Isegoria

How Costco Became the Anti-Wal-Mart:

At Costco, one of Mr. Sinegal’s cardinal rules is that no branded item can be marked up by more than 14 percent, and no private-label item by more than 15 percent. In contrast, supermarkets generally mark up merchandise by 25 percent, and department stores by 50 percent or more.

“They could probably get more money for a lot of items they sell,” said Ed Weller, a retailing analyst at ThinkEquity.

But Mr. Sinegal warned that if Costco increased markups to 16 or 18 percent, the company might slip down a dangerous slope and lose discipline in minimizing costs and prices.

Mr. Sinegal, whose father was a coal miner and steelworker, gave a simple explanation. “On Wall Street, they’re in the business of making money between now and next Thursday,” he said. “I don’t say that with any bitterness, but we can’t take that view. We want to build a company that will still be here 50 and 60 years from now.”

IF shareholders mind Mr. Sinegal’s philosophy, it is not obvious: Costco’s stock price has risen more than 10 percent in the last 12 months, while Wal-Mart’s has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19.Mr. Dreher said Costco’s share price was so high because so many people love the company. “It’s a cult stock,” he said.

This is an important — and surprising — element of Costco’s success:

Mr. Sinegal, who is 69 but looks a decade younger, also delights in not tilting Costco too far into cheap merchandise, even at his warehouse stores. He loves the idea of the “treasure hunt” — occasional, temporary specials on exotic cheeses, Coach bags, plasma screen televisions, Waterford crystal, French wine and $5,000 necklaces — scattered among staples like toilet paper by the case and institutional-size jars of mayonnaise.

The treasure hunts, Mr. Sinegal says, create a sense of excitement and customer loyalty.

Seth Godin suggests Reorganizing for profit:

Here’s what most retailers do:
They organize by brand/designer or label
Within that, they organize by type of item
and within that, by style
and finally, by size

So, all the Armani blue suits are next to each other, then by size.

So, all the boxer shorts at the Gap are on a wall, organized by style first (checks over here, stripes over there,) then by size.

So, all the power tools at Home Depot are together, sometimes by brand, sometimes by function (saw) and then by type of material to be cut (wood).

This is dumb, and the web makes it obvious why it’s dumb. It’s dumb because it makes it easier for the clerk, not for the customer. And dumb because it plays to the label’s ego, not to ours.

Does anyone say, “okay, even though my son wears size large boxers, these striped ones are really nice, I’ll buy the small instead.” Of course not.

So why not put all the large boxers right next to each other, regardless of designer and style?

When you go to Home Depot to get what you need to build something out of wood, why don’t you find the glue and the wood saws and the screwdrivers and the screws all together in a section called, “working with wood”?

It’s pretty simple: if you want to sell belts and socks and even shoes, you need to sell a suit first. Make it easy to add on, and people will do it, quite happily.

Message in a Bottle looks at the $50 billion bottle-water market:

We buy bottled water because we think it’s healthy. Which it is, of course: Every 12-year-old who buys a bottle of water from a vending machine instead of a 16-ounce Coke is inarguably making a healthier choice. But bottled water isn’t healthier, or safer, than tap water. Indeed, while the United States is the single biggest consumer in the world’s $50 billion bottled-water market, it is the only one of the top four — the others are Brazil, China, and Mexico — that has universally reliable tap water. Tap water in this country, with rare exceptions, is impressively safe. It is monitored constantly, and the test results made public.
[...]
And for this healthy convenience, we’re paying what amounts to an unbelievable premium. You can buy a half- liter Evian for $1.35 — 17 ounces of water imported from France for pocket change. That water seems cheap, but only because we aren’t paying attention.

In San Francisco, the municipal water comes from inside Yosemite National Park. It’s so good the EPA doesn’t require San Francisco to filter it. If you bought and drank a bottle of Evian, you could refill that bottle once a day for 10 years, 5 months, and 21 days with San Francisco tap water before that water would cost $1.35. Put another way, if the water we use at home cost what even cheap bottled water costs, our monthly water bills would run $9,000.

Where does bottled water come from?

Today, for all the apparent variety on the shelf, bottled water is dominated in the United States and worldwide by four huge companies. Pepsi has the nation’s number-one-selling bottled water, Aquafina, with 13% of the market. Coke’s Dasani is number two, with 11% of the market. Both are simply purified municipal water — so 24% of the bottled water we buy is tap water repackaged by Coke and Pepsi for our convenience. Evian is owned by Danone, the French food giant, and distributed in the United States by Coke.

The really big water company in the United States is Nestlé, which gradually bought up the nation’s heritage brands, and expanded them. The waters are slightly different — springwater must come from actual springs, identified specifically on the label — but together, they add up to 26% of the market, according to Beverage Marketing, surpassing Coke and Pepsi’s brands combined.

Where does all the money go?

Since most water brands are owned by larger companies, it’s hard to get directly at the economics. But according to those inside the business, half the price of a typical $1.29 bottle goes to the retailer. As much as a third goes to the distributor and transport. Another 12 to 15 cents is the cost of the water itself, the bottle and the cap. That leaves roughly a dime of profit. On multipacks, that profit is more like 2 cents a bottle.

What I didn’t realize: Fiji water is from Fiji. Really.