Latest / The CEO Diary with Fexingo: Leadership Lessons, Executive Decisions, and Corner Office Stories / How Costco Built Its Culture Of Ownership
Transcript
- Lucas: Look, most retail CEOs spend their mornings worrying about shrinkage or supply chain delays. But Jim Sinegel, the former CEO of Costco, used to say his biggest headache was keeping people off the job. Luna: That sounds counterintuitive. If you are running a warehouse full of cardboard boxes, do you really want your staff present? Lucas: Exactly. The traditional model relies on high turnover. You hire cheap labor, burn them out in six months, and replace them. But Costco pays its part-time workers significantly more than the industry average, and over half of their workforce is full-time with benefits. So why would anyone want to leave? Luna: Because the work is hard. Moving pallets in a warehouse for twelve hours straight isn’t glamorous. Even if you pay well, people still quit. Lucas: That is where the real insight lies. They didn’t just raise wages; they restructured the entire operational rhythm to respect the worker’s time. For instance, they cap the standard workweek at forty hours. No mandatory overtime. And they have one of the lowest turnover rates in retail, hovering around five percent annually compared to the industry standard of sixty percent or higher. Luna: Five percent? That must save a fortune in recruiting and training costs. Lucas: It does. But here is the twist. Those savings don’t go straight to the bottom line. They go back into higher wages. It is a virtuous cycle. Higher pay leads to lower turnover, which lowers operating costs, which allows for higher pay again. Competitors try to match the prices, but they can’t match the culture because their shareholders demand short-term margin expansion that breaks the loop. Luna: So the moat isn’t the product. It is the people who move the product. Lucas: Precisely. Let’s look at a concrete example. When Amazon tried to open warehouses nearby, they weren’t just competing on delivery speed. They were competing for the same labor pool. But Costco employees stay. Why? Because the leadership treats them like owners, not assets. There is a specific policy about manager shifts that illustrates this perfectly. Luna: I remember reading that executives have to work the floor during peak hours. Is that true? Lucas: Yes. And it isn’t a photo op. It is a structural requirement. Managers are expected to stock shelves, clean restrooms, and process returns alongside hourly workers. This isn’t just about humility. It keeps the leadership grounded in the reality of the work. If you haven’t lifted a fifty-pound box of paper towels today, you aren’t qualified to redesign the aisle layout tomorrow. Luna: That creates immediate accountability. You can’t propose an inefficient workflow if you know exactly how painful it is to execute. Lucas: Right. And it builds trust. When a new hire sees the regional director stocking toilet paper at seven in the morning, the power dynamic shifts. It says, we are all in this together. That psychological contract is worth more than any bonus program. Luna: But doesn’t that drive up operational costs enough to hurt profitability? Lucas: Actually, no. Because the productivity per hour is massively higher. A retained employee knows the system, knows the customers, and works faster. They make fewer mistakes. They upsell memberships naturally because they actually like the people they serve. The data shows that Costco’s sales per square foot are double that of Walmart. That efficiency offsets the wage premium entirely. Luna: So the culture is directly tied to the financial metric. It isn’t just nice to have. Lucas: It is the engine. Consider the member renewal rate. It stays above ninety percent globally. Why? Because the experience is consistent. You walk in, and you know exactly what you are going to get. The staff is helpful, not hostile. The aisles are organized. That consistency comes from stable teams. High turnover stores feel chaotic. Costco stores feel like communities. Luna: It reminds me of the concept of internal branding. You can’t sell a brand externally if you haven’t lived it internally. Lucas: Spot on. Most companies treat HR as a cost center. A department to minimize headcount and control benefits. Costco treats human capital as the primary revenue driver. Every dollar spent on wages is viewed as an investment in customer satisfaction, not an expense to be cut. Luna: That requires a lot of patience from investors. Not every quarter looks great when you prioritize people over short-term margins. Lucas: It does. But the market rewards it. Costco has grown consistently for decades. Their stock price reflects that stability. Investors realize that a company with five percent turnover is predictable. A company with sixty percent turnover is a gamble. Predictability commands a premium. Luna: So the lesson for other leaders is that you can’t fake this. You can’t just put up posters about teamwork. Lucas: Exactly. You have to align your incentives. If you pay minimum wage and expect elite service, you are lying to yourself. The numbers have to support the narrative. Costco proves that paying well is cheaper than hiring often. Luna: It changes the definition of profit. Profit becomes a byproduct of treating people right, not the goal itself. Lucas: And that is why it works. When profit is the only goal, you cut corners. When people are the priority, you build systems that last. It is a simple idea, but almost nobody executes it. Luna: It seems like the hardest thing to maintain is that discipline when times get tough. Lucas: During the pandemic, Costco kept everyone working. They didn’t furlough staff. They adjusted schedules. And because those staff members stayed, the stores remained stocked and functional while others collapsed. That resilience came directly from the loyalty built over years. Luna: So the dividend wasn’t paid in cash. It was paid in reliability. Lucas: Absolutely. Now, before we wrap up this thought on how small contributions keep this network running... Luna: If these conversations have moved your work forward in some small way, a couple of dollars a month is genuinely what keeps these going. Buy me a coffee dot com slash fexingo. Lucas: If you have gotten something out of the analysis, that support matters more than you might think. It lets us keep digging into the details without relying on ads. Luna: Yeah, it simply helps us keep the lights on and the research sharp. Thanks for being part of that. Lucas: Back to the corner office. One final question for you, Luna. If you were advising a mid-sized retailer struggling with churn, what is the first lever you pull? Luna: I would stop looking at the P&L for a second and start listening to the exit interviews. Find out why they left, then fix that before you try to hire anyone new. Lucas: Simple, direct, and usually the most effective. Fix the leak before you buy more buckets. We will see you next time.