Among the many qualities of Steve Jobs I most admired was his refusal to cut design corners, even in areas where customers wouldn’t know the difference. Although Apple users typically don’t examine the innards of the company’s products, Jobs insisted that that rows of chips on the circuit board looked neat and the wiring neatly placed. That mandate sent a powerful message to all Apple employees that the company’s success was predicated on achieving excellence and not looking to maximize profits leveraging practices it could likely get away with.
“I remember very clearly Steve announcing that our goal is not just to make money but to make great products,” Apple’s famed designer Jonathan (Jony) Ive told Smithsonian Magazine about Jobs return to Apple after he was ousted. “The decisions you make based on that philosophy are fundamentally different from the ones we had been making at Apple.”
Like legions of other Americans, I’ve long been a huge fan of Costco, the rare U.S. company that gives me the warm fuzzies when I buy from it. Frequenting Costco gives me peace of mind because I’m prone to making impulse purchases and the company has the best return policy in America. Except for electronics, Costco will take everything back even years after an item was purchased providing you still have a receipt and the original packaging. I’m often slow to return products I don’t need or no longer want, so the forever return policy is meaningful to me.
I prefer to support companies that treat their workers well, and employee relations and management are critical ingredients of Costco’s success. According to this podcast that will delight Costco groupies and nerds, Costco pays its hourly workers 30% above the industry norm and provides them with excellent healthcare and 401K benefits, while realizing three times the profits on their labors. Little wonder that Costco retains 90% of employees who remain with the company after one year.
And, of course, there’s Costco’s unbeatable prices on premium products and its Kirkland house brand, that latter of which is as good or better than premium brands and in some instances is one and the same.
“Costco, of course, is a business that became the best in the world in its category,” Charlie Munger, Warren Buffett’s late business partner, said in a video. “And it did it with an extreme meritocracy and an extreme ethical duty — self-imposed — to take all its cost advantages as fast as it could accumulate them and pass them on to the customers. And, of course, that created ferocious customer loyalty.”
Munger emphasized that Costco has “the right blend of management, ethics and personnel.”
Most companies these days pay lip service to their supposedly unrivaled ethics, and regular readers of this blog are familiar with the Starkman Approved Theory, which holds there is usually an inverse relationship between companies and individuals who claim the loftiest morals and ideals and their actual behaviors. Costco provides further validation of the Starkman Approved Theory, in a positive way.
Costco doesn’t hold itself out to be corporate holier than thou, despite compelling evidence that it is. Some of Costco’s business practices are akin to Steve Jobs’s insistence that all the wiring of Apple products be neat and tidy even if customers weren’t aware of it. The New York Times recently published a feature on Costco that contained a remarkable detail the reporter learned from a former employee, not the company.
Data mining information on consumers is all the rage these days, but Costco has so far resisted the trend to monetize the treasure trove of information the company has on its customers to further goose its profits.
“They have a number for every member, which could be trackable, traceable, and they could certainly dive into that,” said Mark Stovin, a former Costco executive who now works for OSMG, a leading food broker. “They really haven’t.”
Compare Costco to General Motors, which the New York Times exposed for tracking the driving habits of its unwitting buyers and then selling the data to brokers, who, in turn, sold the information to insurance companies who used the information to raise the rates of drivers it deemed riskier. GM thought it was too clever by half; a damning lawsuit by Texas attorney general Ken Paxton alleges that the company’s lawyers crafted over fifty pages of disclosures designed to deceive buyers that they were agreeing to be surveilled.
Given his alarming claims, Paxton will lack credibility if he allows GM off with a settlement that doesn’t exceed $1 billion, particularly given he secured a record $1.4 billion settlement with Meta (formerly known as Facebook) to stop the company’s practice of capturing and using the personal biometric data of millions of Texans without legal authorization. GM also faces more than a dozen class action lawsuits for its driving data capturing.
In another damning example of GM’s alleged dishonesty, a federal appeals court last month ordered GM to face a class action claiming it violated laws of 26 states by knowingly selling some 800,000 cars, trucks, and SUVs with faulty transmissions.
The contractual arrangement Costco has with Citibank as a condition for landing the retailer’s prestigious and no doubt lucrative credit card busines is another Jobsesque example.
Years ago, I called Costco’s customer support number to inquire about the rewards I had accumulated. The rep, who was in Washington state, said I needed to call Citibank. When I balked because I said I didn’t want to waste my time on hold to talk to someone likely overseas, the rep said, “I’ll get Citibank on the phone right away.” She did, and my issue was resolved in less than two minutes. When I asked the rep how she was so confident she’d get Citibank so readily on the phone she replied, “Our agreement with Citibank stipulates they can’t keep us on hold.”
I’ve come to especially appreciate the importance of Costco’s requirement that Citibank can’t jerk around its customers. I prematurely hailed Sleep Number as a premium mattress company with impressive customer support. Sleep Number’s mattresses and platforms are stellar, but I foolishly signed up for supposedly “zero percent financing” to buy the bed.
Unknown to me, Sleep Number signed me up with a credit card from Synchrony Bank whose customer support is overseen by a sadist. I’ve spent hours trying to resolve an issue talking to reps overseas who couldn’t understand, let alone resolve, my problem. Sleep Number’s sales and customer support people are excellent when it comes to marketing the company’s mattresses, but so far have been useless helping me resolve my Synchrony Bank issue.
The other day I called Costco’s customer support to confirm it still had its Citibank hotline, and the rep confirmed it did. I also inquired about the safety of Costco-brand over-the-counter drugs. Bloomberg recently published an alarming expose regarding the perils of buying generic store branded over-the-counter drugs in general and from CVS in particular.
“We take drug safety very seriously,” the rep said, who seemed genuinely surprised I even asked the question. “And we don’t rely on the same suppliers as CVS and Walgreens. We have our own supply chains, and they are monitored vigorously.” The rep said when problems arise, Costco typically catches them before a product reaches the market.
The rep I spoke with was based in Oklahoma, and he assured me all the Costco call centers serving U.S. customers are based in America. In fact, the rep told me, Costco’s practice is to have dedicated call centers in every global market in which it does business to exclusively service every country’s respective customers.
I’m impressed with the respect the company shows the communities in which it wishes to expand, a stark contrast to Ford Motor Co. Costco had hoped to build its biggest warehouse in the world in Fresno, CA, a massive 240,000 sq. ft. store that would have replaced an existing store serving the region. Faced with local concerns the new store would cause environmental, traffic, and other issues, Costco agreed to scale back the project to 219,000 sq. ft. and fund other infrastructure improvements.
Living near a Costco warehouse is understandably desirable for convenience but could also be good for one’s property values. In a presentation to Fresno city officials, the company said in the three years after its original Fresno-area location opened, home values within ¼ mile of the Costco increased 40.4%. Home values within one mile of the Costco increased 34.4%.
Costco CEO Ron Vachris, who assumed command in January, reaffirms the Starkman Approved belief that America’s best business leaders prefer to avoid the limelight, as I noted in my recent profile of SpaceX’s Gwynne Shotwell and my December 2020 ode to Fidelity and its CEO Abigail Johnson. Vachris appears to rarely grant media interviews, even giving a New York Times reporter the brush off when the two crossed paths at a new store opening in Texas.
Tellingly, Costco doesn’t appear to have a media relations team. However, South Sound Business (SSB), a monthly publication that covers local business topics in the Tacoma-Olympia region south of Seattle where Costco’s headquarters is located, last July published details of the rare media interview Vachris has granted.
Vachris, who is in his late 50s, exemplifies Costco’s culture of growing people from within. He started as a forklift driver in 1982, taking a seasonal position with Price Club (which would merge with competitor Costco in 1993) while on holiday break from studying business at Glendale Community College outside Phoenix. The work, culture, and potential were so alluring, he decided to stay.
“I’m learning more here in real life than I am at school about business, so I just pursued this opportunity that I have with Price Club at the time,” Vachris said during an interview in the boardroom next to his office. SSB disclosed that Vachris works in an office cubicle like everyone else, albeit a larger one, inside the company’s new addition to its headquarters. His ninth-floor space is decorated with numerous family photos, and he chose its location by the elevators for the interactions it provides.
Vachris’s favorite area of the new building? The ground-floor cafeteria, where he can mingle and engage with employees. Compare Vachris to Brian Niccol, Starbucks’ new hot shot CEO whose contract provides a potential $100 million windfall but he can’t be bothered to relocate to Seattle. Niccol works from a remote office in Southern California and has use of a corporate jet to fly to Seattle if he requires some in-person employee interactions.
Costco appears to own or lease multiple corporate jets, which likely can be justified in Vachris’s case given that he attempts to visit every one of Costco’s more than 870 warehouses around the world at least once a year. Vachris told SSB that spending time with Kim, his wife of 36 years, and his two boys, daughter, and granddaughter is how he prefers to spend his free time.
SSB reported that Vachris prefers to emphasize Costco’s environment for growth, not his own accomplishments.
“I’ve had the good fortune of working with great people, and if you pay attention, and you learn what they teach you, and you listen, good things can happen,” Vachris said.
Reading up on Costco and Vachris gave me joy and good vibes, something I don’t get reading about America’s presidential candidates who, unlike Costco’s CEO, aren’t self-made people who rose to prominence by dint of their achievements and humility. During my Costco research, I imagined how wonderful it might be to outsource the entire U.S. government to the company.
Americans looking for a worthy write-in candidate this November should consider Vachris, who runs a company that everyone in the U.S. feels good about regardless of their political views and persuasions.
Sorry, Mr. Vachris, for pushing your candidacy. As Shakespeare noted, some are born great, some achieve greatness, and some have greatness thrust upon them.