Costco CEO Breaks Down How a Kirkland Product Gets Made | WSJ

What this episode is about

In this Wall Street Journal interview, Costco CEO Ron Vachris, who rose from forklift driver to chief executive over 42 years with the company, discusses how Costco keeps employee turnover below 9% by offering careers rather than just jobs. The conversation also covers the outsized role of its Kirkland Signature private label, which drives sales, builds member loyalty, and pressures national brands on price. Vachris explains the company's 14% margin cap and how rewarding buyers for volume rather than margin shapes product selection and supplier negotiations.

Key takeaways

• Costco's CEO started as a forklift driver, proving the company promotes from within and rewards loyalty.
• Costco keeps turnover near 8.5% by offering careers, not just jobs, with everyone able to climb the ranks.
• Kirkland's quality forces national brands to lower prices, creating a halo effect across entire categories.
• Buyers are rewarded for volume, not margin, so Kirkland products stay capped at roughly 14-15% markup.
• Every Kirkland product gets a final sign-off from the CEO, who admits he occasionally says no.

What is discussed, and when

1. 0:00 – 3:00: Costco, Kirkland, Issaquah, Washington, Ron Vachris
2. 3:00 – 6:00: Kirkland, Costco
3. 6:00 – 8:51: Kirkland, Target, Wal-Mart

Notable quotes from "Costco CEO Breaks Down How a Kirkland Product Gets Made | WSJ"

• To find out more about how Costco maintains its high employee retention and where he sees the company's private label Kirkland taking Costco in the future.

  about Kirkland · at 0:51

• Is more like $31 an hour, which is more than both the retail average and that of its competitor. Sam's Club.

  about Sam's Club · at 1:37

• You don't see Walmart, Target sort of saying, This Kirkland thing has worked pretty well, let's consolidate some of these brands.

  about Target · at 6:53

Who and what is mentioned in this episode?

People

• Ron Vachris — Person · 1 mention · first at 0:22
  [Narrator] Ron Vachris was first a forklift driver before he moved up the ranks all the way to head merchant, then president, and now CEO.

Companies & orgs

• Costco — Company · 4 mentions · first at 0:51
  [Narrator] The Wall Street Journal sat down with Vachris at the company's headquarters in Issaquah, Washington to find out more about how Costco maintains its high employee…
• The Wall Street Journal — Company · 1 mention · first at 0:47
  [Narrator] The Wall Street Journal sat down with Vachris at the company's headquarters in Issaquah, Washington to find out more about how Costco maintains its high employee retention and where he sees the company's private label Kirkland.
• Sam's Club — Company · 1 mention · first at 1:41
• Target — Company · 1 mention · first at 6:53
• Wal-Mart — Company · 1 mention · first at 6:53
  You don't see Walmart, Target sort of saying, This Kirkland thing has worked pretty well, let's consolidate some of these brands.

Products & tech

• Kirkland — Product · 12 mentions · first at 0:55
• Kirkland Bacon, Egg, and Cheese Breakfast Sandwich — Product · 1 mention
• Kirkland Golf Balls — Product · 1 mention
• Kirkland Razors — Product · 1 mention
• Kirkland Sushi — Product · 1 mention

Places & events

• Issaquah, Washington — Place · 1 mention · first at 0:49
  [Narrator] The Wall Street Journal sat down with Vachris at the company's headquarters in Issaquah, Washington to find out more about how Costco maintains its high employee…
• Scottsdale, Arizona — Place · 1 mention · first at 2:07
  I had a story one time I was running a building in Scottsdale, Arizona.

Full transcript with timestamps

0:00 - [Narrator] Behind this $400 billion company is a man who spent his entire career right there. - Why did you stay for 42 years? - You know, at the beginning it was the culture of the organization. I remember my father told me, he said, "Take the worst job in a great company and the rest is up to you." And I always took that to heart. I said, "Okay, I feel this is a great company and let's see what I can't do with this place." - [Narrator] Ron Vachris was first a forklift driver before he moved up the ranks all the way to head merchant, then president, and now CEO.

0:29 - You have been CEO for a little over a year. What surprises you most about the job? - It is a big job. There's always a different feeling that day you walk in and you are the final decision maker. You feel a little bit different when you walk in that day. The responsibility of the employees and our members and everything else takes that next notch up. - [Narrator] "The Wall Street Journal" sat down with Vachris at the company's headquarters in Issaquah, Washington to find out more about how Costco maintains its high employee retention and where he sees the company's private label Kirkland taking Costco in the future.

1:00 - One thing that you're known for is your low turnover rate for, you know, employees across the board in the company. I think you're below 9%? - Well after one year we're about 8 1/2% turnover. - Is that just about paying people more than your competitors? - It's about the culture of the organization. Everybody has opportunities and you look at who's running the company today, we all came up through the ranks of the company itself. And when people see that that those opportunities available to all of us, we offer careers not just jobs.

1:29 Retention is core to the company's success. - [Narrator] Costco wages start at around $20 per hour, but its average hourly rate in the US is more like $31 an hour, which is more than both the retail average and that of its competitor. Sam's Club. - One thing that Costco has sort of naturally engendered is a lot of fans that post online about shopping at Costco. Have you heard of the Costco Guys? - I have heard of them, yes. - We're Costco Guys. Of course we go shopping, we're all eating a chicken bake. - There's nothing better than somebody else speaking positively about your company and they get excited about going in there.

2:02 We love the phrase you came in for rotisserie chicken and you spent $300. I had a story one time I was running a building in Scottsdale, Arizona. I remember called me up and she was quite upset. And I said, "Well, what's the problem?" She said, "I walked in to fill my prescription and I bought a $100,000 piano at the same time. So, it was a great phone call, one you'd love to hear, but that's the kind of environment we want to create is people walk in and see something that is like, "Wow, they've done it again." - What do you think Kirkland's role has been sort of historically in the competitive landscape?

2:33 - Kirkland serves a lot of purposes for us. I mean it's an $80 billion brand, so it drives a lot of sales, it builds a lot of loyalty to our members because we're the place that you can come buy your Kirkland goods out there as well. But along with that, Kirkland, when it's out there in our warehouses, brings down prices of the national brands. When you have a formidable private label that's out there that stands for quality, nobody wants to be that dramatically higher priced than them. So there is a bit of a halo effect to the national brands when a Kirkland item enters a category.

3:04 - Yeah, I mean I've heard stories that really strikes fear into the heart of some suppliers. They know it's coming and they adjust. - Some would rather we weren't in those items, that's correct. - How does Kirkland affect both the literal price of products at Costco and also the price perception that people have of Costco? - I know when we rolled out our golf balls, people were amazed to see, and there could have been a little bit of question of, "Can this golf ball be as good as what the national brand that I bought before?"

3:28 And then there was a question of, "Wait, have I been overpaying for this many years? How can Costco do it for so little money there?" - It's my understanding that there was an internal rule that no product margin could be over 14%, but Kirkland is 15%. Is that still the case? - That is still the case. - How does that impact how you select products and how does that impact your negotiations with suppliers? - Our buyers are really rewarded based on volume of items, not how much we can make off of every item. So if a buyer can come out with an item that's doing $4,000 per warehouse per week, that's what they're really excited about as opposed to making a higher margin percent on this item.

4:08 So when you really reward a buyer based on sales, not so much margin percent, that changes the behavior. - Can you walk us through the process of creating a Kirkland product? - Our buyers are very aware of the commodity inputs, the raw ingredients that go into something. So they may see that a commodity market such as coffee is declining and meanwhile the national brands are increasing in price. So there's creating that delta of where they know that there's opportunity for us that, "Wait, this pricing should be going a different direction."

4:40 Then really comes down to the buyers analyzing with the right type of manufacturing partner. They've gotta be willing to take lower margins as a percent and focus on high volume. Then they start bringing that to the level of management. And then it works its way up the list. I'm the last sign off on every Kirkland item. - And do you ever say no at that point? - Yes, I've said no. It doesn't happen often, but there may be a time when we may not see eye to eye on things and traditionally they'll go back and find a way to resolve that.

5:07 I want to get that little bit of extra differentiation from the national brand and that's normally my review is at that point. - Can you give us an example of something that you did say no on at least once at that point and then it was improved and we might now see it on shelves? - A bacon, egg, and cheese breakfast sandwich that we have out. But we came out with an equivalent of the protein in the item that the national brand had. The challenge back to the buyer was how can we exceed the national brand on the bacon involved in that because that's perceived as the highest value attribute to this item.

5:40 Lo and behold, the buyer was able to go back, partner with the supplier, we were able to put 40% more protein in the item, maintain our price, and now the item is doing great. - It sounds like this whole process of developing a Kirkland product also makes your buyers even more formidable in negotiations with suppliers. Is that part of the magic of it? - I would 100% agree. I'm always quite impressed when they bring an item to me and the details that they know down to the whole production of the item and why we produce it a certain way and then that just makes them a better buyer when they're dealing with the big brands.

6:12 - They know everything. - They know everything. - Are there examples of products where you've wanted to do them, but you can't get the quality where you want it so you don't do it? - Absolutely. Razors was one of those. You know, the technology in razors, we felt we could not match what the national brands were doing. - Is there any category or product type that you've always wanted to do a Kirkland version of, but it's been really hard to do for some reason? - You know, consumer electronics has been one that we've always looked at and said, "I would love to get into that."

6:41 And we have yet been successful in trying to find something in that category that we've really been able to stay with and continue to grow. We're not gonna give up on it. - So we're at the 30-year anniversary of Kirkland. You don't see Walmart, Target sort of saying, "This Kirkland thing has worked pretty well, let's consolidate some of these brands." And I don't fully understand why. Do you have any sense of why it's hard to do it in the same way? - You know, I can't speak to those specific organizations 'cause I don't know their philosophy on private label and theirs is whatever they feel it should be.

7:16 Ours has always led with quality. So if quality can't be met first, we're not even gonna talk about value because that's not even gonna be something we need to look at. That is a unique approach, especially in the private label industry. Where you're not trying to hit a price point, you're not trying to stay below $19.99, that's not your motivation. - Or a margin. You're not trying to hit a margin. - You're not trying to hit a margin number. But you really are trying to deliver quality that is gonna compete with some of the best manufacturers in the world.

7:42 And so that's a big task. You're up against some big brands out there. - What's in the future for Kirkland? Kirkland is growing as a percentage of your revenue, I believe. - About one third of our sales. That's correct. - Is that number, that percentage gonna go up? - I think it will go up. It's not gonna be a sprint, it's gonna be a marathon, because I don't want to push our employees or our managers and our buyers to go out and hit quotas as about number of Kirkland items I want developed out there. I want them to do it naturally as they go through their categories and they learn about their business and look for those opportunities.

8:14 And so I think that there is more opportunity for us out there and I think that we will continue to grow the penetration of things, but when there's an opportunity to deliver a Kirkland item, may be at the sushi program that we're expanding throughout the US right now that we have done so well in Asia. That's another Kirkland expansion that we're gonna see in our buildings that has been received tremendously by our members. Continuous innovation, you know, continued newness out there and finding new areas that we can bring fantastic items to our members at a great value.

8:42 That's what we're striving for. (bright music)

Questions about this episode

What is "Costco CEO Breaks Down How a Kirkland Product Gets Made | WSJ" about?

In this Wall Street Journal interview, Costco CEO Ron Vachris, who rose from forklift driver to chief executive over 42 years with the company, discusses how Costco keeps employee turnover below 9% by offering careers rather than just jobs. The conversation also covers the outsized role of its Kirkland Signature private label, which drives sales, builds member loyalty, and pressures national…

What is mentioned in this The Wall Street Journal episode?

13 people, works and ideas are mentioned, including Kirkland, Costco, Ron Vachris, The Wall Street Journal, Issaquah, Washington, Sam's Club. Each one on this page links to its own page with every episode that mentions it.

How long is "Costco CEO Breaks Down How a Kirkland Product Gets Made | WSJ"?

The episode runs 9 min; the transcript is about 1,899 words in 18 timestamped sections.

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