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

Jim:          We are back.. here is more of my interview with the fabulous Jim Sinegal, co-founder and CEO of Costco (COST)… and the first look at the brand new store in New York City… hey, we might have even squeezed a little shopping in while we were at it… by the way, if you were wondering, I did eat all the free samples that I could get my hands on… how do you think I got rich?… take a look.

Jim:           Now, I always to go Costco at holiday time and I am surprised at what I can get. Was it important to open this store now? And what is the holiday show time for this?

Sinegal:    Well, when we get closer next week we will have the turkeys coming in. We will have some prepared turkeys that are all garnished and stuffed and ready to go in the oven. We are going to have some really exciting things for Thanksgiving. You have got to come back and see us. Here as well as in some other places around your neighborhood.

Jim:     Are you doing more private label in this store than you would typically?

Sinegal:    No, private label is very important to us but it is important to all of our businesses.

Jim:     Do people in Manhattan not like private label? Do you think they are suspicious?

Sinegal:    I do not think so. I do not think that they will be suspicious at all. I think that we and Trader Joes and some other people have made private label very much in vogue. I think people look at it…

Jim:     You shop at the competition. You know that they have got something good going?

Sinegal:    Absolutely.

Jim:     How about Wal-Mart? What do you think they have got going right now?

Sinegal:    You heard their latest statements. They intend to convert a lot of their selection process to private label as well. So I think the fact that you can really build great products, and when we take a walk I will show you some of them and give you some examples, give your private labels some real credibility.

Jim:     I like that. Now, Mr. Galanti on his last conference call said that he made a mistake… it is the first time that I have ever heard anyone admit that they have made a mistake, in all of business… that you thought that you could deliver more stores. Go back to the 35 to 50. Given the way that membership works, that is obviously fantastic for growth. Is there anyway to return to that old level of store growth? rather than 15 a year?

Sinegal:    Yes, as a matter of fact, if we had the ability to do it and could get the properties, we would do it now. Part of the difficulty at the moment, there are two problems really. One is the fact that all of the deals that we were negotiating, we went back and renegotiated. If they had not been inked and finalized, we went back and said in this economy guys, this property is not worth what it was. In addition, construction costs have dropped. There are a lot of subcontractors that are looking for work out there in construction, so the price of construction has went down. So we renegotiated out of our deals. Many of them coming in at 10% to 15% cheaper than we thought we would have to pay originally. That has delayed the process a little bit.

Jim:     It is clear that hard times in the economy have not necessarily produced down sales for Costco. As a matter of fact, one of the big problems that I saw was that you were gripped by deflation during the downturn. I have been saying that deflation is something that is very hard to break. Talk about how you actually had good sales but you had to sale merchandise more cheaply than you would have liked.

Sinegal:    Well, let me give you a classic example of a category of goods where… TV’s. We sold 45, during the past 12 months and I am talking September thru August, our fiscal year. We sold 45% more units in television than the year before and had 2% less dollars.

Jim:     See, that is what I saw. I saw profitless sales. It has now switched though. Your sales are more profitable this last quarter. Do you think it is because… were you executing poorly and now executing better? or is it the economy? or something that you are doing differently that caused that big spike in sales which I think is now going to be able to continue.

Sinegal:    I cannot be like Richard and commitment a wrong. No, I think we did the right thing. We took an aggressive position with our pricing. We said that at this particular in time, keep the sales, drive the sales. Once you lose sales. Once a retailer starts losing sales, they are on a treadmill going on an opposite direction. And it is very, very difficult to catch up. You cannot cut payroll fast enough to be able to catch up for falling sales.

Jim:     You have got a great national footprint. Third largest retailer in the country. Are we out of the woods in this country? are things better?

Sinegal:    Well, I think that if you were to think back, if we could go back and capture what was going on at the end of October, November, and December. I do not think that we would have guessed that the country would be as in good as shape that it is today. So generally speaking when there was all that doom and gloom, now we feel a little better about the economy in general. But there are a lot of jobless people out there. A lot of people who are looking for work and are struggling. And that is what really has to be a major concern for all of us in the country. To make sure that we get the country back to work.

Jim:     Should we be doing what we are doing in healthcare? Should we be catching up as a nation to what you have been offering for Costco for years?

Sinegal:    My view is that Americans and the wealthiest country in the world should be entitled to healthcare. And should be able to get healthcare. And I think that it is a shame that you have so many people in the country that do not have it. And I think that the net result of it is going to be a bane on the country for a long period of time.

Jim:     I say we take a look around the store.

Sinegal:    Here is a diamond for $254,000, $255,000.

Jim:     $255,000 diamond. Did you go down to 47th and price it vs. what they have got?

Jim:     Birthday cakes, how many birthday cakes a day?

Sinegal:    Oh thousands.

There was a special cake Jim was taking.

This cake is delicious…

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Jim's comments AFTER the interview:     Costco is a buy, buy, buy.

 

[verbatim recap]

[end of segment]

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