Company Advisor & Director, Costco
Costco CEO: Still see continued extra buying into next year
Shares of Costco are up 27 percent so far this year as the company's e-commerce business soared during the pandemic. Craig Jelinek, Costco CEO, joins 'Closing Bell' to discuss the lessons learned during the pandemic on covid business and his forecast for the business post-pandemic. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi
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About W. Jelinek
Costco CEO Craig Jelinek has stated that the company is seeing a significant increase in younger members signing up, though he noted that their initial purchasing power is lower than that of older generations. He has emphasized that Costco operates as a "volume company, not a margin company," a philosophy he said has guided the business for 40 years. Jelinek has also highlighted the company's strategy of offering high-quality goods at low prices, citing items like a $2,000 bottle of wine and giant plush teddy bears as examples of "exciting merchandise" that drives the brand. During the COVID-19 pandemic, Jelinek observed strong sales in food, electronics, and home goods, while travel and gasoline businesses declined. He expressed confidence that brick-and-mortar retail would remain important and noted that membership renewal rates remained around 91%. Jelinek has also discussed the company's approach to employee compensation, stating that Costco aims to pay high wages and offer good benefits while maintaining profitability.
Transcript (10 segments)
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W. Jelinek0:11
Well, I think if you look at the behavior, I do think things will change as we go. But our food and sundries business, with the closing of dining, has been very strong. Our stay-at-home business, which would be television sets, computers, furniture, has been extremely strong. Sporting goods, all those stay-at-home type businesses. That being said, we have a very strong travel business. Our gasoline business has gone negative. So we would think that as a vaccine comes, you will start to see some of the changes.
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Interviewer1:11
There's this thinking on Wall Street that the sales that you have seen, as well as some of your competitors, just can't last, and that's going to be tough comps next year as the vaccine comes. How much do you think was pulled forward in terms of demand, and what sort of headwinds are you facing on those comps?
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W. Jelinek1:29
Well, if you look at it, in my wildest dreams I've never seen a year like this, nor did I think the comps would be this strong. And you had a lot of businesses out there that were also closed. That being said, when we first started in February, March, our food and sundries business was extremely strong, and our non-food business was non-existent. Then as things started to open up, we'll continue to grow our business as other retailers.
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Interviewer2:10
Craig, in the short term, have you started to see some of the same stockpiling trends that we saw in March and April come back, as cases have spiked and semi-lockdowns have been put back in place again?
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W. Jelinek2:28
Yes, not quite to the same degree. One of the things that does surprise me was we were going negative traffic count when we started last January, excuse me, February, March, April. Our traffic count was going south. Now for the last three months, our traffic count has been very, very strong. So I think with things in place, people are still wanting to come out and are going to be continuing a long-term need. So I still see a lot of extra buying. We put limits on these things, but I still think that you're going to see this go until probably the middle of next year, if I had to guess.
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Interviewer3:28
The membership model has been very attractive to Wall Street and consumers well before even this pandemic, Craig. And you're managing to grow those numbers and also retain members for a very long period. How do you see that shaping up after the pandemic, and what's a normal rate of growth for membership revenue at this point in your lifetime, in Costco's lifetime?
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W. Jelinek3:48
Well, you know, we would hope to continue to grow our membership. What we were concerned about early on was if, in fact, people are going to be hesitant to come in. You pay to shop at Costco. Are you going to continue to be able to renew at the same rates? And the answer is yes. We're still renewing over 91%, at about 91% a year, so we're pleased with that. That did slow down in the middle of the pandemic, but people have stepped back up and renewed, and we're back up to the 91% level.
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Interviewer4:40
Craig, it's been well reported in recent years how you guys have had certain loss leaders like rotisserie chicken for $4.99 or hot dogs, or whatever it might be, in order to try and keep customers happy and get them into the store to spend.
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W. Jelinek5:11
I still think brick and mortar is not going to go away, and we want to continue to get people in the stores. And there's no better way to do it than a dollar fifty hot dog and a rotisserie chicken.
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Shepherd Smith5:25
Shepherd Smith here. Thanks for watching CNBC on YouTube.