?

Jelinek:  No, it was just a coincidence.

Slepko:  Do you remember Jim Sinegal from when you were both working at FedMart?

Jelinek:  Yes, I was a food manager in San Diego.  He was second in charge reporting to Sol Price overseeing buying and distribution, and would come in and ask me questions on a couple occasions.  But I didn’t know him enough to talk to him a lot.  I just knew of him.

Slepko:  Jim Sinegal refers a lot to Sol Price.  Was there anyone instrumental to you in mentoring you and getting you to where you are now?

Jelinek:  When I came to Costco, it was most definitely Jim.  I mean I understood the business and I enjoyed it, but in terms of mentoring and spending a lot of time with me, it would be Jim.  But there have been a lot people that have helped me along the way.  You always learn from people you are working with, be it good or not so good.

[Continued in part 2.]

Nick Slepko has no position in any company mentioned here at the time of publication.

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