[Beginning of Cramer's verbatim comments for this segment...]

Jim:        Hey, hey, you know… shopping for ribs and crab legs, it could mean only one thing at Cramerica… that is right, we were at Costco today… the third largest retailer in the country… and a stock that has been on a tear… we hit the grand opening of the first Costco in New York City….and I got to sit down and even did a little shopping with one of my heroes… a man that has made shopping more affordable for millions of people… the incredible co-founder and CEO of Costco Wholesale (COST), the legendary Jim Sinegal...

Jim:    Is Costco ready to take Manhattan?

Sinegal:   I do not know if we are ready to take it but we are certainly ready to serve it. And we are happy to be here. This is a project that took us about 12 years to build, as we have been working on this for a long, long time and we are delighted to have this grand opening.

Jim:    Now, what is different about a store in Manhattan, because all the Costco’s I go to have a regional flavor. I go into a Manhattan store Costco… I go to a store in Brooklyn, Staten Island, or a suburb… what is the difference with this one?

Sinegal:   Well, first of all there are constraints here relative to space. It is about 40,000 square feet smaller than our typical Costco that we build today. So we had to do a lot of things to utilize the space. So you will see some of the things that our people have done around the major posts in the building, to merchandise goods. We have got a much bigger selection of kosher foods here. We are going to probably develop as time goes on a bigger selection of prepared meals. We are doing some thin pizza crusts here that are kind of unique and are probably going to have in most New York area warehouses here very shortly. Kind of tailoring it to the kind of cliental that we are going to have in the market place.

Jim:    Let’s speak generally about Costco. I like to go to Costco because it is exciting. How can you have a store that is exciting? What makes Costco exciting? And I am not going to knock the competition, but we know there are other big players, number one and number two retail, that I just go because it is a chore. Why is this not a chore?

Sinegal:   You know, we have a saying in our company that when we open every day, it is show time. And we really think about it like show time. And you are only as good as your latest act. If you keep showing the same products on a continual basis, you get very humdrum. And your customers get bored. We like this treasure hunt aspect of our business. And you know, there is no question that the customers love the fact that we are going to save them .50 cents a jar on peanut butter. And they would never forgive us if we did not save them the .50 cents. But they are not going to come out of the hills to shop for peanut butter. They are going to come out to shop for the types of things that you see here. When we have Movado watches, or when we Ugg boots, or we have Armani shirts. Those are the types of things that are going to bring the customers back.

Jim:    Okay, I go to buy Ugg’s at Nordstrom’s, because they do a huge Ugg business. How much do you want to undercut Nordstrom’s when you sell Ugg’s?

Sinegal:   On that particular item, probably about 30% to 35%.

Jim:    How much do you want to undercut Best Buy when you sell big Visio TV’s?

Sinegal:   We want to be.. we would certainly hope that we would be on a big screen 47” television set, we would hope that we would be $50 to $100 less. Depending on how they were promoting it at that moment.

Jim:    Do you go around to other stores and see what the prices they have and make sure that your prices are lower?

Sinegal:   We are shopping every one of our major competitors. Everywhere in the country. And everywhere in the world where we do business.

Jim:    So in Korea and Taiwan you are going around to see what they have?

Sinegal:   Absolutely.

Jim:    You said it took 12 years to do this, that makes me wonder. Are you running out of spaces that this was so important that you spent that much time doing this?

Sinegal:   No, we are not running out of places to open. But this we thought was very important. We think this makes a statement. And you know if you can do business in a place like Manhattan, it has got to be great.

Jim:    Well, what do I do when I go to Costco? I go and I load up. I take the SUV and I make sure that every square inch is loaded up. What am I do to? you must have a majority of people who do not even have cars going to this store?

Sinegal:   That is right and you are going to see that we have a taxi stand out in front. And you are going to see a lot of people walking in here. We are going to have a lot of trade that will come in by taxi and by cars. And I think that we will probably be busier on weekends for that reason. Because it is easier to navigate the streets and negotiate your way here during the weekends, Saturdays and Sundays.

Jim:    How much of this Costco… is just an advertisement for the concept of Costco? You have got 30 million people that are Costco card holders. Will this bring a whole new cohort of city people who were not members of Costco?

Sinegal:   I think that it probably will. I think that probably it will also bring a lot of people who have been members, like the financial community, who visit us in other communities across the country. And then they are going to shop with us more frequently. I mean it does not take much imagination that we have an item here like the Capri Sun that we are selling for $6.89 that is going to be significantly more expensive some place else. So the savings are there.

Jim:    But on the other side, you are also featuring a gigantic diamond. Is that in keeping with the concept of for less? Which I also regard Costco that is integral.

Sinegal:   Well, if anyplace has the cliental that would buy a $260,000 diamond Manhattan does. There are a lot of people here that could afford that type of ring.

Jim:    You are literally have much higher price points on some items in this store that you would not have in others?

Sinegal:   On some items. But there are some warehouses where we have sold rings for $220,000, $230,000. That is something that occurs in our business.

Jim:    Just a guy comes thru and says that is a great value vs. a $500,000 diamond?

Sinegal:   Yes, exactly. Somebody if they know something about diamonds, and they know something about the quality of the stones, they recognize that this first of all is not only a fine quality stone but it is top quality. It is the type of stone that you might find in a Tiffany’s.

Jim:    Alright, now I am a major buyer for Macy’s. I come in here and I see the Zania’s shirts so much cheaper than I can buy them. You are selling them for the price that Macy’s can buy them for. I know this. Now I go to Zania and I say, listen I do not want to see Costco having Zania. You get your stuff out if you want to continue to sell at Macy’s. That must happen all the time?

Sinegal:   Yes, we do. It happens. Well, I will take you up and show you some of the shoes that we have up there and I am sure before the end of the day, someone will come in and buy us out on those shoes.

Jim:    Just buy them all?

Sinegal:   Yes, buy them all and get them off of our shelves. Yes it will happen.

Jim:    You have seen that. A competitor will do that?

Sinegal:   A competitor or a competitor will have the supplier come in and do it.

Jim:    That is outrageous.

Sinegal:   It is outrageous.

Jim:    But they have to do it, they have to do it because you are selling it for less than they can buy it.

Sinegal:   In some instances that is the case. But you know it is obviously, that is not a common occurrence. But it is something that happens on a periodic basis.

Jim:    Alright, let’s talk a little Wall Street because I have been saying the stock at $60... after that last quarter was magnificent… the comp store sales have changed… we are right now in this country debating healthcare. Your company is far in advance of what the typical package that you get as an employee, after you have gone the six months. Are you constantly weighing the notion of how much you should pay your associates vs. how much you can show profit on Wall Street?

Sinegal:   Well, of course, we are in the business to make money, to make a profit. But at the same time we recognize that in order to make a profit and consistently perform is that you have to have good employees. And the only way that you get good employees is to treat them well. And to make sure that they like their jobs, and that they are going to stay with you. We want to turn our inventory much faster than we turn our people.

Jim:    You are the fastest turner of inventory than any major chain in this country, aren’t you?

Sinegal:   Yes. I believe so. And so the net result is that if you hire good people and you give them good jobs, and provide a career an opportunity for them, good things are going to happen in your business. And they are going to stay with you and they are going to perform. And so as a result we promote almost 100% from within our company.

Jim:    Thank you Jim Sinegal, co-founder and CEO of Costco Wholesale (COST).

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Jim's comments AFTER the interview:     No comments from Jim after the interview.

[verbatim recap]

[end of segment]

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