James D. Sinegal
1936–

Chief executive officer and president, Costco Wholesale Corporation

Nationality: American.

Born: January 1, 1936, in Pittsburgh, Pennsylvania.

Education: San Diego Junior College, AA, 1955.

Family: Married Janet (maiden name unknown), 1961; children: three.

Career: Fed-Mart Corporation, 1954–1979, bagger, then later executive vice president in charge of merchandising and operations; Price Company, 1979–1983; Costco Wholesale Corporation, 1983–, CEO and president.

Awards: Best Managers, BusinessWeek, 2003.

Address: Costco Wholesale Corporation, 999 Lake Drive, Issaquah, Washington 98027; http://www.costco.com.

■ James Sinegal cofounded Costco Wholesale Corporation in 1983. During his tenure as president and chief executive officer Costco became the top warehouse-club retailer in the nation, with more than four hundred stores in the United States and abroad, amassing $40 billion in sales in 2003 alone. Known as much for his voluntarily low salary as for his insistence that adequate employee compensation was good for business, Sinegal was a controversial figure among some investors and analysts.

LEARNING A BUSINESS PHILOSOPHY

Raised in a working-class Catholic family, Sinegal once dreamed of going to medical school. Although his test scores were good, his high-school grades were mediocre; he was advised to attend San Diego Junior College, where he earned an associate's degree. Later, while working his way through San Diego State University, Sinegal discovered his true vocation: retailing. He started at the discount chain Fed-Mart as a bagger in 1954; when he received a promotion, he discontinued his studies.

Under the tutelage of the Fed-Mart head Sol Price, Sinegal rose through the company ranks, eventually holding the position of executive vice president. He credited Price with teaching him not only the basics of retailing but also the importance of establishing relationships with customers based on trust. In an interview with Fortune, Price recalled, "We tried to look at everything from the standpoint of, is it really being honest with the customer?" (November 24, 2003). Price's other business principles had a clear influence on the culture Sinegal would create at Costco: obeying the law, taking care of employees, and keeping inventory lean. In 1979 Sinegal moved to Sol Price's next venture, the membership-based warehouse chain Price Company, also known as Price Club. Price Club was initially conceived as a provider to small business owners, but membership was quickly extended to the general public. By 1982 the company had established 10 outlets and garnered sales of $366 million.

HIGH QUALITY AND LOW PRICES

In 1983 Sinegal left Price Company to found Costco Wholesale Corporation with fellow entrepreneur Jeffrey Brotman. The first Costco store opened in a Seattle warehouse; like Price Club the venture charged a small membership fee to its customers. In 1993, after 10 years of success, Costco acquired Price Company.

Early on Sinegal noticed that customers were willing to purchase higher-end consumer goods along with the bulk goods usually associated with discount warehouses. Instead of being put off by pallets stacked with dissimilar merchandise, customers seemed to find the mix enticing. A typical Costco shopping trip might include a purchase of lawn furniture, cashmere sweaters, and jumbo packs of paper towels. Sinegal held down costs by keeping sales staff, store fixtures, and backup inventory to a minimum, thus allowing him to shave mark-ups to between 12 and 15 percent. The combination of quality merchandise at low prices created a loyal customer base that some members of the business press dubbed "the cult of Cost-co." In 2003 the renewal rate for club members was an impressive 86 percent.

AN OPEN-DOOR POLICY

Sinegal's management style reflected his egalitarian business philosophy. Callers to the executive offices in Issaqua were surprised to find him answering his own phone. Cluttered and furnished with a second-hand desk and chair, his office was always open to staff who wished to stop in and talk. Sinegal felt that an open-door policy throughout Costco fostered more managerial accountability. He told Ethix magazine, "If warehouse managers know that their own regional bosses have open-door policies and will talk to any employees about their issues, then they are going to be a little faster to talk to the troubled employees themselves. They don't want the problems to come back to them through their bosses" (March 2003).

Sinegal tried to personally visit every Costco warehouse at least once a year, ensuring that every company employee would in theory have a chance to talk to the CEO himself. At the same time Sinegal was not soft when it came to adherence to company performance benchmarks. He was known for running tough budget meetings, dressing down buyers and managers who failed to meet profit-margin goals.

CONTROVERSY ON WALL STREET

Among analysts reviews of Costco's performance were mixed. In 2002 sales in established stores grew by 6 percent and exceeded those of its nearest competitor, the Wal-Mart owned Sam's Club. However, the figures were not good enough for many investors, who pointed out Costco's relatively low earnings on the dollar. According to critics, the problem was that Sinegal was too generous to his employees. A cashier at Costco could earn up to $40,000 per year after four years of service, an unheard-of salary in the world of discount retail. Other retail-industry experts countered that Costco's generous compensation structure actually increased productivity and reduced loss due to turnover and theft.

Sinegal viewed the sizable salaries as a way to build a consumer base. He told the Los Angeles Times, "I don't see what's wrong with an employee earning enough to be able to buy a house or have a health plan for the family. We're trying to build a company that will be here 50 years from now" (February 17, 2004). Sinegal chose to give himself a salary and bonus that equaled only about twice that of one of his store managers. In 2003 he made $350,000 and declined a bonus, though he did hold $16.5 million worth of Costco stock options. An anomaly in a corporate world filled with bloated executive compensation and ethical dodges, James Sinegal was named one of BusinessWeek 's "Best Managers" in 2003.

See also entry on Costco Wholesale Corporation in International Directory of Company Histories.

sources for further information

"Best Managers," BusinessWeek, January 13, 2003, pp. 60–69.

Branch, Shelly. "Inside the Cult of Costco," Fortune, September 6, 1999, pp. 184–190.

Byrnes, Nanette, et al., "The Bargain Hunter," BusinessWeek, September 23, 2002, pp. 82–83.

Erisman, Al, "IBTE Conversation: A Long-Term Business Perspective in a Short-Term World," Ethix: The Bulletin of the Institute for Business, Technology & Ethics, March 2003, http://www.ethix.org/article.php3?id=116, (June 15, 2004).

Flanigan, James, "Costco Sees Value in Higher Pay," Los Angeles Times, February 17, 2004.

Gerhardt, Pamela. "Costco: A World of Big Buys," The Washington Post, April 12, 2004.

Helyar, John, and Ann Harrington, "The Only Company Wal-Mart Fears," Fortune, November 24, 2003, pp. 158–163.

Morgenson, Gretchen, "Two Pay Packages, Two Different Galaxies," New York Times, April 4, 2004.

—Elisa Addlesperger