Q&A With Costco's CEO, W. Craig Jelinek

You asked Costco's chief: Why no express lanes?

Published: October 2014

To call Costco a store is an understatement: While stocking up on paper products and pantry staples, the retailer's 74.5 million cardholders can also get an eye exam, book a cruise, and even buy life insurance. Its fans are fiercely loyal, and its critics (members and nonmembers alike) have strong opinions about everything from its annual membership fee to its food court's switch from Coke to Pepsi. When we announced that Costco's CEO, W. Craig Jelinek, would field reader questions, the e-mails and Facebook messages poured in. Here, a selection of his answers.

Q. Has Costco considered letting nonmembers shop there—perhaps once every few months?—Yuval Fleming, Kent, WA

A. It's not a workable possibility. First, we believe it would compromise the under­lying premise of the membership concept. Second, the basic $55 annual fee covers a variety of membership, administrative, and operating costs, thereby allowing Costco to sell merchandise at ever-lower prices. Costco's average merchandise markups are in the 11 percent range, compared with other retail-format markups ranging from 20 percent to more than 100 percent. The annual cost of membership is dwarfed by the annual savings.

Q. I enjoy products from Costco's Kirkland Signature store brand, but I feel some get dropped prematurely, before they're given a chance to click with consumers. What's the criteria for whether a Kirkland product sticks around?—Thomas Gruber, Seattle

A. The basic criteria for a new Kirkland Signature item: It must be as good or better in quality than the comparable branded item, and it can be offered to our members at a price at least 20 percent lower than we would sell the branded item. We try to ensure all of our members are able to try the new item through our demo/sampling program. After nine months to a year, we measure its weekly sales generated per building. If it doesn't meet targets, we delete the item—as we would any item we sell.

Q. Costco sells everything in huge sizes—except clothes. Thirty percent of Americans are seriously overweight, yet for all the 5-pound cans of cheese sauce and 24-count packages of ice-cream bars, there is almost no plus-size clothing in the stores. What gives?—Jenny Reiswig, San Diego

A. Over the past year, we have tested apparel items in plus sizes in about 60 percent of our U.S. warehouses; moving forward, we have decided to focus on expanding plus-size assortments on Costco.com. Current women's items include Kirkland Signature active wear, Gloria Vanderbilt pants and shorts, as well as various styles of dresses, tanks, and tops. For men, the focus is also on carrying a year-round assortment of big and tall items on Costco.com, including Kirkland Signature dress shirts, wool dress pants, casual cotton pants and jeans, and soft-shell jackets.

Q. As a corporation making billions of dollars in profit each year, you are benefiting from shrimping exploitation in Thailand. Those fishermen are forced to work without pay on fishing boats, sometimes for years on end. They work 20-hour shifts and endure beatings. Will you institute a zero-tolerance policy on slavery?—Carole Shelton, Auburn, CA

A. We are very aware of recent media reports concerning labor abuses in the Thai fishing industry. The agreements that Costco has with its suppliers prohibit, among other things, use of slave labor. We are committed to working with our suppliers of Thai shrimp to require them to take corrective action with respect to poor labor practices. This commitment so far has involved visits by our buying staff to Thailand and discussions with the Thai government, our suppliers, and other industry participants. We are continuing those discussions.

Q. Why, in the name of all that is holy, don't you have an express lane in your warehouses? Often I buy two items only to be stuck behind people with two over-full carts.—S. Culos, Toronto

A. Costco's ability to sell merchandise at incredibly low prices is based on adhering to various operating disciplines at every turn. Instead of having an express line—that often would be open but without a member in line—we have invested millions of dollars to speed up the entire front-end process. Our policy is "no more than one (member) in line and two (members waiting) behind." The average completed front-end transaction is just over 1 minute.

We want your CEO choices

Tell us which chief executive—or company—you want to hear from at q-and-a@cr.consumer.org. And our QA& with MAry Barra, the CEO of GM.

Editor's Note:

This artlcle also appeared in the December 2014 issue of Consumer Reports magazine.

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