Costco Wholesale Corporation (NASDAQ: COST) CEO Craig Jelinek told Jim Cramer in an interview aired Tuesday how the company is able to both offer consumers low prices and pay employees a higher than average wage.
COSTCO offers consumers "great prices" because of its unique business model, Jelinek said. The company's stores are specifically designed to keep overhead costs as low as possible. For example, there are no salespeople walking the floors and decorating stores are pretty much non-existent.
The company sells very few units per category that sell in high volume. In return, this generates a lot of cash and the model simply "works the best way for us," the CEO said. As such, Costco is "not a margin company," rather it is a "volume company."
On top of that, Costco charges consumers an upfront annual fee that starts at $60. The annual membership will increase in cost only when the company adds "new pieces" and benefits that come with a membership.
Taking Care Of Workers
Costco is "only as good as the employees that work with you" and the company has high expectations when it comes to staffing its stores, Jelinek said. In return, the average hourly pay for U.S. workers is nearly $25 while staff who have been working for more than 10 years earn close to $29 an hour.
Costco believes a business should never earn its profit "on the back of your people" and employees are also rewarded with benefits and 401(k) plans.
Costco rewarded shareholders with a $7 per share special dividend in 2017 and some analysts are expecting the company to announce a new special dividend. But Jelinek said the company has "no plans" to offer one right now.
Costco trades around $313 per share.
Photo credit: Tony Webster, via Wikimedia Commons