Join the club: Costco founder urges business to promote higher education for low-income kids

"What is a guy selling mayonnaise in 50-gallon drums doing in education?" Robert Craves asked the audience during a recent presentation at the W. P. Carey School's Economic Club of Phoenix. One of seven founders of Costco Wholesale Corp., Craves helped create the company's successful club model. Now Craves is expanding the membership idea to his latest venture: ensuring that high-potential, low-income kids get a college education. Craves wants business leaders to help more people become members of that unofficial club — to help kids from lower income families get their baccalaureate degrees, and thus a chance to become financially secure.

Membership is a recurring theme in Robert Craves' life. One of seven founders of Costco Wholesale Corp., Craves helped create the company's successful club model. Today, that thin plastic membership card is an admission ticket to a world of low-cost, high quality goodies. But Craves indicates that Costco members also belong to another, unofficial club: the financially secure.

The median household income of a Costco member is $74,100 — the U.S. average is $47,000; 31.3 percent are college graduates — the national average is 15.7 percent. Ninety-one percent of Costco members own their own homes; the U.S average is 69 percent. Now Craves seeks members for yet another, unofficial club: business leaders who finance baccalaureate degrees for high-potential, low-income students. "We're doing a great job of educating the affluent kids … We're doing a poor job educating the poor kids," Craves said.

Educate for the 21st century

"What is a guy selling mayonnaise in 50-gallon drums doing in education?" Craves asked the audience during a recent presentation at the W. P. Carey School's Economic Club of Phoenix. Craves, a Costco senior vice president emeritus, said he knows there's plenty of money in the business community. He is challenging leaders to join together and raise money for high-potential, low-income high school students.

Accomplished employees and people with money to spend will be the pay off, he says. Craves is president and CEO of the National Education Foundation, an organization that sprang from Washington Gov. Gary Locke's 2020 Commission on the Future of Post-Secondary Education. Craves, who sat on the commission, his wife Gerri and associate Ann Ramsay-Jenkins are the driving force behind the new foundation.

The national foundation spawned the Washington Education Foundation, which has raised $200 million toward its $1 billion goal. An Arizona foundation is just getting started under CEO Martha Harmon. It's called the Arizona College Scholarship Foundation. Craves says Costco and the foundations share the same guiding principles:

• simplicity
• consistency
• reinvention
• keep it interesting

Inside Costco

"We really like our employees and I think they like us," Craves says, adding he hopes that customers also have a good time while shopping. Costco maintains an inventory of 4,000 items and a markup of 11 percent, operating under a cash-and-carry philosophy. The corporation was founded in 1983 with $850 in office furniture — "setting the stage for frugality," Craves says — and has grown into the fourth largest retailer in the United States and ninth in the world.

Craves said Costco logged $52 billion in sales last year and conducts a million transactions a day in its 471 warehouses here and abroad.Of its 120,000 employees worldwide, 90.5 percent are eligible for benefits and 97 percent are enrolled. The averageCostco worker makes $17 an hour, he reports, and after four years, a cashier can make more than $42,000 a year.

All this is accomplished, Craves says, by offering a limited but wide range of product categories, high-quality national brands, a select private label, substantial price savings on all items, innovative packaging, and new products and services. What's missing? Carpeting, Visa and MasterCards, highly pilfer-able items, shopping bags and advertising.

Success shines in surprising places. For example, Costco warehouses do well with wine. The company is the No. 1 retailer of classified growth in French wines and the largest retailer of Dom Perignon in the world. "The Hayden Road [location] in Scottsdale was the No. 1 wine store in the world," Craves says. Wine is not the only luxury category that does well at Costco: The company's warehouse stores sold more than 90,000 diamond carats last year. And, Harry Potter movie aficionados who noticed a really big pie decorated in a cross-hatched pattern on a Hogwarts banquet table will be interested to know it was baked at Costco.

But big-ticket items are not Costco's only "trademark." Never forget the power of a simple hot dog, Craves says, referring to a Costco standard — the hot dog stand.

Then there are those rotisserie chickens. Craves, who shops at Costco almost every day, confesses that the chickens are among his favorite purchases. When Costco first started selling the cooked chickens, he says, they didn't quite fit the size image of a Costco item. So, the company started buying 5-pound chickens to make sure they were 4-pounds after cooking. Result: a popular pick for a fast dinner. "When it comes to chickens, they run to the other side of the road," Craves quipped.

When Craves delineates Costco's strengths, it's all about obsession: obsession with driving prices down; signing brands that had refused to sell to Costco; clearing channels of communication; keeping it simple; doing without consultants; and offering the highest wages and benefits.

Costco connects to college

Craves said Costco built its success while adhering to an articulated code of ethics. The same code applies to the education foundations:

• obey the law
• take care of customers
• take care of employees
• respect suppliers
• reward shareholders

That thinking and the 1992 Los Angeles riots led to today's efforts to raise scholarship money. Writing a check to help out after the riots would have been easy, Craves said, but Costco wanted to do more. It was a question of giving time as well as money. Since the riots, Costco has supported children's hospitals, including Phoenix Children's Hospital, education and mentoring programs.

"Because I did really well in the state of Washington, I had to give back, and I thought others might agree with my philosophy." The 21st century demands a citizenry of workers with baccalaureate or higher degrees. College graduates, he said, earn twice as much as high school graduates. This is where business leaders must be the members of the club that pony up the necessary money.

Craves' message dovetails with economic-competitiveness reports suggesting that a higher education leads to a higher level of prosperity. With a college degree comes better wages, productivity, fringe benefits and working conditions. Yet, people in their late teens and early 20s may not be getting the advice and backing they need to realize the potential of a college education.

Enter the National Education Foundation. In 2000 it started to raise money for a range of programs that finance scholarships, connect students with college mentors, advocate for the high-potential/low-income high school student, and elevate overall graduation rates.

It's not acceptable, Craves says, that only 28 percent of American adults have college degrees. High-school graduates are twice as likely to be divorced, he says, while the divorce rate for college graduates is plummeting. Craves adds that college graduates volunteer twice a much as those without degrees; they are twice as likely to vote; they exercise more; give more blood; and smoke less.

Business must pay

It's important for the business community and its leaders to realize, Craves says, that educated parents not only pass down economic resources to their children, they pass down expectations, habits, knowledge, and cognitive abilities. Craves says the business community can lead the way in making sure that more low-income students complete a college education.

Currently, 8.6 percent of students from the poorest quarter of the nation's population get a four-year degree, he reports. He wants business people to know that of the 49,000 high school graduates in Arizona, only 24,000 go to college. Financial need, he says, keeps 5,000 Arizona students out of college classrooms each year. Arizona ranks 38th in the U.S. in the number of bachelor's degrees earned; his own state of Washington stands at 33rd.

Craves says the mission of the Arizona College Scholarship Foundation is to increase the graduation rates of low-income students to 75 percent, from 25 percent, and to enhance the quality of the work force by increasing the number of baccalaureate degrees.

This sense of social justice, along with a degree in philosophy following 11 years in a Catholic seminary, may be part of what propels Craves. "Every child deserves a have a caring adult in their life," Craves figures. "It seems to me that the private sector needs to get involved."

In an interview, Craves contends that all businesses "could do more" beyond whatever money they have already have earmarked for charity. That higher commitment can range from simply increasing the amount they give, to sponsoring fund-raising events to working one-on-one with kids. In the end, education is a practical matter for businesses. Craves said it's in the self-interest of the business community to make investments that will result in a supply of better employees and customers with more money.

Whether someone gives $1 million or $100, top business people must be "part of the team," bringing in their friends, whose friends will bring in others. Get the CEO interested in National Education Foundation, and the law firm, electricians, caterers and accountants that serve that CEO will be interested, he says.

"Who doesn't want to know what the CEO cares about? People don't want to guess." Craves is putting the finishing touches on a book called "Funding the Future," which outlines why and how the business community, states, and others can help high-potential, low-income high school students succeed in college.

The Washington Education Foundation has several programs in the works for its scholarship students. The foundation is working toward placing one of its advocates in every Washington high school. Another program establishes 50-minute programs on college campuses such as how to apply for college.

"To me it's about getting people into the 21st century at the highest level we can. The only way to overcome poverty is to educate our way out of it," Craves said.