Costco CEO: High wages, high volume drive results for Costco shareholders

this stock is scaled up and the stores have become a can't-miss destination for nearly 100 million members America is buying in bulk shed home gamers join the club and what some Costco and their portfolio [Music] we left the west coast this week we checked in with Costco at their flagship store in Issaquah Washington now this longtime Cramer faith big-box chain has been a huge winner for shareholders rally about 50% over the past 12 months and it just keeps climbing today it serves another 2.8 percent after opera our upgraded Costco setting the company's bullish outlook in the fact that the stock has not run as much as others here now could it have more room to go higher on Friday we spoke to Craig Jelinek Costco's bankable president and CEO who does very little TV I need you to take a look at this you have a hundred million members I think a lot of people believe it's the price other people believe it's a treasure hunt I think it's the people we always see the same people for years how do you keep them well I think since the beginning when you know our founder Jim cynical and and Jeff Brockman when the company started you know we always wanted to have great prices never do it on the back of your people pay good wages and one of the things that we always want to do is pay great wages if you look at our employees that have been around for our employees 10 years or more they make almost twenty nine dollars an hour our average wage is about almost $25 an hour so it's just wages and we think we're a good place to work we play benefits we've got great people we want people to stay for the long term we have four in one case and it's just great when you have great people who stay with you and are loyal to the company and it's it's just the right thing to do it is counter-intuitive in America to think you can offer the best benefits and the highest wages and still have incredible profit margins Jim told me the churn the way that turnover and all the other stores makes it so that you can afford to have those bros profit margins and still do better than everybody else absolutely absolutely you want longevity you want good employees they they know their jobs maybe show you ways to become more efficient as a company you're only as good as the employees that work with you now you have a few of more than 500 stores 546 stores in America total of 785 and yet you're you're the third largest how can you have so few stores and be the third largest well it should probably know we're not a margin company we're a volume company and we need a lot of volume going through these as we call them warm houses so that's really what it's about we do a lot with very few units we sell turn a lot of inventory and it just works the best way for us to do it that way we will continue to expand our Costco's but we not going to have one on every corner this is a beautiful story you have here I am told that this is where you sold that $450,000 piece of jewelry how can you have such a diverse clientele it really kind of encompasses everyone in America well you know one of the things that we do no matter what you're where you are in terms of incomes everybody wants a valuable right and that's what the thing that we've done from day one is we bring quality merchandise at the best possible price and we do it on and everywhere that we sell merchandise that's the way we were on our business now the notion that you can have full employment and not have a lot of inflation I think something depends on the likes of your store you can do UGI and obviously there's must be some tension between volume and price here but you're part of the reason why we don't have inflation in this country well that's certainly very nice of you to say we we have a responsibility to figure out how little we can make off of of the product instead of how much we can make it right right we want to sell a lot we're in the volume business not the margin business that works worldwide as a concept correct absolutely it even works in Shanghai where you had been reluctant to do business in China you personally but looks like you're - almost some would say too successful in Shanghai well the it's you know we're very early in the game when we opened up in Shanghai we opened up very strong and we were not we were actually not ready for the amount of traffic that came into that building opened and closed the same day absolutely absolutely so we had to go through and a lot of crowd control and we had to go through and learn a lot of things but we learned a lot we opened up the next day and it's business as usual over there I have some great shirts they're made in Indonesia is that a way to be able to avoid Chinese tariffs no we've just that's not it at all we we've had a factory over there well when I say a factory our supplier has made the shirts over there we've been with this supplier probably now who's been making our Kirkland Signature shirts for 20 plus years and they do a very good job and their great quality shirts I'm big you mention Kirkland I have Walton family and I'm proud to be a long-term shopper at Costco I've walked and found that the Kirkland brand is superior to the brand the branded items most other companies would say listen are that our brand is just as good as the other guy you want it to be better well we want the Kirkland brand it's it's our name well you know we we came up with Kirkland because our offices used to be in Kirkland it wasn't that you know that's sophisticated the way to come up with a name but we wanted it to be and you know we don't do any advertising as you know and you could put the Kirkland signature on toilet paper you can put it on wine you can put it on just about anything and we're proud of that brand and if you do a good job when you build a quality item you're gonna have trust with your with your members well let's talk about the stock which has been an incredible performer there's gotta be tension between a special dividend that you give and low prices as members I mean it why are you giving special dividends and also charging what you do for membership because I've always tried to figure out what the the balance of how you do your capital allocation well you know and you're very the stock has appreciated very well but also a lot of people stock is appreciated very well recently the markets the markets at an all-time high you know we want to have you know one of the things about low prices you generate a lot of volume when you generate a lot of volume you donate cash and you have a responsibility to your shareholders and you know the stock has appreciated we've done special dividends in the past we always think about it when the right time might be to do another special dividend we have no plans right at the moment but we always will always look at that you have a huge amount of money that comes in from subscription fees how do you decide when it's time to take that price increase because it looks like that nobody drops off when you do it you know we we we have to do it based on how we increase increase the value of the membership right when we add new pieces to the membership like travel but also when we increase that we don't put that on the bottom line we turn around and lower prices and work off less margins now I find that because of your low prices you can pretty much defeat anyone including someone who is located in town Amazon I find better buys here that I do in Amazon is that conceivable you're not going to get some of these prices on Amazon well you know I I don't you worry about Amazon because it's a competitor right really what we need to do is worry about what we can do well figure out how to lower prices lower our expenses the lower the expenses that we have right the more efficient we become the more we can lower prices the word that comes to mind and I certainly find it here this great store with these fabulous managers and people you have a level of humility that does not exist anywhere else in corporate America you our humble how do you stay humble and be the greatest retailer in our country well you're very kind about the greatest retailer in the country you know we just as I said before we don't really turn a lot of people we've been very blessed with as a company because even from our founders it's a lot of hard work a lot of hard work from our employees and we don't take anything for granted because really we feel good that we have a purpose to create lower prices for people where we do business we have a responsibility to try to do that and make a little money for our shareholders you've mentioned the word responsibility many times again very different from the low margin supermarkets I see department stores is that one reason why you had 9% comps when everyone else is saying it was so promotional you know I think we had the 9% comps for the simple reason that we do have a great membership base we communicate to that membership base I think they trust us when they come in to buy merchandise that this is going to be the best price that they see when they come in for quality merchandise and I think you know that's just the way we run our business I can't speak for everybody else but I think our values that we have on merchandise just tells the story are you ever afraid that you give away too much mr. grannies runs a fantastic conference call you giveaway cannibalization numbers you talk about 20 basis points in this car one hundred thirty eight points that are international you're giving away information that is secret at other stores you know we try to be transparent I mean it is what it is I mean you know I mean we're gonna talk to you about what we're gonna be doing three or four years from now maybe not but you know that's what we do responsible responsible transparent would screw something up which we do on occasion we're gonna make it right well as a proud member I've never seen you screw up but maybe that's just the way we as consumers know you the guys and we appreciate that absolutely and it's a joy it is still a treasure hunt it's though the best price thank you okay that's craig Jelinek he's the Costco CEO mr. jellineck thank you sir thank you and we appreciate you coming back thank you don't miss a second of that money follow at Jim Cramer on Twitter have a question tweet Kramer hashtag mad tweets send Jim an email to mad money at cnbc.com or give us a call at one eight hundred seven forty three CNBC miss something head to Mad Money duck cnbc.com you you

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Id: qC8Abk2atrM

Length: 12min 14sec (734 seconds)

Published: Wed Jan 22 2020