Case study:

Costco got its start back in the 1950s, went through several transformations, and eventually took its current shape in 1993 under the leadership of James Sinegal. Sinegal developed the idea that superior customer service could be a distinctive competitive advantage in the discount-retailing industry. Accordingly, he set Costco on a course toward mass-market, low-price, warehouse retailing (like Walmart) but with superior customer service (like Nordstrom). Today Costco is the largest wholesale club operator in the United States, with 600 members-only warehouse stores in 40 states. Costco also owns and operates warehouse clubs in Australia, Canada, Japan, Mexico, Puerto Rico, South Korea, Taiwan, and the United Kingdom. In 2012, the firm had just under $100 billion in revenues and employed 174,000 people. Most merchandise in Costco stores is bulk-packaged and marketed to businesses and families. The firm doesn't carry multiple brands of the same product, instead offering only the one it can sell for the lowest price. Average markup is only 15 percent. Most products are carried to the sales area on pallets in their original boxes. Customers must bring their own shopping bags or else use the boxes products are displayed in. Costco stores have skylights, and sensors reduce in-store lighting on sunny days. As already noted, one area where Costco does invest is in its employees. The company pays well and offers very good benefits. In addition to health-care coverage, employees get up to 5 weeks of paid vacation time a year, and Costco matches their contributions to a 401(k) retirement plan. And when most retailers were laying off employees during the 2008-2010 recession, Costco announced a $1.50 per hour increase for its hourly employees. When Sinegal retired in 2012, Craig Jelinek, a long-time Costco executive, took the helm. Under Jelinek's leadership, the retailing behemoth seems to have actually improved its trajectory. Its stock price has never been higher and sales are growing at a red-hot pace. Jelinek has vowed to not alter Costco's human resource strategy. He recently commented, "Could Costco make more money if the average wage was two or three dollars lower? The answer is yes. But we're not going to do it."

1. Compare your shopping experiences at retailers like Costco, Nordstrom, or Whole Foods with experiences you may have had at Walmart, Sears, or Kroger.

2. Under what circumstances might Costco have to start paying its workers less?

3. Costco has a policy of not hiring business school graduates because it wants employees to start at the bottom and work their way up. What are the advantages and disadvantages of this approach?