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February 9, 2024
Is Costco’s Long-Time CFO’s Retirement a Big Loss?
Richard Galanti, Costco’s CFO since 1985 and the warehouse club’s primary spokesperson, announced plans to retire. He will be succeeded by Kroger’s former CFO, Gary Millerchip, effective March 15.
The change comes as Craig Jelinek, Costco’s CEO since 2012, stepped down at the start of the year, succeeded by Ron Vachris, the former president and a 42-year Costco veteran.
In an internal email viewed by The Wall Street Journal, Vachris described Galanti as “the primary Costco ‘voice’ to Wall Street and others.”
Galanti was often the only executive leading Costco’s quarterly earnings calls with analysts. Chuck Grom, a managing director at Gordon Haskett Research Advisors, told the WSJ, “Richard Galanti is the face of the company for a lot of people.”
Veteran Wall Street analyst Walter Loeb wrote in a Forbes column, “Galanti joined Costco when it had four stores and his leadership was felt at meetings he chaired. He knows every detail of the operation and was quick to point out growth patterns.”
Galanti also often earned media headlines for calling out Costco’s “colorful tidbits,” including noting on an analyst call this past December that Costco’s warehouses in the U.S. sold over 4 million pies in the three days before Thanksgiving.
In 2014, he said Costco was willing to sacrifice “$30 million, $40 million a year on gross margin” to keep its rotisserie chickens at $4.99 to emphasize value, according to CNN. In 2022, Galanti earned extensive press coverage for saying that despite soaring inflation at the time, healthier margins in other categories would help Costco maintain its $1.50 hot dog and soda combo “forever.”
Costco shares have soared 230% over the past five years, outpacing the gains of 83% for the S&P 500 and 77% for Walmart over the same period.
Galanti will remain with Costco through January 2025 in an advisory role to support the transition and will remain on the company’s board. Vachris said in a statement, “Over his nearly forty-year tenure as chief financial officer at the company Richard has made innumerable and invaluable contributions to its success.”
While minimal change is expected, investors will be exploring whether the revamped leadership team will make adjustments to its membership fee strategy, continue its crackdown on membership sharing, and move away from reporting monthly sales. Costco is weighing its first increase in membership fees since 2017.
For Kroger, Millerchip’s exit was seen as a setback as the grocer waits for regulators’ ruling on its proposed merger with Albertsons amid related litigation. Millerchip joined Kroger in 2008 as chief executive of Kroger Personal Finance, became CFO in 2019, and was among two executives guiding integration planning with Albertsons. Kroger named Todd Foley, corporate controller and chief accounting officer, as interim CFO while launching a search for a successor.
Discussion Questions
Is the retirement of Richard Galanti a minor or major blow for Costco?
What do you admire most about how Galanti reinvented the CFO role at a publicly held retailer?
Poll
Loading …BrainTrust
Bob Amster
Principal, Retail Technology Group
Richard Hernandez
Merchant Director
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
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Richard Galanti has done an absolutely fantastic job at Costco, helping to grow the retailer into the global powerhouse it is today. And his service of 40 years is phenomenal. As a result he is respected not just at his employer, but throughout the retail industry. Like most leaders at Costco, Galanti’s philosophy has always been to keep business simple, to focus on what consumers want, and to charge reasonable prices and make up margin on volume and through customer loyalty. Hopefully, his successor will stick to that tried and tested formula. All the more so as CEO, Craig Jelinek, is also not long departed which means there’s a lot of change in the leadership suite.
The other worry, of course, is that Galanti was a fierce advocate of keeping the price of a hotdog and soda at $1.50. Hopefully new defenders within Costco will now step forward!
Richard Galanti being around long enough to work closely with now retired co-founders Jim Sinegal and Jeff Brotman has been key for the team, customers, and investors alike. Galanti having trusted relationships and being known as a defender of the $1.50 hot dog combo was much more than a strong opinion about food pricing. His defense of the combo meant he understood the product value relationship strategy for the customer, the brand, and company values.
With both Richard and Craig Jelinek departing, and a new CFO coming in from another culture, it will rest on the existing leadership team to uphold what’s made the Costco formula so successful. Don’t be tempted by the many shiny new objects to derail or muddy the waters.
One of the signs of a well-run company is how it handles succession: Costco is a well run company, ergo, this will be a minor issue. (And it’s a retirement, not like he dropped dead in the middle of a meeting). I could be wrong, but I’m willing to bet money I’m not…actually as I’m a shareholder, I already have.
When an executive of 40 years with a highly successful business leaves, the business will feel the loss. However, Costco is a disciplined business on many aspects and, therefore, it will get on. As to whether anyone else can do the “voice to Wall Street” job as well as Richard, is a big question but then, that’s why he’s staying on for a year to see the transition through. And that, is one difference between Costco and many other companies.
Gotta love it. A CFO who resists raising prices in order to reinforce merchandising and marketing initiatives…in order to reinforce and strengthen the brand promise. All at a time when the pressure and temptation to raise prices was enormous. That’s an incredible level of partnership from the financial side of the business.
…and an example of discipline. Costco knows who its customers are and the temptation of keeping $30-$40MM in profits didn’t steer the ship from its mission.
If Richard’s departure is a major blow, that means Costco is doing a miserable job of planning for and grooming the next generation of leadership. Executives come in all shapes, sizes and capabilities, and shame on any large organization (individuals are, obviously, much more important in smaller emerging companies) that does not have a sound transition plan for leadership. Even Apple survived Steve Jobs passing away.
I strongly suspect Costco is ready for this with an appropriate succession plan.
Costco’s way of doing business has been remarkably stable and consistent (and successful) since its beginnings. The company’s approach to narrow assortments, efficient logistics and lean gross margins is bigger than one executive, and is likely baked into its culture. Assuming that the new CFO was the right hire, there is little to worry about here.
At some point everyone retires, Costco has a strong culture which I’m sure will extend to and guide Millerchip. The only thing I find a bit odd in this one, is that there is no internal successor- at either Costco or Kroger.
Forty years? Wow! I wonder how many times those on the outside said, “Costco needs a change.” Fortunately, Costco was smarter than those on the outside.
One thing I noted that I truly liked is that Galanti handled the earnings calls. As I have written many times, CEO-led earnings calls are largely B.S. All earnings calls should be led by the CFO, and the CEO should be ushered away from saying anything.
We will see the real winner in this transition is the strong Costco culture. Galanti has had a significant impact on the development of the culture over the years and has helped implant its value to continue to be strong.
Richard Galanti has done a masterful job of steering COSTCO forward, so obviously his leadership will be missed, especially given his encyclopedic knowledge of the company. But, he isn’t going anywhere for a year and will still be on the board so, like any great executive, he has prepared the company for his eventual exit in as seamless a manner as possible.
It’s natural for executives to move on. I’m sure Costco is properly managing the change in this important leadership role. If anyone is worried, consider the changes at Amazon and Microsoft. The top guys are no longer running the company, but the performance continues to do well. Anytime a highly regarded executive leaves, there will be a change. As admired as Richard Galanti is, and he will be missed, he has left his mark – and a very good one at that. The “torch” will be carried on by Gary Millerchipa. And he’s got nine-plus months of support from Mr. Galanti to help him do so.
I think Costco will be in good hands. The transition started long ago and I don’t believe all would be thrown out with the bath water. You stick with what works (and has worked) making minor tweaks along the way. The $1.50 hot dog is safe for a while. Would be too costly to re-make the signs anyway!
Mr. Galanti has earned the right to retire, it seems to me, and it is evident from this announcement that he and Costco have thought carefully about how to make his transition as orderly as possible.
Not only has he been candid with Wall Street during his tenure, but the decisions he championed over the years reveal that he and his company possess a firm grasp of the concepts of price image and margin optimization. Didn’t hurt that he mostly delivered good news over the decades.
True, Costco is prepared to “sacrifice” $30 million to maintain the highly-visible prices on hot dog lunches and roast chickens. It understands the impact this investment has on price image and trip frequency. I knows that through optimization it will gain far more incremental margin on numerous items where price comparisons are more – let’s say – subtle in the minds of its shoppers.
Mr. Galanti may have decades of exposure delivering the Costco financial story to the investor community, but he was not its sole architect. This is one of the best-managed companies in America and the circumstances of his retirement are one more bit of proof.