How the pros negotiate: Costco's Jim Sinegal revisits his jousts with Sam Walton and Jeff Bezos

Jim Sinegal, the co-founder of Costco, is visiting his alma mater, San Diego State University, this week. He's retired now, and on trips like these, he talks mostly to large groups about the thrifty values that have helped the Issaquah, Wash., company become one of the world's largest retailers.

In quieter settings, though, the 83-year-old Sinegal is willing to pull the curtain back on high-stakes encounters with other retailing titans during his career. Most of these never got any publicity at the time -- but are too intriguing not to share. Sometimes Sinegal got what he wanted; sometimes he didn't. Either way, his long-ago interactions with the founders of Walmart and Amazon are rich with lessons for the rest of us.

During a 30-minute interview this week, Sinegal started me out with one of his standard public statements. "We could have sold Costco dozens of times," he told me. "But that was never our intention."

Then, a moment later, Sinegal stepped into new territory, with the deadpan remark: "Sam Walton came out to see me one time." Soon, all the details were tumbling forth.

The encounter took place about three decades ago, when the Walmart founder was running a colossus that had made him America's richest person. Costco was only a few years old then, but its warehouse-based approach to retailing was already taking off. When Sinegal's secretary told him that Walton was planning a visit to the Seattle area and wanted to meet, Sinegal said something salty at first, but privately felt flattered by the attention. It didn't take long to schedule a breakfast at the Doubletree Hotel in Bellevue, Wash., with Sinegal, Walton and fellow Costco co-founder Jeff Brotman.

"Sam was interested in our company," Sinegal recalls, "and he told us: 'We have a little more money than you do. But we will never do anything hostile,'" in terms of launching an unsolicited takeover bid.

The three men spent a day together, visiting Costco's warehouses. As Sinegal recalls, Walton was impressed by what he saw, particularly the energy with which Costco employees were getting everything ready, minutes before a facility's 10 a.m. opening. At the end of the day, Sinegal thought he'd parried Walmart's interest. But a few weeks later, Walton phoned again, wanting to know if Costco's leaders had warmed up to his idea.

Sinegal's reply: "Sam, we have no interest. We're like you. We're entrepreneurs. We want to build a company that will be here 50 years from now." Walton's reply (as Sinegal remembers it): "I understand."

Sinegal is too modest to spell out the lessons from that exchange, but it's easy to see three takeaways that can apply to similar situations. Stand your ground, even when a more powerful competitor wants you to do something that isn't in your interests. Be civil. And if you're going to say no, explain your decision by referring to values that you both share, rather than disparaging the other side.

If Sinegal got the upper hand in his dealings with Sam Walton, the back-and-forth with Amazon founder Jeff Bezos wasn't quite as successful. The two men met about 15 years ago, by which time Costco was well on its way to being a retail giant, and Amazon was still a much-smaller upstart.

Sinegal hoped that Bezos would be interested in buying goods from Costco -- at regular prices -- and then reselling them to his online customers. Costco did a fair amount of business with small rural stores that way, serving as their all-purpose wholesaler. But Bezos wanted a better deal.

"He's a tough business person," Sinegal recalls. "He wanted to buy from us at 3% to 4% less than we paid for merchandise ourselves." Those talks went nowhere. Instead, Bezos came away from their conversations with some deep insights about Costco's success in keeping markups small and prices low. When Amazon eventually launched its Prime membership program, the parallels to Costco's own paid memberships were easy to spot.

Was Sinegal too candid with Bezos? The Costco co-founder is unrepentant about his willingness to talk shop with a younger entrepreneur trying to build a business. Perhaps that's because of his desire to see best practices spread throughout American business.

But even for selfish reasons, Sinegal says, companies tend to do better if they are constantly battling strong competitors. That forces them to innovate faster and be brutally honest about their own shortcomings. It also means that an infusion of new ideas can be as easily within reach as an afternoon's experience of shopping at a competitor's store.