Fortune identifies the one company Wal-Mart fears. The answer is Costco, but the explanation can be applied to other arenas. When you read the guiding principles, ask yourself: Can I apply these to what I do?
John Helyar writes (excerpt):
Axiom No. 1: Obey the law. When Fed-Mart began, according to Price, competitors sicced government inspectors on him, trying to find illegalities. As a matter of survival, he had to be purer than Caesar’s wife. But then he came to believe it was good business. Retailers have many temptations to give zoning officials bribes, to give buyers kickbacks, and to finesse health and safety requirements. None of that benefits customers or employees, and none of it was tolerated by Price or Sinegal.
Axiom No. 2: Take care of your customers. Sure, every retailer says that, but Sol Price made clear to everyone under him that he meant it. “You are the fiduciary of the customer. You’ve got to give before you get. If you get something for a lower price, you pass on the savings.”
Axiom No. 3: Take care of your employees. Sol Price actually invited unions in to represent Fed-Mart and Price Club workers. Following suit, Costco pays the top wage in retail, starting employees at $10 an hour. In the minds of Price and Sinegal, high wages yield high productivity, low turnover–Costco’s is a third of the retail industry average of 64%, according to the National Retail Foundation–and minimal shrinkage; that’s retail-speak for theft, which at Costco is about 13% of the industry norm.
Axiom No. 4: Practice the intelligent loss of sales. Many retailers’ shelves are crowded with a plethora of products: different brands, different sizes, many choices. Costco offers relatively few choices. That means some customers may pass up purchases, because the gallon jar of mayonnaise is too big or the brand isn’t their favorite. But the benefits far exceed the lost sales. Stocking fewer items streamlines distribution and hastens inventory turns–and nine out of ten customers are perfectly happy with the mayonnaise.