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Originally published December 17, 2011 at 10:01 PM | Page modified December 17, 2011 at 10:19 PM

Costco executive ready to take helm as CEO

Costco's president and chief operating officer, Craig Jelinek, is everything you'd want in a CEO, says Jim Sinegal, of the man who'll soon succeed him when he retires.

Seattle Times business reporter

Craig Jelinek

Age: 59

Background: Grew up in Lancaster, Calif., in the Mojave Desert, and worked through college for Sol Price's Fed-Mart, which closed in the early '80s. Graduated from San Diego State University, which Jim Sinegal also attended.

At Costco: Started in 1984, and Jelinek opened its sixth warehouse, in Tukwila. Opened stores in Nevada and California before Costco merged in 1993 with Price Club, also founded by Sol Price. Jelinek then ran the Northwest region and in 2004 became the head of merchandising. He's now president and COO.

Pay: $3.3 million, including stock awards, in the fiscal year ending August 2011. That's more than CEO Jim Sinegal's pay of $2.2 million.

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A major reason Jim Sinegal is retiring as CEO of Costco Wholesale on New Year's Eve, one day before he turns 76, is his complete faith in his successor, Craig Jelinek.

"He understands this business backwards," Sinegal said. "He understands it better than I do. He's hardworking, he's intelligent, he's well-liked, he's respected, he's fair — all the things you want from a manager."

Jelinek's background also resembles Sinegal's. Both attended San Diego State University and spent years working for Sol Price at Fed-Mart; Jelinek joined Costco just months after Sinegal and Jeff Brotman opened it in 1983.

As Sinegal prepares to hand over his title and his office, Jelinek discussed what he's learned from the man and what he expects at Costco going forward.

Here's an edited interview with Jelinek, who has a serious diet Coke habit and no plans to change Costco's $1.50 hot-dog-and-Coke deal:

Q: Since taking Jim Sinegal's title of president in early 2010, have you gone everywhere with him?

A: We have spent a lot of time together the last two years.

Q: Every day?

A: No, not Sundays.

Q: Are you ready to be cut loose next month?

A: The answer would be yes. I think probably over the last 15 years, I've been cut loose in terms of running the business and different areas of responsibility. [Jim] lets you run your business until he feels that the boat may be navigating toward the rocks, and then he'll bring you back to center.

Q: Do you have an example of that?

A: I remember one time, when we built the biggest building we had, a 150,000-square-foot building in El Centro. I was relatively young then, and I put the nursery where I wanted it to go, which was in direct sun. I don't know if you know where El Centro, Calif., is, but it usually cools down to 110 degrees in the summer.

Then I wanted to make sure we had the most possible space, so to exit the building I put this fence in so nobody could practically get through. I made it where you could get more merchandise at the entrance, and his exact words — as his voice started to rise, he said, "Why don't you rethink this?"

He'll let you make a mistake, but you better have learned the lesson from that mistake. If you continue to make the same mistake over and over, he has thin patience for that — virtually no patience for that.

Q: What will you do when Wall Street asks you to cut back on employee pay and benefits?

A: I'll say we're not going to change it.

Now it's fashionable to pay good benefits if you can, and we get credited for something people used to say was a no-no. Nothing changed about the way we did business. We just stayed to our principles — it's what we do, take care of customers and employees and the people who are selling us merchandise, because it's important that your suppliers make money.

You need to run your business for the long term, and the only way you're going to be around for the long term is if you take care of employees and customers. If you don't, bad things are going to happen to you.

Q: You're taking over at a precarious time economically. If Costco hadn't fared as well as it has in this economy — with annual profits topping $1 billion even in the recession — what were you prepared to change?

A: You still have to make a profit, of course you do. You may not make as much during tough times. Where people usually get themselves in trouble is when they try to make up for the lost sales. I'd rather have a stock drop for three or four years than be out of business in three or four years. It's like life — there's good times and there's times that are not so good, but you work your way through it.

That's really where strong companies survive, is in the tough times. When we came out of this last recession, there was a lot less competition, because people went under — Circuit City and a lot of smaller companies.

Q: You're a big discounter that goes into suburbs, like Wal-Mart does. Why do they get demonized and you don't?

A: I don't think you'll ever see us in the small-time markets you see Wal-Mart in. There's a Wal-Mart in Lake Chelan now, and there are also these small hardware and dress stores. Those people cannot compete against a Wal-Mart up there unless they have a very tight group that really wants to work together to keep a Wal-Mart out. When it gets down to the general populace, they talk a good game, that they want to take care of their friends. But when it gets down to it, they'll go into Wal-Mart, because the value is there.

Those are the type of people that Wal-Mart, over time, has hurt.

We've gone into smaller markets, but we're also going in there and competing against the Targets of the world, the Fred Meyers of world. Wal-Mart got started by going into these small markets where they were the only big-box type. They took the small entrepreneur out of the marketplace.

Also, Wal-Mart has a bad reputation for not paying good wages and not having good benefits. It's very difficult for somebody to say Costco shouldn't come in when they're going to have 200 jobs coming into the marketplace paying good wages and benefits. [Costco has about 111,500 U.S. employees, and 90 percent are eligible for health-care benefits. Of those, 98.5 percent are enrolled.]

Q: You started selling online in 1998, about three years after Amazon.com. How important are online sales to Costco?

A: It augments [the warehouses], gives us a delivery-type business. You take a 60- or 70-inch television or patio furniture, and it's much easier to have that stuff sent home. The exercise equipment has been taken over by the online business.

We don't do a big apparel business [online]. One of the things people will always have to do is eat. I don't see that changing.

Q: Is that your line or Jim's?

A: Actually, that came from my dad. My dad used to build airplanes — the B-1 bomber, the B-70 bomber. It always depended on the Democrats or the Republicans, because one wanted defense. He said, "Son, do not get into the aircraft business."

I was working part time with Fed-Mart, and he said, "You know what? People will always have to eat." I never forgot that. You always know there's going to be work.

We know if we continue to do what we're doing right, we will have people coming in buying our meat products, buying our produce. You're always going to have traffic. They may not always come in and buy the prime rib. There may be times when they're eating more chicken and ground beef, but they're still going to come in and shop where the values are.

Q: What do you worry about coming in as CEO, especially in this economy?

A: I don't know that you can worry. If you worry too much, you're not going to make sound decisions.

My view is your first responsibility is to protect your customer, to continue to have the best value possible out there for the customer. You have to protect your employees. The last thing I want to do is become a casualty like [some other] companies.

The only way that will happen is if you start to change your core values of what you represent. If you start to do that, you'll start to have distrust with employees about who you are, and you'll start to change the culture of your company. That's the one thing that you don't want to do.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com.

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