CostCo Wholesale Corporation

Simplifying home and life

Monday 12 June 2017, by Audrey Razafindrakoto, Austin Holmes, Karah Gong

A. The main facts about the activities of the company.

CostCo began under the name of Price Club in San Diego, California in 1976 that originally only served to small businesses. In 1983, the first CostCo Warehouse opened to the public in Seattle, Washington. The company generates around $64 billion in total sales throughout their warehouses worldwide.

CostCo is a membership warehouse club that is a multi-billion retailer in eight different countries. The company provides a wide-selection of brand-name merchandise at the best price possible. With hundreds of locations worldwide, members can receive special services and the convenience of specialty departments.

The company believes that the many qualities separates themselves from of the many Fortune 500 companies:
Commitment to quality. The company carefully chooses the brands, features, quality, and prices of their products to ensure their members get the best value.
Entrepreneurial spirit. All employees and management have the common goal to exceed the customer’s expectations.
Employee focus. They offer fair wages, top-notch benefits, and a workplace culture that attracts positive, high-energy, and talented employees.

B. The Ethical challenges this company is addressing.

CostCo made a sustainability commitment to make sure the company is responsible and does the right thing, which is the foundation of their business. They believe that they should adapt as they learn more about their impact and global challenges such as climate change, human rights issues and compromised natural resources.

Sustainability Principles:

  • For CostCo to thrive, the world needs to thrive. We are committed to doing our part to help.
  • We focus on issues related to our business and to where we can contribute​ to real, results-driven positive impact.
  • We do not have all of the answers, are learning as we go and seek continuous improvement.

Sustainability Responsibilities:

  • Take care of our employees.
  • Support the communities where our employees and members live and work.
  • Operate efficiently and in an environmentally responsible manner.
  • Strategically source our merchandise in a sustainable manner.

CostCo believes in compensating their workers with competitive wages and benefits to retain great employees while in the long run reducing turnover and maximizing employee productivity, commitment, and loyalty. They also believe their “culture” allows for part of their success. The company has an “Open Door Policy” that encourages employees to discuss any issue with management.

CostCo believes in contributing to the health of the community by supporting selective charitable organizations that focus on children, education, and health/human services.They also encourage their employees to volunteer for these charitable organizations. Accordingly, the company provides low-cost health care including: optometry and hearing services, prescriptions, and other health-related products.

The company has contributed greatly to the environment by building 80% of their structures with recycled steel materials, planting mature trees, using recycled asphalt for parking lots, and most locations have rooftop solar photovoltaic systems. Specifically, the company uses LED lighting which saves 45 million kWh of energy. Most locations also have a water efficiency system that saves between 20-25% of water, and use a non-chemical water treatment system to reduce the amount of chemicals in the sewer water. Lastly, the company is reducing greenhouse emissions by using non HCFC refrigerant refrigerators and air-conditioning systems. Accordingly, CostCo donates non-perishable food to non-profits within the local communities, their organic waste is converted into recycled usable products (fertilizers, feed, fuel, etc.), created a recycling program, and a commuting system for employees.

Lastly, CostCo has their own signature brand known as Kirkland which was created to offer their members more affordable products. The company is committed to protecting the human rights, safety and dignity of the people who contribute to the success of our business. They also seek to support the welfare of the people who produce, process and/or harvest the products they sell. They also acknowledge animal welfare by providing cage-free eggs and investing in multi-year research project to improve the honey bee population and sustainability. Also, they believe in sustainable fisheries that follow the many accordances and laws.

C. What makes you believe this company is really ethical and why you trust it?

There is not just one reason that makes us believe CostCo is really ethical. First and foremost, the company’s vision and ethical code of conduct speaks for itself seeing as though the average employee makes $20.89 per hour, which is significantly higher than CostCo’s closest rival Sam’s Club. Furthermore, we also know we can trust CostCo because of former CEO Jim Sinegal’s cardinal rule, which was that “no branded items can be marked up more than 14 percent and no private-label brand item (i.e. Kirkland Brand) more than 15 percent.” To put that into perspective, markets and department stores usually markup items around 25 and 50% respectively. This is all based on Sinegal’s belief that taking care of your customers and your employees are what builds a strong, reputable company in the long run. Despite criticism from Wall Street analysts, Sinegal has remained true to his beliefs and passed on the savings to his employees and his consumers, as we will see in a moment when we discuss his pay cut. Costco’s stock price continues to rise as does its revenue and profit, proving that perhaps ethics does have a place in today’s capitalistic society. And to finally highlight his true ethical behavior, Jim Sinegal took a 38% pay cut in his last year as CEO, earning $2.2 million as opposed to $3.5 million the previous year. His annual salary remained the same at $350,000 but he cut his stock rewards significantly. Being one of the lowest paid CEOs of a billion dollar company proves that CostCo was built on such selfless personal values that the company continues to uphold today.

D.The possible challenges facing the company in the future and how you think this company may improve.

While CostCo continues to advance in the global market, this presents a few potential threats. Whichever countries CostCo has warehouses in (i.e. Canada, UK, Japan, South Korea, Spain, etc.), it can be negatively affected by any political problems that may arise in these countries. Also, lowering manufacturing costs mean that price competition is a real and ever-present threat. Similarly, changing customer preferences may substantially hurt CostCo’s warehouse/buy-in-bulk business model, seeing as though the online marketplace is growing rapidly. While CostCo does have an online retailer, consumers might find that companies like Amazon, for example, offer free two-day shipping at a lower cost. Furthermore, the new CEO Craig Jelinek might not necessarily share the same values that former CEO Sinegal shared, seeing as though he received a 47% pay increase after his predecessor retired. This gives us an insight as to his mindset, which could create potential problems in the future in regards to differing viewpoints about employee compensation and benefits, for example. In terms of improvement, one aspect we think CostCo can improve upon is its long checkout lines. If a customer just wants just one item then he or she is not inclined to wait 20 minutes just for a bag of almonds, for example. Perhaps a pre-scanned checkout line where employees walk up to you in line and scan your items for you so you can just hand the cashier a ticket that is already preloaded with all of your items for a faster checkout time. Also, in terms of CostCo’s sustainability efforts, perhaps more bicycle racks in the front of the store would further encourage their customers to reduce their carbon footprint and ride their bikes to the warehouse. Even though this might be challenging seeing as though CostCo is mainly intended for large bulk purchases, if they fixed their long checkout lines problem then the bicycle racks would be a good way to draw in a new customer base; which is people who only need one or two items and can thus won’t need a big car to shop there.

Bibliography

Allison, Melissa. "Jim Sinegal Takes Pay Cut in Last Year as Costco CEO." The Seattle Times. The Seattle Times Company, 14 Dec. 2011. Web. 11 June 2017. <http://old.seattletimes.com/html/bu...> .
"CostCo Wholesale Corporation Sustainability Commitment." Sustainability | Costco. N.p., Mar. 2017. Web. 11 June 2017. <https://www.costco.com/sustainabili...> .
Greenhouse, Steven. "How Costco Became the Anti-Wal-Mart." The New York Times. The New York Times, 17 July 2005. Web. 11 June 2017.

How Costco Became the Anti-Wal-Mart
par By STEVEN GREENHOUSE

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Trewin, Courtney. "Future Opportunities and Threats." Costco - Business Report. Weebly, Aug. 2015. Web. 11 June 2017. <http://costco-business-report-court...> .
"Unselfishness: The World’s Most Ethical Company & Why Collaboration Works." Influential Marketing Blog. Rohit Bhargava, 14 Sept. 2014. Web. 11 June 2017.

Unselfishness: The World's Most Ethical Company & Why Collaboration Works

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Location: Issaquah, WA (United States)

Sector: Wholesale and retail trade

Official website: http://www.costco.com/

Key figures:

206 locations internationally
116.1 billion USD total sales (fiscal year ended August 2016)

Nbr. visits: 123