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An Interview with Craig Jelinek, Costco President & CEO, part 2

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. 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.

[Continued from part 1.]

Slepko:  Do you buy everything from Costco?  What is your personal Costco connection?

Jelinek:  Yes, a good deal of my regular purchases are made at Costco.  I love our Kirkland Signature dress shirts for $17.99.  That’s basically all I wear.  I buy a lot of prepared meals – I love our rotisserie chicken, as well as all my socks, health and beauty aids.  Dress shoes I don’t buy from Costco since we don’t have much of a selection, but definitely most everything I have comes from Costco.  Consumables I usually pick up from the Issaquah warehouse, but if I happen to see dress shirts at Costco’s in other parts of the world that I like, I’ll purchase them.

Slepko:  When I visit the Issaquah warehouse and see all the corporate HQ badges shopping, I wonder if Costco is a newer, improved version of the old company store.  Tell me more about the people side of Costco, is it a happier place than Disneyland?

Jelinek:  First of all, we are employees and have a positive bias towards Costco, but we also recognize great value.  So we feel pretty comfortable that anything over there is going to be the best possible value that you are going to find in the marketplace.  That’s what we do.  I think that’s why a lot of us go over there and shop.

No one person is bigger than the whole, and if you ever believe that they are, then you are in trouble.  Everybody’s got different responsibilities, but it takes a whole team to run a business.  The first thing that you must have are people who want to accomplish what the goals of the company are.  I can’t tell you how important people are to any organization.  You can talk about systems and a lot of things, but in my view it’s all about people.  We think we are a fair company to work with.  I think you can tell by our turnover [10.1% in 2011].  I think we provide good wages and good benefits.  [Costco’s average hourly wage is $19.86 per hour; a full-time cashier makes about $49,000 annually, and 89% of Costco employees were eligible for benefits, of those 98.5% were on Costco’s benefit plan.]

We try to stay engaged with employees as much as possible, but there is only so much time in the day and it becomes a little more difficult when you go from 3,000 to 150,000 people.  But you try to maintain the same culture when the company started.  However, you have to keep the values the same.  If the values change, then the culture is going to change and then negative things tend to happen.

You always want to do the right thing for the situation.  You always want to do right by your customer, your employee, and your suppliers.  You want to make sure you obey the law.  And if you do all those things, you are going to reward your shareholders.  Just trying to do the right thing has a way of making things work the best.

It would be easy for me to say we have the greatest, happiest employees in the world; and I think our employee turnover numbers show that to be true.  As for me, I think Costco is a great place to work; but you’d have to ask the employees themselves if they are happy.  [So you don’t plan on quitting your job and going to Disney or some other company?]  No, this is my last rodeo in terms of working with a company.  I have been with Costco over 27 years and I have made this place home – I now know more people in Seattle than in California.

Slepko:  How do you make sure your values are upheld when your employees deal with vendors, or that your suppliers are doing the right thing?

Jelinek:  It is up to each of our buyers to communicate to each and every one of our suppliers our message to them:  Great products at the lowest price.  They get it or we go elsewhere. Over time you build trust with your suppliers, and you make sure you are treating them fairly, and that you are not such a huge percentage of their business that if you had to change your supplier you wouldn’t put them out of business.  You have to make sure you are asking the proper questions, and have a responsibility to your customer that you have the best value out there.  But you also have to work with your current suppliers in making sure they have every opportunity to have the best possible value, quality, and price.  Our motto, “Be tough, but fair”.

Procter & Gamble (NYSE: PG) is one good example, but they are a big, international brand.  We have one supplier, Ruiz Foods [El Monterey brand], a family out of central California that makes a lot of our Hispanic frozen foods.  They have been very loyal and reliable, and we have helped them build a pretty big business, as well as helped them with the development of new items for Costco.

Slepko:  Why are you involved in Seattle University [where you are a board member]?  Do you have a personal connection, or is it a legacy from Jim Sinegal’s previous involvement?

Jelinek:  It’s a combination.  I was more involved when I ran the merchandising part of the business.   We have an annual Supplier Day and our suppliers are a big part of the sponsorship of students at Seattle University, so I was involved then.  Then Father Steve asked me to go onto the board and I agreed to do it.  To me it’s more about the students, and I have to tell you that you learn a lot about the business from these kids.  It’s a two-way street; sure you give, but you also learn a lot about your future consumers.  I enjoy being part of the school, and I get a lot out of it personally.  It’s rewarding.  I’m also on the board of Children’s Hospital, but you have to be careful because you only have so much time, and if you can’t do it right, then in my view you have no business being on an outside board.

Slepko:  When you have spare time, what do you do?

Jelinek:  I don’t have a lot of outside activities.  I play golf once or twice a year for charity.  I enjoy occasional boating, and then I like spending time with my kids.  I am a single parent with two daughters, 28 and 23, and a son, 18, who lives with me and getting ready for college.  We have our tough times, but he still likes me.  You know what it was like when you were 18.  I also have a grandson who lives in Miami.

I love to read newspapers, usually the Wall Street Journal and USA Today.  [Are you Kindle, Nook kind of guy?]  No, I’m a hard copy kind of guy.  Unfortunately, I’m still a bit “old school.”

I love sports.  I love to watch sports, but I can’t play basketball with my son anymore.  It’s too painful.  [Painful because you lose, or painful because you’re 59?]  Painful because I’m 59.  He’s just too strong and too big.  Four, five years ago, I used to be able to compete with him and get the ball from him, but anymore playing basketball with him means getting hurt when he runs into me.  I can’t do that anymore.  I can go out and play the game Horse, but other than that, forget it.

We used to have season tickets and go as a family to the [Seattle Super]Sonics games.  [Are you going to try to retrieve a sports franchise for Seattle?]  I think it would be good for the community to have a basketball team.  I think it is very exciting to follow the [Oklahoma City] Thunder [the former Sonics].  They have a great team, and it’s sad because that would have been the team that would have been representing Seattle.  Every once in a while my son and I will go to Los Angeles and take in a Lakers game.  Other than that, we’ll go to a Mariners game occasionally.

Aside from that, I work a lot.  That’s who I am and that’s what I do.  I spend about 30-40% of my time in the Seattle area, about 50% of my time traveling throughout the U.S., and about 5-10% of my time outside the US, but this year, it was more like 15% because we had a lot of openings internationally – 2 trips to Australia, 3 trips to Asia, 3 trips to Canada, 1 trip down to Mexico.

Slepko:  Generally, founder-led companies get high marks from analysts (Wall Street, Motley Fool, and otherwise).  How are you, in Jim Sinegal's words, "almost a founder"?  When did you know you were going to be at Costco for the long haul?

Jelinek:  Well I was here early on, but if you look at the founders, we had two: Jim and Jeff [Brotman].  And then we had some founding officers, and I probably could have come up at the very beginning, but chose not to because I told myself that there’d never be another Price Club.

At the time, I didn’t really want to leave California, but I came up [to Seattle] and I thought, why not?  I knew people like Dick DiCerchio and Jim.  I knew the concept, and the integrity of the people involved in the company.  Trust is important.  So, with nothing in California to keep me there, I decided to give Costco a try and see what happened.  Obviously, it was the best move I ever made.

When you’re young (I still consider 30 to be young), I don’t know if you are wise enough or smart enough to worry about what the weather will be like or things like that.  Plus, I’ve never been a person that would jump around, and I have basically only worked for two companies in my life.  So unless you are treated unfairly, I don’t really know what the advantage is to jump from company to company.  People sometimes think the grass is greener on the other side, but in my experience if you find a good company it is better to grow with that company.  Then good things happen for people.

[Continued in part 3.]

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

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