Jelinek: Well, certainly you look at your comp business. You also look at your renewal rate. That’s very important. We also try to look at the growth that we see. We’re always measuring.
We think the model will work, as it has worked in a lot of other countries. No matter what country you live in, you want to be able to buy merchandise at the best possible price, so we certainly are looking at that.
Our employee turnover — which is less than 1% at the management level and less than 5% in the overall hourly level — I think is a very important piece for us, which talks about employee satisfaction.
Those are some of the things that we always look at.
Austin: OK. I wonder if you could explain the dynamics, in terms of purchasing power, that allows you guys to continually offer the lowest prices for consumers. Because technically, on paper, it would look like Walmart or Amazon might be able to out-purchase you, but you guys are able to consistently provide a more affordable product in many instances. I’m wondering if you could explain that disconnect?
Jelinek: Well, keep in mind it’s not always how you purchase goods. You’ve got to purchase goods, and you purchase at the best possible price, right?
Now, when you look at our sales per item, they’re much greater than Amazon or probably Walmart, because we only have less than 4,000 items, where if you look at our competitors they have substantially more items — maybe eight or 10 times more than the 4,000, where the math doesn’t work in terms of sales.
With that being said, we think we can bring efficiencies to a supplier which allows us to sometimes buy a certain item at a better price, but also our SG&A, which is what it costs us — our administrative costs — is less than 10%.
There’s probably nobody close to us in terms of SG&A in the retail environment, that has a better SG&A than we do. If you look at Wal-Mart they’re probably about 18% and I think Amazon is probably at a 22%-23%, although they both have other means of margin revenue coming in.
But it’s just as important to be efficient, to lower your expenses, because then you can work off of less margin in terms of selling merchandise.
Austin: Makes sense. Are there any retailers — in the broader space at all — that you really admire, that you see and you say, “Wow, they really got it right,” or “I admire their operations?”
Jelinek: I think Amazon’s done a good job in terms of building a brand with their customer service. I think they’ve done a very good job of that. I think Whole Foods has got their niche, in terms of quality merchandise, and I think Trader Joe’s is a company that pays very good wages. They’ve got limited selection and they’ve got great quality merchandise, and they’ve got a great reputation out there with the suppliers, so I think they’ve done a very good job.
Even a company called Aldi, which is starting to come to the U.S. — they’re a private company — but they’re a very simple operation that cuts a lot of overhead out and they’ve been very good at bringing merchandise to the market at a very low price.
Austin: You’ve got to appreciate that then.
Jelinek: Absolutely. That’s the name of the game.
Austin: What’s your favorite item on Costco’s shelves today?
Jelinek: You know, I love our hot dog. There’s no place else you can get a better item for $1.50.
Austin: That’s true.
