Why did Costco start in the NW and get so big?

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By Jennifer Wing

The Northwest is home to a variety of companies that have changed how we live our lives.

We spend more now on coffee thanks to Starbucks. Amazon is changing the way we read books. And another company with deep local roots has gotten many of us to buy more of everything: Costco.

‘You name it …’

Everyone has a Costco story. You go in to buy diapers and come home with a new sofa.

Strolling the wide aisles inside a Costco near Edmonds is Nauko Grimlund.

“I’m the one coming home with rain guard gutter protection, coffee pots. And I see those garden gloves calling out to me. They are such a good deal.”

She doesn’t know how long they will be in stock. So, in the cart they go. This is all by design: guaranteed low prices and inventory that doesn’t stick around makes us more likely to act on an item.

Costco has 900 people whose job it is to stock the shelves with hard to resist items that will keep shoppers guessing what they might find next. Maybe it’s a pair of designer jeans or diamond earrings? Costco’s Chief Financial Officer Richard Galanti wants shoppers to feel like they are always on a treasure hunt.

“You walk out of there not only with the twenty household items you expected to buy and then a few other things whether it was a cashmere sweater, a patio set or you name it.”

 

Roots in Kirkland

Costco has come a long way from its first warehouse in Kirkland back in 1983 with Jeff Brotman and Jim Sinegal at the helm. Back then, it mostly sold supplies to restaurants. It was one of the first places to charge shoppers a membership fee. If you want the good deals, you gotta join the club.

When Costco started opening more stores in the 1990’s things didn’t go so well in places like the midwest. CFO Richard Galanti says it’s anyone’s guess why the company got off to such a good start here in the Northwest.

“We don’t have a good answer for why.”

Of course today, Costco is doing very well in middle America as well as Japan, Australia and five other countries. It was the first company to reach $3 billion in sales in just six years.

 

… but why do I want it?

There is such affection for this business that there are now websites such as “Addicted to Costco” and songs singing the companies praises posted on YouTube.

So how does Costco make spending feel so good? Psychologist Brian Knutson at Stanford University says it probably has something to do with a part of the brain called the nucleus accumbens.

“It tends to be very important for motivating behavior. Rats will work hard to stimulate that part of their brain.”

In a study Knutson co-authored, this part of the brain lit up when people were shown a picture of something they wanted, whether it was a box of gourmet chocolates or a George Foreman Grill. But another part of the brain, called the anterior insula, goes on alert when the price seems to be too high.

If you find a way to keep that nagging voice quiet with the promise of good deals the people are likely to buy more of the same item. Just keep that in mind the next time you come home with 36 rolls of toilet paper.

 

Yes, but can I buy a car?

Meanwhile, Costco has weathered these tough economic times very well and CFO Richard Galanti is sticking to the company’s playbook.

“If we keep serving the customer and provide the best deals with the highest quality, we’ll sell more than the hundreds of thousands of carats of diamonds than we did last year, and more than the 200,000-plus cars that we sold.”

Yes, that’s right you can buy a car at Costco.

The company is on track to earn $100 billion in sales this fiscal year.