The Death of Costco by Scott Pivonka - Read Online
The Death of Costco
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Summary

One of the most innovative retailers in history Costco changed the way America and much of the world shops. The author was hired as an entry level employee and became one of Costco’s more innovative managers for 10 years. Then he left the company to start his own enterprise and returned with that experience a decade later.

The death of Costco tells the story of the transitional leaps over that time frame the changes, positive and otherwise that have altered the corporate culture. Then then extrapolates to the future and asked the question will Costco go the way of other powerhouse retailers like Montgomery Ward, Kmart and JCPenney or will they respond to the times and survive?

Published: Scott Pivonka on

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The Death of Costco - Scott Pivonka

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Introduction

Picture this, you and I have a great idea for a retail venture. We’re going to be different than anything the marketplace has ever seen before. We have several ideas, but one is the big hook, we’ll make people pay to shop in our establishment.

We talk costs, make budgets, we cuss, we discuss and finally plan to go for it. It’s hard, we don’t have a lot of money, and we’re definitely undercapitalized to begin. We’re on a frayed shoestring but committed to great value for our customers. We know, history has proven time and again that people will flock to a great value. We scraped together everything we can and open our first location.

We are all in, and playing to win.

On opening day we are underwhelmed. Not enough customers, but the customers that are there purchase more than we expect. We continue searching for great values and listening to our customers. We have a lot of sleepless nights, we almost miss a payroll, we make adjustments and word-of-mouth begins to work in our favor. The stress is unbelievable, heart pounding, gut twisting, blood in the toilet kind of stress. We almost miss another payroll. We give some employee stock options in lieu of pay. We have several WFIO moments (look it up) an employee makes a suggestion that we can’t believe we didn’t think of before to get more customers.

We make the adjustments and broaden our customer base. Things start to take off. We decide to open a second location, and a third. We begin to get some press, we are called the most innovative retailer ever and things really get going. Now we have 10 locations, it’s very exciting in a positive way. We know now the business is going to be successful. Because we set up profit sharing, and a program to mine the intellectual treasure that is our employees, every single one believes that the businesses is theirs and the ones who we gave stock to all believe they’re going to be millionaires, every employee thinks like an owner. As the business gets bigger it gets more complicated, we have never run a big business before and in many ways we feel like kids on the first day of school. We don’t know what we don’t know.

Like a forest fire makes its own climate, we are creating a new economic climate. Businesses purchase merchandise from us and resell it at margins larger than we charge. But that’s what we want, and people are very happy to pay us to shop at our warehouse.

But now the company is getting very big. We need a handbook, we need policies and procedures. Some of our locations are thousands of miles away from our corporate headquarters. We actually have attorneys on staff, we have buyers by the dozen, quality control officers, benefits managers and more administrative people then you can shake a stick at. We believe it’s better to centralize all we can. We have people working in the corporate offices who have never worked in the warehouse. They forget where the money comes from.

Now, when an employee has a great idea they’re not told to go for it, they are asked what’s the policy? The concerns are real and large. What happens if somebody gets sick from our food? What happens if somebody sues us? We begin to realize this huge liability. Innovation takes a backseat to the status quo. It’s safer to stand pat.

One day we realize, were no longer playing to win, we’re playing not to lose. That is exactly what Montgomery Ward, Sears, K-mart and dozens of other retailers have done once they got it all figured out.

It’s entirely natural how we have progressed. We are set for life. We know that the point of diminishing returns is right around the corner if we don’t get out of the track we are currently following. Once again, we don’t know what to do. In some ways we are paralyzed because to make serious, radical change affects thousands of employees, shareholders and members. By default we pretty much decide to leave this problem to the next generation…. But then we found this book.

Chapter 1: The best thing I got at Costco

I meet people all the time, and usually get around to asking if they shop at Costco? Most do, or are aware of Costco. Some say they have been there or to Sam's. Whatever they say I tell this story...

What I liked about Costco is that the merchandise changes constantly. I know that frustrates some people. Because of all the change in merchandise, that means that to manage the layout of the building, they move merchandise around. It can be difficult to find what you're looking for. The store likes that you have to look around, that's one of the reasons you always spend more money than you planned. It’s a treasure hunt and that makes it an adventure to shop. Plus, regularly they have roadshows where special merchandise is brought in for a limited period of time. Such as a weekend or up to a couple of weeks. It's almost always exciting, interesting merchandise and you need to watch for it because if you miss it you may never be able to get it at that fantastic price again.

Then I ask, Do you know what the best thing I ever got at Costco was? Here is where I leave them hanging a little. Sometimes they guess, but nobody ever gets it right. You see the best thing I ever got at Costco was and is, my wife. Then because of that priceless find I got my three children. It doesn't stop there; working at Costco taught me about starting, running and managing a business. Skills, I took with me when I left the company after 10 years as a manager to start my own business. Skills, I used to make a very nice life for me and my family.

I never stopped feeling a sense of pride whenever I saw a Costco, because of the small role I played there during my career.

As our world developed more fully it made sense at a point to go back to work at Costco. I had been gone for over 10 years, equal to how long I had worked there, but an old friend was the warehouse manager of the location nearest and I went back to work at Costco….

I didn’t ask for any special consideration, I went through the same process as any new hire and was rehired into an entry-level hourly position. I believe now that this was fortuitous and because of that, many of the things I saw and experienced would not normally have been seen had I started as a supervisor or manager. I saw major changes in the operation of the warehouse since I had been there before. Some fantastic, really dramatic improvements in the business. I also saw things that were not so great. Systemic, cultural changes in the way the business operates. Changes that are not sustainable.

So let me be clear, I love Costco. My time and experience there has in one way or another led to many of the great and wonderful things in my life. I want my kids to be able to go to work at Costco if they choose to, and receive the good pay, benefits and education that I received there. I'm worried; really concerned that upper management does not see or care what is happening to the company and I want to open their eyes to that. I hope I never see the Death of Costco.

Chapter 2: Pay to shop?

When I was a young man a new store opened in the