Charlie Munger on Costco

I am a fierce Costco loyalist. I have been a card-carrying member of Costco for over 20 years, and have bought tens of thousands bucks worth of stuff from the store. It is somewhat comical this habit of mine: to my friends and acquaintances, I keep insisting that they get a Costco membership and buy stuff there. There’s something about Costco that warms the cockles of this economist’s heart. I end up going to Costco about twice a week at least. And since there’s one within a 12-minute walk — less than a mile — of where I live, I sometimes go there just for a slice of pizza. Did you know that Costco is the largest pizza retailer in the US?

It would be a long post if I were to tell you why I love Costco. So I won’t go there. But here’s the bottom line: if you can’t find it in Costco, you can very well do without it. Meaning, pretty much every material thing you need, you can find in Costco. I buy food, wines and spirits, clothing, electronics, shoes, underwear, winter clothes, TVs, computers, luggage, furniture, fridges, fans, cars, boats, insurance, heating and cooling equipment, whathaveyou, from Costco. The quality of the goods that Costco sells is outstanding.

That’s why they have a simple guarantee. It says, “If you don’t like something that you bought at Costco, simply return it.” There are not ifs, ands, and buts to their guarantee. Your satisfaction is guaranteed or your money back. This even applies to their annual membership fee. If at any time during the year, you are not satisfied with the membership, they will refund you the entire membership fee without any fuss. It just takes only a minute to get your refund.

One time, a friend who was visiting me from India, bought clothes for his wife. (I bring all my foreign visitors to Costco.) When he got back to India, he found that he had misjudged the size. Anyhow, by the time I actually got around to returning those clothes to Costco, it was over a year since the date of purchase. I didn’t have the receipts either. No problem. The customer service people took the trouble to figure it all out and in 15 minutes, they cheerfully refunded the money.

Like I tell my friends, I would not live in a place that is too far from a Costco. I kid you not.

OK, enough of what I think of Costco. Does anyone else think Costco is great, you ask? Glad you asked. There’s this guy called Charlie Munger. Go read “Charlie Munger’s Love Affair with Costco.” (Warren Buffett: “Please shoot me first before letting Charlie tell us any more about how much he loves Costco.”)

Here’s good ol’ Charlie at the 2011 Berkshire Hathaway meeting:

Costco of course is a business that became the best in the world in its category. And it did it with an extreme meritocracy, and an extreme ethical duty—self-imposed to take all its cost advantages as fast as it could accumulate them and pass them on to the customers. And of course they’ve created ferocious customer loyalty. It’s been a wonderful business to watch—and of course strange things happen when you do that and when you do that long enough. Costco has one store in Korea that will do over $400 million in sales this year. These are figures that can’t exist in retail, but of course they do. So that’s an example of somebody having the right managerial system, the right personnel solution, the right ethics, the right diligence, etcetera, etcetera. And that is quite rare. If once or twice in your lifetime you’re associated with such a business you’re a very lucky person.

I don’t really care about sunscreen, despite what Kurt Vonnegut says about that stuff. He said, “Wear sunscreen”. (It is doubtful that Vonnegut ever said what he is supposed to have said in a commencement address he gave at MIT in 1997. But it’s still worth reading.) If I were to give a commencement address, it would definitely include the lines, “Get yourself a Costco membership. And don’t live in a place which is too far to shop at Costco for all your material needs.”

Alright, I shall have to end it here. I am off to Costco with my friend Sudipta and his wife Suvagata. We has stuffs to buy ’cause we be going to India soon.

Be well, do good work and keep in touch.

Author: Atanu Dey

Economist. View all posts by Atanu Dey