The ethics of Costco

Guest post by Jessica Woodley, Foster undergraduate and Business Ethics Association Chief Operations Officer

Business Ethics Association event picture
“Who’s been to a Costco?” The room erupted in laughter. James Sinegal, co-founder and former CEO of Costco Wholesale, began the night with comedy. The event was hosted by the undergraduate Business Ethics Association at the Foster School of Business on December 1. Over 70 students attended to learn first-hand how Costco maintains their ethical practices in a highly competitive market.

What is the secret to Costco’s low cost? Well, there is no exact formula, but Mr. Sinegal shared that Costco carefully selects their products to bring the highest value to members. As an example, Costco finds the highest quality TVs and works with suppliers to bring them to members for the lowest price. If Costco is unable to provide that value, they don’t sell the product. This happened when Costco’s competitors in Portland were selling sugar below cost. Since Costco could not sell sugar while maintaining their strategy of not carrying products at a loss, they dropped sugar. Members of Costco can be sure they are being given the best quality products without being tricked by the prices. Mr. Sinegal also shared how they have continually looked for innovative ways to lower costs and provide value. One of the major ways they have done this is by not paying for marketing. Costco relies on word-of-mouth and free publicity from their good business practices to spread their name.

Mr. Sinegal emphasized how providing great value to your customers and taking care of your employees is just good business. More satisfied employees, who have high pay, great benefits, and career opportunities, result in higher productivity and customer service. Costco relies on their employees to help innovate the way their business works to continually meet that value brand.

The students also learned from Mr. Sinegal how Costco created the wildly successful brand Kirkland Signature. This brand has higher sales at Costco than even Coca-Cola. Focusing on quality and using that brand name for all of their products (which was unheard of at the time) allowed Costco to build its reputation over the decades.

Overall, Mr. Sinegal shared that it is continually providing quality and value that makes Costco a success. There are no compromises or gimmicks, and Costco Wholesale stays true to its values, which has equaled outstanding success. It was a privilege to have the opportunity to hear from this local leader, innovator, and dedicated businessman who does the right thing and is rewarded for it.