Costco and the Art of Merchandising

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Costco and the Art of Merchandising

By Mike Troy - 01/23/2017

It’s a warehouse. It’s not that complicated. These two themes come up repeatedly during a conversation with Costco president and CEO Craig Jelinek and EVP of merchandising Ron Vachris.

The pair are seated on folding chairs in a small office next to the employee breakroom in one of Costco’s newest warehouses in the Seattle suburb of Redmond. There is no corporate affairs person hovering nearby to monitor the conversation or make sure it ends at a specific time. The unpretentious setting and lack of formality underscore a message of simplicity Jelinek and Vachris describe as the foundation of Costco’s strategy during a conversation with Retail Leader in which the co-workers of more than 30 years occasionally finished each other’s sentences.

The art of merchandising, that instinct of knowing what products will sell and how to present them, has been lost on a generation of buyers armed with impossible amounts of data and an aversion to risk. One of the last bastions of merchandising where science hasn’t fully overtaken art is Costco. Ask Jelinek how he can tell if one of the retailer’s warehouses is well run and offering members the right assortment of merchandise, and he offers the most unscientific of answers.

“Because you’ve been doing it your whole life you just get a sense. I can walk into a building and talk to a couple people and get a sense of what morale is like,” Jelinek says. “Over time you come to understand what is an exciting item and what’s a good value. One of the keys is, we’re not real sophisticated on doing a lot of research. If you see your members standing around an item you ask them what they think and they’ll tell you.”

There were plenty of members ogling the merchandise at Costco’s newest location in Redmond when it opened last November, and for good reasons. Merchants brought in plenty of what Jelinek likes to call “hot items,” and the compelling assortment had the desired effect. By mid-morning, carts were full and all checkouts were open. The location was on track to exceed opening day sales of $1 million. At least that was the expectation of employees who, in a Costco tradition, shared their estimates with Jelinek on $1 bills he collected in a plastic bag as he roamed the warehouse during a pre-opening event the night before.

“You see stuff in here that you don’t see in many places. We bring stuff in that you weren’t looking for that you want to buy. A lot of people really don’t know what they want,” Jelinek says. “When you only have 3,800 items, you try something, and if you make a mistake you learn from it. If a buyer is not making mistakes they are not a very good buyer, but I don’t make a big deal out of a bad item. If you make a bad buy, you make a bad buy.”

To read the rest of the article and learn more about Costco’s old-school approach to merchandising click here.