Sinegal Spells Out How He Evaluates Costco Clubs and Rival Retailers

Last Updated Sep 28, 2009 8:34 PM EDT

In managing a vast and encompassing retail enterprise, data, meetings and presentations can obscure that fact that a first impression is a critical issue, but that isn't a reality that's lost on Jim Sinegal, Costco's CEO.

Sinegal is famous for his visits at both Costco and rival stores. He recently made the point that the first impression is important as he evaluates stores, his own clubs and the outlets operated by his competition, as anyone entering the doors, customer or CEO, is experiencing a first impression whenever they visit.

Speaking at an event held by investment adviser The Motley Fool, Sinegal said he assumes the role of customer entering any store he is evaluating, taking in the atmosphere from the start, and making certain judgments, particularly if he's evaluating a Costco location.

"Before I'm much more than 50 or 100 feet inside the building, I know whether or not I'm going to be pleased with what I see," he said. He gets an immediate impression both from customers shopping the store and employees at work that tells him if things are operating as they should. He also has more categorical elements to consider in drawing his initial impression. He noted:

We have what we call the merchandise fence in there, and you get a pretty general inclination as to whether or not this place is really on top of what's happening with merchandise, all the new hot stuff that's coming in. Are they really featuring what we refer to as the treasure hunt merchandise? Does the electronics department really hit you right in the eye and draw your attention to it?
While he doesn't have the same insight into exactly how rivals want their displays executed, Sinegal on a visit to a competitor's store, knows enough about its basic operations as well as product, merchandising and seasonal trends to have a pretty good sense of the operation's status, and he's looking not only for how the store is doing but what.

"It's disappointing if we don't find something good in a competitor's," he said. After all, while one of his aims in visiting stores is observation, another is acquisition, and Sinegal frankly said that Costco will "steal any good idea" a competitor might come up with.

"We're shameless," he added.

Among other Sinegal comments:

He said his biggest shortcoming as a CEO is his fear of failure, which can make him a little difficult to work with when he's worried.

He said he continues to answer his own phone because it's just as easy for him to do it as an assistant, and "it's great" staying in direct touch with customers and employees as opposed to having information filtered.

He said Costco keeps its members by maintaining an exciting environment through its treasure hunt approach to the new, low-cost products rotated regularly into its assortments and by fulfilling promises made.

As to Costco's commitment to fulfilling promises, Sinegal related the story of a woman who purchased a mattresses and box spring at a club in San Jose, Calif., drove it several hours down to her daughter in Santa Barbara and found the two pieces were different sizes, full and queen. A club manager there refused to mattress set back. When the family finally got in touch with the company's executive, Costco provided a new, correctly matched mattress set for free, along with flowers and a cake the bakery made in way of apology. When confronted with customer complaint, Sinegal said, Costco does its best to come up with "elegant" solutions even to an "atrocious" situation.

By doing so, it can and has made customers for life, he said. Yet, Sinegal added that Costco also looks at situations where employees fail live up to established standards â€" and noted that, even though he refused, company policy directed the manager should have taken the mattress back â€" as a failure of teaching it has to address by better instructing employees about customer satisfaction.

"And it starts with my level," he said.