Global Retailing Conference 2013 - Jim Sinegal

May 17, 2013

HOST: It's really my pleasure this afternoon to be able to introduce our next speaker and I know all this all
of the introducers have mentioned what their attire is, so I guess I have to follow that and I'm kind of a
fusion here this afternoon of everything from Uniqlo to Marks & Spencer Bloomingdale's Brooks Brothers,
and I know that Tom Julian would not approve of that kind of mix. But that happens to be what I have on
today. And probably something from Costco and all of you to have to have gotten in today you should
have she had to show your Costco card. But again it's a real honor to introduce our next speaker Mr. Jim
Sinegal, co-founder and director of Costco, and recently retired president and CEO of Costco.

You know Jim when he sent his bio, he sent two small paragraphs. I mean very humble person and
someone who doesn't certainly what his accomplishments doesn't deserve to be that humble but two little
paragraphs. I'm gonna expand on that just a little bit because it's a phenomenal company and
accomplishments that this organization in the last 30 years.

Jim was born in Pittsburgh Pennsylvania and moved to San Diego, and well I think when he was about 15
or as a teenager but being from Pittsburgh no he has to be a Steelers and a Pirate fan no doubt about
that. But Jim started his career in retail at 18 years old and it's been a climb to the top since that time. Jim
worked 25 years for the discount merchandising company Fed Mart Corporation and its successor
company the Price Club which was started by retail pioneer Sol Price. Jim advanced in that organization
to become vice president.

In 1983, Jim left the price Club to open the first Costco Wholesale Club in Seattle, Washington. Didn't
open it in San Diego. He moved to Washington do that and maybe he'll tell us why they decided to move
to Seattle from San Diego at that time. But Costco, as we all know, was a huge success grown very
quickly and in 1997 the company changed his name to Costco Wholesale. As I mentioned, the retail
community has certainly a great deal of admiration for Costco and what it's accomplished in the world of
retail. You have to be impressed with the how they the employees and how they value our and the
employees are valued and treated at Costco. I saw a TV special within the last year about Costco and
one of the things they talked about and all of the employees talked about is what it was like to work at
Costco. They showed Jim Senegal's office and has this very small office. I'm not even sure it was a
private office in here. It made me kind of feel bad. I look at my big office and everything. I need to
downsize there's no doubt about it. When I see what someone like him but that's just the way he works
and one of the reasons he's so admired.

The thing I like about Costco and I think I'm just talking to people when they saw that Jim was on the
program hearing about Costco. You know it's one of those places that on a Saturday or Sunday I'll be
driving around we and the Costco there on Scottsdale on Hayden Road you know. I don't need anything,
but I'll stop at a Costco just to walk in and look around and say you know there's always something new
and I very seldom ever going to a Costco without buying something. I think that's that's true with all of us
but it's just an interesting place to go and browse for about an hour when you don't have anything else to
do. Some quick figures here that I just have here and I'm not sure these are all up to date, but one of the
four mentioned Costco has a hundred and seventy-four thousand employees, 622 stores including course
in the UK in the USA. But the UK, Australia, Canada, Mexico, Japan, and South Korea. I might have
missed a country there, but they have also I mentioned the card and I showed the card 69 million
members. 69 million members that's astonished me. The year ended August 31st, 2012 total sales of over
97 billion dollars profit so 1.7 billion dollars. Costco was rated 24th on Fortune's 500 list.

Jim we're very pleased to have you here today. We're honored to have you here, and we look forward to
you sharing the success story at Costco.

JIM: Thank you, thank you, thank you. What a what an introduction. I should borrow a line from one of
our board members Charlie Munger who after a rather effusive introduction said too bad that my wife and
my mother weren't here too. My wife because she would have been amused and my mother because she
would have believed it. So I in keeping with the pattern this morning every single thing on my body other
than the slacks is from Costco okay, and I'm unclear I'm including the eyeglasses and the hearing aid.
Global Retailing Conference 2013 - Jim Sinegal
May 17, 2013
Okay I'm going to show you a video and it's a video of things we typically show this at our shareholders
meeting every year and our managers meeting and it's a bunch of clips that we like and of course we're
easy to make fun of because of the things we do and the things we sell. And as many of you know,
Costco doesn't advertise, so we don't do any advertising and all you'll never see an ad on television or
you'll see nothing in the newspaper about us. So we really count on word of mouth. Word of mouth is the
most significant form of advertising in our view so I'll show you this video that'll tell you a little bit about our
company:

[Jim presents video of media clips of people praising Costco]

JIM: I'm sorry to put you through that but I love that stuff so the give you a little history and 1982 my
partner Jeff Brockman and I got together and we drew up plans to start a business that was mentioned
earlier to clone a company called the Price Club that was operating in San Diego that I had worked for
they had started in 1976 and so Jeff and I went out together and we raised the money raised seven and a
half million dollars in February of 1983, so we're just thirty years old at this point. We used that money to
hire the first ten founding officers of our company about that time the market started heating up because
the price Club was a very hot concept and so there were a lot of people that were starting Sam's was
started by Walmart in 1983, BJ's was started by his heirs on the East Coast and later became
independent pace was associated with Kmart and then there were some other independence here in the
Midwest and price savers in the northwest. This the picture of our first Costco many of us were there from
California. This looks purposely grim it seemed like it was always raining up there and our office was that
little module you see on the front of the building there and we've since purchased a new piece of property
right adjoining this and opened up this building which has all of the things that we've added to our
business since we first started. It was a hundred thousand square foot building that didn't have many of
the embellishments that we've added over the years in this new build. This building now has all of the
things and is updated.

Our original business plan when we raise the money we told our investors that we thought we could
eventually grow to twelve warehouses. We thought of ourselves as a Northwest company and you see
the cities there that we thought we would be operating in. We said that if we could average sales of about
eighty million dollars per facility that we could probably be a billion dollar company and return the three
percent profit for our shareholders. So that's how we raised the seven and a half million dollars. We used
that money to open not only in Seattle but also in Portland and in Spokane Washington.

Our first year of operation we started in September of September 15th of 1983, so our fiscal year ran from
September through August. Our first year sales on all of our buildings combined was a hundred and one
million dollars and during the course of the summer we did some additional financing and we raised and
opened the buildings in Salt Lake City and in Tacoma Washington and in South Center which is a suburb
of Seattle and in Tampa, Florida. And of course everybody says “Well Tampa Florida. You were a
Northwest company. How did you get there?” And I jokingly tell them that so many of us were from
California. We were looking for someplace warm that we could go to. The truth of the matter is we
realized that we had misjudged the market share that was available in our business and we were looking
for someplace where we could cluster about ten of our types of businesses and Florida seemed to fit the
bill for us.

In 1985, we opened up in California and in Canada. In 1986, we opened up in the Midwest and Norwalk II
and in Minneapolis. In 1987, we closed in the Midwest. It was clear that in that market we underwhelmed
them and it was a classic case of businesspeople spending 80 percent of their time on 20% of the
problem. So we got out of the market and we did that in a fashion by refunding every single dollar of
membership that we had charged and paying and offering every a job to every single employee and
another community and taking care of our suppliers because we knew at some point we would probably
be back. In 1988, we added fresh foods to our assortment. We didn't have much in a way of refrigerator
products prior to that. So these are USDA choice and prime steaks that are sold in those packages that
you love. Four in five steaks to a package. In 1992 we opened up in Mexico and a suburb of Mexico City.
In 93, we opened up in London, suburb of London called Watford. In 1993, we also merged with that
Global Retailing Conference 2013 - Jim Sinegal
May 17, 2013
company that I mentioned earlier which was the Price Club and for a brief period of time we became Price
Costco before we just reverted back to Costco as the name. In 95, we opened up our first Costco in
South Korea in Seoul and as you can imagine real estate is very very dear and expensive so we had to
go vertical there. So in this particular building there are two floors of cell and four floors of parking so have
we have a lot of people movers inside this facility. The following year we opened up in New York starting
in Staunton island.

In 97, we expanded our membership. not just a membership card that you bought for 50 dollars but a an
expanded membership that provided a whole menu of services like credit card processing and insurance
packages and car insurance and and mortgages and etc. Each of which would pay for the additional
money and in addition as an executive member you got a 2 percent rebate on all of your purchases. In 99
we got involved in e-commerce. One of the hallmarks of our business and e-commerce is that we've been
profitable from the day we opened today that business. This year will probably run very close to two and a
half billion dollars for us. If you look in the picture and it's probably difficult to see but the third picture over
is a Picasso sketch that we were selling for $40,000. That sold in less than 24 hours after we had it
online. So a lot of really unusual things that we have online.

in 1999 we opened up in Japan. Here we are breaking the traditional sake barrel there. The gray-haired
gentleman that you see there is Tom Foley who's the former Speaker of the House of Congress and my
partner Jeff is standing next to him. And that's me in the center and the young man behind a hammer
there that you can't see his face is one of my sons who we sent over to Japan who started our business.
Today, we have 15 Costco's operating in Japan. In the year 2000, we started and expanded services of
tourism for our members that we provide vacation packages and cruises. We set up some special order
kiosks in 2001 which enabled customers to come in and do special order on things like leather couches
and multiple colors that would be delivered to them in three or four weeks. We started accepting
American Express which became a co branded card for us in 2004 and so we now have that where our
members get a rebate, probably on average about 2% on all their purchases. I think our rebates this past
year to our members was over a billion dollars that has to be cashed at Costco .Year 2006, we started a
car wash and of course leave it to us we started it in Seattle and next time we'll time Nome Alaska I
guess.

Today Costco is the dominant membership warehouse operator. We've got a lot of financial strength. We
think that we engage in a lot of merchandising excitement. Our members are very loyal to us. We've got a
strong cohesive management team. We're committed to growth, growing our business and building
market share and we'll continue to grow our business. Today we are the third largest retailer in the US but
actually the second largest retailer if you consider all of our international business. And we are the sixth
largest retailer in the world, twenty fourth largest fortune 500, and have a market cap of forty six billion
dollars. Our sales for the last 12 months were a 101 billion dollars. We have 89 million square feet of what
we refer to as warehouse store space. A hundred and seventy three thousand employees on a worldwide
basis and about two million transactions a day. This shows six hundred and twenty four warehouses but
this week I was just at a new opening that we had in Chihuahua in Mexico and then another one in
Washington DC. So that's now 624 warehouses on a worldwide basis, we operate in 42 states and nine
countries.

Our members are very loyal. We have almost 38 million households to chop with us or 69 million people
who are running around with a Costco card. They're loyal, they renew at a 90 percent rate with us every
year - that's the highest in the history of our company. So we're very pleased with that and it generates
about 2.3 billion dollars in fees for the last 12 months dollars that are refundable of course and dollars that
we can use to lower the price on the television sets or on the steaks.

Demographics. Contrary to what a lot of people might think Costco members are at the top end of the
demographic scale. If you look at the household income, the average household income in the U.S. is
about 68 thousand dollars and Costco is almost ninety four thousand dollars and that's true in every
country where we do business. We have an upscale customer that wants better merchandise and is
going to sell better merchandise or buy better merchandise.
Global Retailing Conference 2013 - Jim Sinegal
May 17, 2013
Big volume is a hallmark of our business. We've got one warehouse in in Seoul, South Korea that does
almost a half a billion dollars in sales. We have several that do between 300 and 400 million dollars and
as you can see. There are 126 of our businesses that do more than two hundred million dollars a year in
business Our strengths. Clearly there's the 69 million member card holders, the strong renewals. The fact
that we have established an attitude with members that we have absolute pricing authority. That was a
title and a name that was hung on us by an analyst with Goldman Sachs years ago that indicated that
more than any other retailer, Costco had established pricing authority on every single thing that we sold.
We got fantastic employees. We work hard to keep them and to keep them happy and to promote them
and to build careers in our company. We have great merchandise. We have a treasure hunt atmosphere
in our business. Despite our size, we like to think like a small company we want to be nimble and we want
to be able to move quickly and we want to develop and have consistently tried to develop a quality image
everywhere in our business. Whether it's the ten-foot parking stalls that we put out in our parking lot or the
quality of the employees or the quality of the merchandise or the cleanliness of our food courts, we want
to create an image of quality on every single thing we do.

Our strategy is very simple. You have a very limited selection at the moment. It's about 3,800 SKU or
stock-keeping units to put that in perspective. If you were to go into a Target or a Walmart superstore that
carries essentially the same categories of goods that we do, they might have a hundred and twenty to
140,000 items. So we really pre-select the merchandise that we sell and we watch that very carefully. We
are continually watching that we measure that SKU count on a monthly basis. We cover a wide range of
product categories, high quality national brands. With a selected private label program, we have to be
able to show a savings on everything we sell if we can't, we won't carry it. To give you an example, at one
point in time in Portland, we stopped selling sugar because every supermarket in the city of Portland was
selling sugar below cost and we couldn't show a savings to our customer. And our attitude was if a
customer came in and saw we weren't the right price on sugar, they had every reason to believe we
weren't the right price on the Michelin tires or on the Samsung television set. That it was a in the armor for
us.

We've engaged a lot of packaging innovation and a lot of new products and services over the years.
Here's an example of one of the things that we do. If you were to go into a typical supermarket and go to
the cereal aisle, you might find about 350 products on the shelves. If you go into Costco, you're gonna
find twelve. We would go out to somebody like General Mills and get the largest box of cereal we can get
them to make and put it on a pallet and if you can think about this and think about the scope of savings it
takes us a matter of seconds to move that pallet into a picking position for the customers. So that is
where we show the savings – in efficiency throughout our system on everything that we do. Now the
catch is you better like Cheerios.

Because your TV's big business forces past year in the US we sold over two billion dollars in television
sets with great names like Sony and Panasonic and Samsung and LG and Sharpe. Cameras like Nikon
and Cannon and Olympus. Diamonds they mentioned a hundred and thirteen thousand carats. We have
recent sales in one of our Maryland warehouses of one hundred and three thousand dollars one hundred
and four thousand dollars in Portland. So, we do sell high-end diamonds. We had a diamond on sale for a
million dollars. It was appraised at one point six million dollars. Products like you see here Lucky Jeans
and Calvin Klein Jeans, the shirt this is the Kirkland Signature shirt. I'm wearing a Kirkland Signature shirt
don't judge it by the way it looks on me. It's it's a great product and we sell it for $17.99. Wine they
mentioned earlier and they're with that. We are to our knowledge the largest seller of wine, and world we
don't know if anyone who does more business on wines we we do. And we sell a lot of very fine wines.
Produce of course you don't get to come in and just buy individual tomatoes you got to buy the Lugg.
Seafood shows here here you see creping king crab legs that we show. We usually put these out on
weekends and the weekend we were showing this we had this for $15.99 in the local supermarkets had it
for $29.99. Fresh bakery, everything baked on premises. This is not an unusual picture. On the 2 or 3
days before Thanksgiving, this woman is going out with about 50 pumpkin pies at one time. Fresh meat
about over five billion dollars in fresh meat this past week. – all USDA and USD the USDA choice and
prime. Rotisserie chickens $4.99. For you students back there you've got to get this chicken. I mean it's a
dinner for four dollars a night, and it is a great tasting chicken. Kirkland signature is our house brand. We
have it on everything whether it's apparel or automotive products or hardware products or food products
Global Retailing Conference 2013 - Jim Sinegal
May 17, 2013
whatever they are, vitamins. We use one name Kirkland Signature. So cars we do a referral business on
cars. So in the United States this last year our members bought 270,000 cars through our referral process
and another 56,000 cars in Canada. Food court that's famous for the $1.50 hotdogs and coke. That's a
that's a quarter pound plus hotdogs all beef and a 20 ounce coke with a free refill for a buck 50. There's
there's I've been showing this picture of this woman for about 10 years, so she ever catches me. The
optical where I got my glasses, we've dispensed 4.2 million pair of glasses this past year, and we have up
optometrists on premises to give an exam. Hearing aids with the aging population a very popular product.
We put the Kirkland Signature name on a hearing aid which is what I'm wearing it's a comp product that
would sell for about five thousand dollars or we sell for $19.99. Our pharmacy, 36 million prescriptions
filled this past year in the US alone.

Video of a news report:

Gaylene Garbizo knows a thing or two about paying for prescription drugs. Both of her aging parents take
several. "Unfortunately, I'm savvy on my mother and my father's behalf." So when she filled a prescription
for her mother's Alzheimer's medication a generic and not using insurance at this Rite Aid in Cherry Creek
she almost had a heart attack. It was $276. After the shock wore off, gorby's Oats started looking for other
options. What was your reaction when you found out that you could have gone to Costco and gotten that
exact same prescription for $15. "Well somewhere between livid, and my heart just really broke for those
people that don't have an advocate on their behalf. Children or anyone to help them out."

With that type of program, and then I cut that in half that was about twice as long on evening news that
type of program has run in about 40 major cities across America relative to generic drugs tailored to the
specific community where the TV was done. Our gas stations this past year did 10 billion dollars in sales
2.9 billion gallons sold, and this is not an unusual scene at one of our gas stations to see cars lined up
like that. And I got to show you this film because this is funny.

Video shared by Jim:

She talking about the gas prices around the Valley that seem to keep growing, or the line of cars that
keeps growing at Costco. While a lot of gas stations are sporting prices in the one dollar 47 cent range,
guzzling gas will cost you 20 cents less 1:28 per gallon at Costco in Scottsdale. Costco says their price
structure helps keep these prices low, but not everyone can get in on the deal. You must be a Costco
member to buy gas here at Costco. For some members it seems the Costco name coupled with the long
lines was enough to reel them in. But apparently it's got to be cheaper here. That's why I'm here. I have
no idea what they're gonna charge.

JIM:
You know as a retailer that's enough to bring a tear to your eye, and that type of program relative to
gasoline was just like the pharmacies it's been run that that clip ran at least twice as long as that it was in
Scottsdale, Arizona where they did it. Can you imagine getting your name on the news for five minutes in
the Evening News and 11 o'clock? Operational mission very simple. We do everything that we can to
bring goods and services to market at the lowest possible price. That is the mantra we pay all of our
attention I mean if we get this item down to $10, we start working immediately to see if we can get it down
to $9. That is the way we do that's what we do for a living, and we engage in a lot of operating
efficiencies. We don't want to just be the lowest price we want to be demonstrably lower than anyone
else. Why has Costco succeeded? We never had an exit strategy. We could have sold this company
dozens of times. We couldn't now obviously because it's so so much more valuable, but we never
intended to sell it. We wanted to build a company, and we operated the company in a fashion that said we
want to be here 50 to 60 years from now. We think we owe that to our employees and to our suppliers
and to the communities where we do business. We understand the disciplines. Anybody can sell
merchandise for low prices. The trick is to be able to do it and make a profit while you're doing it. We've
got a great management team, many of whom have been with us since the day we opened the doors. We
have a 17-member executive management team, and the average number of years they've been with us
is 21 years now. We're good merchants. We know how to buy and sell goods. We have a lot of fun at
what we do, and like anyone else that succeeded in business you would have to be a fool to recognize it
got some good luck somewhere along the line. We opened our business at exactly the right time. We got
Global Retailing Conference 2013 - Jim Sinegal
May 17, 2013
all the right breaks. There are lots of smart people out there starting businesses, and they hit a snag
somewhere along the line. We were fortunate not to hit a snag that would take us down.

Our operational controls are pretty simple. It's easier to tell you what we don't do. We don't advertise. We
don't have a PR department. We don't accept the major credit cards like MasterCard or Visa. No bags,
everything is recycled in the boxes that we get. We don't carry any high shrinkage items that we can't
control our shrinkage in. Our business runs less than 1/10 of 1%. No fancy facilities. Our marketing cost is
less than 1/10 of 1%.

Every year the University of Michigan runs a survey on customer satisfaction, and the reason I'm showing
you this is that we're always at the top. So, for you know forget for a business that doesn't provide or
doesn't pretend to provide any service, we do what we think is right to take care of our customers. I tell
this story because it sets a framework for how we established our business. We started in business in the
state of Washington. We wanted to engage in the sale of beer and wine. You couldn't sell spirits at that
time. Every time we tried to get a license, we were hit with the stumbling block. Some sort of an obstacle
was set up beside us, and it went on and on. Finally, we had opened the basic business, but we still didn't
have a license. So finally, the state came out, and they allowed us to post the intent to sell beer and wine
on the window right in front of our building. Then they came in he had to post for 30 days they came back
at the end of 30 days, and they said well we didn't mean here we meant over here. So they stopped us
again and we had the repost for another 30 days. Then they said that they wanted us to change our
name. Our name was at that time Costco Wholesale Club. So, they said you can't be a club and sell
alcoholic beverages. So we said, okay, we'll drop club. So then we went through an intensive audit. They
came in and audited everything we were buying things that had nothing to do with alcoholic beverage
control. Our milk prices, our tire prices everything. They put us through the wringer there.

Then they suggested that we drop the name wholesale also and I replied… Fortunately on our board of
directors we had somebody who knew people down in Olympia, and they were able to convince him that I
was temporarily insane, and we got the thing back on track. Then we had further difficulty because, in
order to stop us, they put a minimum markup of 10% on all beer and wine and a markup. and They
conveniently excluded the state stores from having to comply with that. So we sued the state and we
won.

We use this as an example because we owe that inspector a vote of thanks. Because it really made us
focus on our business and the way people were going to view us. We said, you know, people are to ask
the question what's the deal here? You know, they got these forklifts running around in there. They got
stuff stacked up to the ceiling, cement floors, open beam beams in the ceiling, what what's the deals?
Probably there's no guarantee on anything you buy. There's no warranty – probably nothing but a lot of
seconds. They're irregulars; they probably don't pay their employees any money. We set out and we're
determined then to overcome every objection anybody would ever have for shopping with us inlcuding the
fact that we not only guaranteed every single product that we sold unconditionally, but that we also
guaranteed your membership unconditionally. If you were a member for 11 months and didn't want to be
a member any longer, we gave all of your membership back to you. So it again made us think about how
we were going to run. We established a code of ethics which is as simple as this. We think that in our
business we have to do four things – we got to obey the law; we got to take care of our customers; we've
got to take care of our people; and respect our suppliers. Pretty much in that order, and we think if we do
those four things, then we'll do what we ultimately have to do as a public company, which is to reward our
shareholders. We think you can reward them short-term by not paying attention to one of those things.
But sooner or later, you're going to stub your toe if you're not paying close attention to each of those.

Since we went public in 1985, in the 27 years since then, our net sales have grown at a thirteen point
eight percent compounded rate. Our income at a thirteen five compounded rate, and our stock price at a
sixteen point nine compounded rate. Our people are what I am complimented about all the time when I go
into the warehouses, what my partner Jeff is complimented about; what all of our management team
hears all the time about the quality of the people that we have. We've got a hundred and seventy three
thousand people almost all of them eligible for benefits. The only people who are not eligible for benefits
are people who have just started, who have a clearing period of 90 days. They all enroll – very few people
Global Retailing Conference 2013 - Jim Sinegal
May 17, 2013
don't. Our plan is so rich that even people who have spouses working for other companies keep our plan.
Our people are highly compensated. The average wage of a person working on the sales floor at Costco
the hourly wage, the hourly employee is almost $22 an hour. They've got low turnover 11% and 5.7% if
they're with us for a year, and that includes all of our seasonal and our part-time as well. A good portion of
our employees, and the first place that we recruit in every single city in the world where we do business
are at the local universities, because we're trying to find some of these young people who want part-time
jobs while they're going to school.

Our business imperatives improve the next 15 years as we have in the past to continually be a moving
target. Because we have so few items we have to be continually moving around and just about the time
that the competitor catches up with us we're on to something else. We want to be a core value to all of
our stakeholders with quality products and quality operations and again as I mentioned think like a small
company. Fortune magazine has named us as one of …Every year they list the 50 most admired
companies in the world and we've made that list for the past seven years as you can see there. This is an
Australia a recent opening for us, and I showed you this because I just love this clip. That's a view of the
inside of the warehouse but….

Video shown by Jim:

Big news today boys Woolies and Khol's watch out. There's a new player in town. It's called Costco. It's a
U.S. chain of hypermarkets. They open their first branch in Australia. This morning was almost a
thousand people queued up with their massive trolleys. I actually toured there this afternoon. It's
unbelievable what they sell, and the trolleys can get people in trouble. you know have a normal size
trolley can hurt when you get your heel clipped. Have a look at what happens when someone's heel gets
clipped in a minute or I'm gonna get to this footage in a minute. I asked you are they big trailers or small
people. Playing pictionary and riding my shopping list behind… Let's go there to find out more. Let's cross
to Aleisha McCormick who is live at Costco right now. Aleisha what is a Costco? Costco is massive. I
can't even describe how big this place is. Basically, it's a supermarket where you have to buy a
membership for $60, and there are actually 58 million people around the world that have a membership to
this place. And you get big discounts, apparently, and everything is huge here. Look at this Vegemite.
This is the smallest of tomorrow. Look at this mayonnaise the size of my head. It's crazy. Also they sell so
lots of lots of different things. You can buy your milk and bread as a normal supermarket. Visit would be
and then pop over to jewelry and buy a hundred and sixty thousand dollar engagement ring that's five
carats right in this warehouse. It's amazing! and one that wouldn't that impress your fiancee to be when
you said yeah got this at Costco. Look if it's 5 carats I'm not asking where it's from.

Jim:
Listen this is seen in one of our Japanese warehouses. Another one in our Bay another Japanese
warehouse there. This is in England meant to impress you with the mob scene, and this is in Taiwan I
doubt any of you have been to Taiwan they've ride these motor scooters everywhere and your be
absolutely amazed that what they can get on these motor scooters. As you know literally as much as you
get in your car oftentimes, but we were selling this big stuffed bear for $30, and a TV station caught
somebody riding down the road with it strapped to their back. If you get down to Cabo San Lucas you can
stop in and get a dog gonna cook for a buck 50 and watch the cruise ships come in. I'm sure I've
overstayed my welcome here, but that's the end of the story.

Did I go too long for questions? Okay I can't see anything so.

Audience Member:
Okay your title is now former CEO of Costco, so you obviously have a tremendous passion for retail.
What is a day in the life of Jim Senegal, former CEO like?

Jim:
what's the day like now? Well I just went to two openings, and I'm in the office every day, and I'm
engaged in a couple of special projects. One of the projects that I'm engaged in at the moment is we've
identified about a hundred people in our company that we think are potential future leaders of our
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May 17, 2013
company. I've set up a special University type of educational program for them and working with them.
So, I'm spending a lot of time on that and will continue to do that through the balance of this year. So, I
still got enough to keep me busy.

Audience member:
So, hi question for you about Asia and growth. Costco has been successful in Korea, and very few very
few companies have. What are your plans for the biggest emerging market, China?

Jim:
The question is what are our plans for China? We're successful in Korea. Were successful in Japan and
in Taiwan for that matter. Well, you know, we have looked at China we've gone over there many times
and we had even established… we were one of the first retailers I believe may be the first foreign retailer
to receive central government approval to do business in China. But, some things turned around that you
know there was it was at a point in time if you recall that terrible incident where the U.S. inadvertently hit
the Chinese embassy in Bosnia, and our embassy in China in Beijing was an under siege for couple
weeks, and we just kind of got nervous at that point. You know our problem is we think that there are a lot
of problems to overcome in China, and we think it's risky at this moment, and we have a lot of stuff on our
plate; and we've got plenty of growth to do in the countries that we're in right now, and our attitude is
China's been there for a few years. It'll still be there five or six years from now. We can go there when
we're ready on our schedule.

Audience member:
Congratulations on your great success. And this famous as your success is your long lines are just as
famous, and I'm wondering if you're thinking about using technology in any way as a line buster or in
different ways in the store? That's question number one and question number two: can you talk a little bit
about your Costco Home experience?

Jim:
What's the second question about Costco home the store the Costco home store. Okay what was the first
question about using technology in the store specifically around line busting. I should have guessed that
was gonna come up. We you know we spent a lot of time on that, and in our attitude and people ask us
all the time why don't you put in an Express line? Well our attitude is we're not in the business of
rewarding people for spending less money. At the same time we recognize that you cannot look past and
ignore the fact that on occasions we're not doing the proper scheduling in our warehouses and getting
them in line. Now, I can also tell you that the average customer going through the line takes about 40
seconds. That's including the time that it takes to read their card, tender it, and ring the whole order and
take the money and make the change and say thank you. 40 seconds, so even if there were four people
in front of you that's less than a two-minute wait. But when you're looking at people who have stuff
stacked up like this, it's discouraging. So we need to address that issue and get much better at it and we
recognize that it's a shortcoming and some of our buildings. We're on our managers on a continual basis
and I think we're doing some things that will improve that. I think we're better this year than we were last
year but we're not where we should be relative to that.

Relative to Home, we set up a couple of businesses called Costco Home. We sell furniture in Costco
during two windows – generally from about the 20th of December until about the 10th of February –
because that's a window of opportunity where we're after Christmas but before garden. Then we sell it
about the end of June through the 15th of August, because we're through with garden and we're getting
ready for the fall business. Well, we were so successful with furniture, we said why don't we open one of
these things in a market like Seattle where we're very successful and have a lot of members and try to
open a really high-end furniture place. Well we did, and it was successful, and it made money; but the
more we got involved in it, the more we looked and we said you know we're diverting a lot of time and
energy in this thing we don't intend to take it any further. We had two at that point – one in Kirkland,
Washington and the other one in Tempe, Arizona – and we just came to the conclusion that it was not
something that we were going to roll out everywhere. At about that time also the economy took a setback
and furniture was tailing off, but despite the fact that we had been profitable in the business all along, we
Global Retailing Conference 2013 - Jim Sinegal
May 17, 2013
just concluded that it was a business that we didn't want to pursue and we got out of it. So we could we
took all the people that we had there and gave them other jobs. yes

Audience member
You mentioned 3,800 SKUs, but then you've just talked about cycling through different items. I'm thinking
about how much of your items are short-lived in the store might not be basics, but in the treasure-hunting
kind of sense. So is that 3800 a number that you have at any point in time, and how might that number
look at I don't over a whole year or two?

Jim:
3,800 is the number of SKU use we have right at this moment. By the way, we measure that for every
single country; and one country, Mexico, only has 3600; and we're trying to get that tweaked up to about
thirty-eight thirty-nine hundred. Four thousand is the maximum, and you know we just think we operate
best when we're somewhere south of 4000 SKUs. Now part of what we do you know of those four
thousand items, about three thousand them are basics. That's the kind of product that you can walk in
and get at any point in time. You might come in one time and see that we have Skippy peanut butter, and
you come back the next time and we don't have Skippy, we have Jiff peanut butter. We always have an
appropriate brand name that's available we always have the best. We go out and seek the best buy and
sometimes customers get upset with us because we switch from Skippy - to jiff, but we do it anyway
because we think it's our job to find the best buy. That's about 3,000 of the items. Then a thousand items
are continually changing. You might come in one time and see that we have an Under Armour sportswear
that we're selling in there. Come in the next time we don't have the Under Armour, but perhaps we have
some Waterford crystal that we're selling. We're constantly changing those thousand items to create that
treasure hunt atmosphere that we have. We do it purposely. We run out of the items because we want to
create an attitude with the customer if they see it they better buy it. Because it's probably not going to be
there next time, and and it's effective for us and works in our business. And so that's how that 4,000 item
makeup is is done. We do that same type of thing in any category, whether it's television sets or blenders
or what have you.

Okay well if that's it all right thank you very much.