Sol Price, the father of warehouse retail, transformed business history with a simple yet revolutionary model—fair prices, bulk buying, and a deep respect for employees and customers. His story is a powerful biography of an entrepreneur who proved that purpose and profit can go hand in hand.
In the world of business history, few figures stand as tall as Sol Price, the pioneering entrepreneur whose quiet but revolutionary ideas reshaped the way millions of people shop. If you’ve ever walked the aisles of Costco, Sam’s Club, or Price Club, you’ve experienced his legacy firsthand. Yet despite building the foundation for an entire retail model, Price often avoided the spotlight. His story, found in the biography Sol Price: Retail Revolutionary and Social Innovator, is less about fame and more about principles, discipline, and an unshakable belief that business should serve both customers and employees.
Born in 1916 to immigrant parents in San Diego, Sol Price grew up during the Depression, an experience that shaped his lifelong commitment to fairness and value. After earning a law degree, he initially worked as an attorney before stumbling into retail by helping a client reorganize a failing discount store. What started as a side project ignited his entrepreneurial spirit. In 1954, he opened FedMart, a discount chain that would introduce new ways of serving customers with lower prices, fewer frills, and a focus on efficiency.
Price’s genius was in simplicity. He believed customers didn’t need glitzy advertising or elaborate store designs—they needed honest value. He trimmed unnecessary costs, introduced annual membership fees to align customer loyalty with store benefits, and relied on rapid inventory turnover rather than high markups. These principles were radical at the time, yet they set the standard for modern warehouse clubs.
In 1976, Price doubled down on his vision by founding Price Club in a converted San Diego airplane hangar. Initially designed to serve small business owners, Price Club soon drew everyday families eager to buy goods in bulk at rock-bottom prices. The membership model, limited product selection, and employee-first philosophy created an entirely new category of retail. Later, Price Club merged with Costco, and though Price himself eventually stepped away, his DNA remained embedded in the company’s culture.
Beyond strategy, what truly distinguished Sol Price was his moral compass. Unlike many entrepreneurs chasing only short-term profits, he insisted on paying employees fairly, offering health benefits, and treating suppliers as partners rather than adversaries. To him, a business’s success was inseparable from the well-being of its people. This philosophy not only built loyalty but also proved financially sound—companies that followed his playbook flourished for decades.
Today, Sol Price is remembered as the “father of warehouse retail,” but that title barely captures his influence. His story is a reminder that innovation in business history often comes not from flashy gimmicks but from timeless values: honesty, efficiency, and respect for the customer. For aspiring entrepreneurs and fans of biographies of great builders, Sol Price’s life offers a masterclass in how purpose-driven business can transform industries—and endure long after its founder is gone.
Deeply Driven Books (Amazon Affiliate) - 100% of commissions will be donated to help support Children’s Literacy!
Acquired Podcast: Costco
Costco: The Complete History and Strategy
Past Deeply Driven Episodes
#7 Elon Musk - Birth of SpaceX (What I Learned)
Kent Taylor and his Texas Roadhouse Dream
#3 Becoming Trader Joe | Business Masterclass from a Legend
#10 Fred Rogers: Deep Business Lessons for Entrepreneurs
I started working at Fed Mart in 1954 while still in college, A path that was followed by many of Costco's current executives. Sol gave us incredible opportunities to learn the business, teach us the skills and core principles. We applied throughout our business careers, and then later when we launched Costco in 1983.
Sol’s teachings had a great impact on our business ethics, our core values, and of course, our merchandising philosophy. he believed in developing strong operating efficiencies, and he continually emphasized passing on savings to customers.
He also insisted that suppliers and employees be treated with respect and that the latter be paid competitive wages. In 1993, our two companies, Price Club and Costco
merged to form the Costco. We know today We owe our legacy to the retail concept that Sol pioneered [00:01:00] with Fed Mart and Price Club, as do all of our competitors in the industry and big box retailers in general. For example, Sam Walton, who started Walmart in 19 62, 8 years after Fed Mart was founded, later admitted that he borrowed many of Sol’s innovations to which Sol reported that he replied.
If I was so helpful, why don't you just pay me a finder's fee?
Perhaps Sol’s greatest business legacy was the creation of the Price Club concept that as many as a dozen existing retailers and startups attempted to clone. At one point a reporter asked Sol how he felt to be the father of an industry, to which he rarely replied, I should have worn a condom
in summing up. The remarkable thing about Sol was not just that he knew what was right, most people know the right thing to do, but he was able to be creative and had the courage [00:02:00] to do what was right in the face of a lot of opposition. It's not easy to stick to your guns if you are swimming against the current of traditional thought when it comes to wage and compensation plans for your employees.
these selections were written by Jim Senegal, who is the founder of Costco and served as their CEO for almost 30 years, and they provide a really nice, warm open to the forward of the book that I would like to talk to you today about, which is called Sold Price, retail Revolutionary and Social Innovator.
This book was written by Robert Price, who is the son of Sol, and spent 45 years working alongside of his father in various capacities at their multitude of different companies.
Robert does an excellent job at giving us a comprehensive and thorough overview of Sol’s life,
which I find personally inspiring and there's [00:03:00] a lot of lessons in here that you and I can learn. Now, this episode was originally gonna be on Sam Walton in the book Made in America, but I felt it more appropriate to go back in time a little bit and look at the roots of retailing.
It really helps to understand where Sam Walton got a lot of his ideas from. And that was Sol Price. He had a major impact on the way that Sam developed Walmart, and then later on Sam's Club.
I'm really excited to share the many lessons found in this book today with you
and how we might think about them in terms of applying them towards our businesses. As with all episodes, I'm really trying to pull the most valuable lessons for us, along with looking at where that sense of purpose comes from and what makes great entrepreneurs
that you and I study so deeply driven. The episode isn't intended to be a comprehensive summary of the entire book, but I do hope to leave you with a good [00:04:00] understanding, and hopefully most importantly, you'll have the desire to pick up the book and read it and have it in your own personal library. If you find some value in the episode today, maybe you could just do me a quick favor and leave me a review on your favorite listening platform that would help me out a great deal.
For each episode, I read a new book here. I compile all of my highlights, my notes, I conduct supporting research and do some cross-referencing to make sure everything's factual and on point.
Then finally I record and edit the show to upload it for distribution. The process is incredibly rewarding for me, and I've always loved reading. Ever since I was a child, I've always been reading. But by making the podcast, after I'm done reading the book, I get to spend an extra 15 to 20 hours with that book, learning more and reflecting, thinking about the various concepts and how to tie them together across different [00:05:00] industries or look at patterns that are emerging, such as entrepreneurs who pay higher wages, those that work in an early age and learn the value of a dollar, or those that gain massive respect from their teams because they're always on the front lines and leaning in the trenches.
I really wanna deliver value for you and your business, and I do hope to reach more people. So your review is extremely helpful to me, and I just thank you in advance. If you could take a quick moment and do that for me.
All right. With that, let's turn our focus to Sol Price and learn about the Legend of Legends. I first heard about Sol Price maybe a year ago or so when I was listening to the acquired podcast on Costco, and if you haven't heard that episode, it is simply fantastic. I'll leave a link in the show notes down below, and I would highly, highly recommend it.
It is great use of time. Those guys do a really good job vetting [00:06:00] out Costco in the early roots and focusing on Sol. one thing that really jumped out at me was a quote from Jim Senegal about what he learned from Sole Price. and let me just read for you here what it says. Jim recounted the time that he received a call from a reporter to answer some questions. A newspaper reporter called me, he said, gee, you knew Sol that long. You know, since 1954. You must have learned a lot. My response was. No, that's inaccurate. I didn't learn a lot.
I learned everything I know. for me, that's an incredibly bold statement, and I find it admirable that Jim, who is the student, he drops his ego and he gives credit directly to the teacher. It kind of reminds me of what Kobe Bryant said about Michael Jordan. Everything I learned about how to play the game I got from [00:07:00] Michael
kobe was just obsessed studying Michael Jordan. He watched hundreds and hundreds of hours of game tape, analyzing every move and every step, and then on the court, he would mimic those actions. Kobe ended up becoming a master of the game, but he still has that same mindset. He openly gives credit to his teacher where it is due.
And for you and I, when we hear about great teachers of this caliber, it should really make us take a pause and focus our attention on them because great teachers in business, they are rare. Yet they offer us a really deep learning, often in very practical, in simple terms, which is what I think makes them so great.
Simple and deep. It has a very profound meaning in life. This is why I'm excited to talk to you today about Sol Price,
and if we hop in our time machine, we'll head back to January 23rd, 1916. We're gonna find [00:08:00] ourselves in the Bronx. We, Sol is born to Jewish parents that had immigrated 10 years previous to the United States. They came from Eastern Europe and they were seeking a better life like so many of the immigrants at the time.
As a boy at the age of three or four, see that Sol develops a drooping eyelid over his left eye, and this was a result of his sickness. And this leads a lot of other kids at school to tease him. In order to compensate for this, it says that he would be an overachiever in school.
now. Sol’s mother Bella. She's gonna be a major influence in his life. She was extremely hard worker. It says that she was a skilled knitter and a sewer, she worked in the factories and she would also make garments for the entire family, keeping everyone clothed. As a young child well, he's observing actions of his mother And she really instilled in him a strong work ethic and a sense of [00:09:00] responsibility. These are gonna translate very heavily into his later life as he would become known for his consistent hard work and his drive in his high standards of ethics. At the same time, Bella, she's also an advocate for Sol.
she saw how smart and intelligent he was, and she would push him hard in school. Then she would also push the school to let him skip a few grades.
If we just jump into the book here, it says, being an overachiever meant reading at an early age, holding his own with the adults in games of cards and chess, and doing well in school without really trying sa I'll skipped two grades, entering high school at the age of 13. That reminds me a little bit of Ed Thorpe on episode two.
I also believe that he skipped a couple of grades in primary and maybe
early high school he was very advanced, just like Sol here.
But at the same time it says that Sol was a bit [00:10:00] mischievous in school and Bella's gonna find herself down at the school one day for an incident that had taken place. The teacher's gonna tell her the following, the teacher told Bella that her son was very smart, but she warned that Sol could go in one of two directions, a career as a gangster or someone who would do much good.
I mean, talk about giving it to you straight, I guess. And for you and I, we know that he's gonna go on and have a brilliant business career.
Up to this point, Sol’s childhood has similar elements to what we saw in Fred Rogers that we spoke about on episode 10, Fred, he was constantly picked on in school. Kids called him Fat Freddy, which was extremely hurtful and that pain stayed with him through his entire life. His mother was also a hard worker, mostly through philanthropic efforts.
But Fred, he saw how much she cared for him and how much she helped others at the same time. She was also an [00:11:00] avid knitter and a maker of sweaters for everyone in the family, and that really had a major impact on his work ethic and his deep drive to help others, specifically through children's television.
At the same time, Fred, he was a bit mischievous in high school, but was generally an overachiever, just like Sol,
I think that goes back to the simple and deep nature of the fact that your actions speak louder than words. Both mothers in these cases, they're extremely hardworking. They're caring for others, they're making clothing for the family. They're both humble and they put their families first. these values are ingrained into both Fred. So, and I think for you and I, I believe this is evidence that working hard with passion is a valuable learning lesson for those of us with kids. And at the same time, this applies in business as the owner leading on the front lines working harder than anybody seeking and [00:12:00] applying what you learn at the same time.
If you're an employee and if you want to advance, focus on your work, learn as much as you can, ask for additional training or education where possible. That goes a really, really long ways with your employers. And I really like what you and I learned on the last episode from Kent Taylor who started Texas Roadhouse.
He said the following the lesson was, if you outwork the other guys, you will eventually get to where you wanna go and be somewhat luckier than others think you should be.
That was an early lesson that Kent learned by running harder than everyone. He's gonna go from the slowest kid on the team as a sophomore in high school to winning just about every race before he graduated, and that's gonna allow him to obtain a college scholarship as a result. It also shaped his further work life when he got into Texas Roadhouse and faced a lot of struggles building that business for you and I, it's foundational my [00:13:00] friend.Let these great founders and entrepreneurs be our teachers. We can learn so much from them.
If we head back to the book here, we'll get a quick view of Sol’s father. He was set to be a charmer. He was a good looking man and he had this outgoing personality and was always full of jokes and the antidotes and he worked really hard once arriving in America. But this dwindles, he was also a dreamer and he took a lot of risky business opportunities.
For Sol, the only thing he is really gonna inherit from his father would be this charm and this outgoing personality. This is gonna be coupled with his mother's hard work and dedication, and it really gives him a strong hand to play in life. I think one thing that really kept Sol from following his father's dreamer mentality is that his father had contracted tuberculosis and was considered disabled.
As a result of this, he was collecting a [00:14:00] $500 check each month from his insurance disability. SA says the following, my father never worked again due to the tuberculosis, yet we received his monthly insurance disability. My father lived in grave danger of getting well.
So basically, as long as his father's ill or pretending to be ill, that is, he's always gonna collect that $500 each month. This combined with tensions between his mother and father and the fact that his father was just away sometimes when he really should have been at home. This leads him to feeling very angry with his father It further shapes his focus on hard work and self-reliance. as a young teenager, Sol, would become interested in the law.
And it says that he became strongly influenced by Clarence Darrow. Now Darrow, he was the civil liberties lawyer that had strong oral skills, and he had a [00:15:00] strong courage to fight for just causes. The most famous case was when he defended John Scopes, who was the high school teacher that was charged for violating the Tennessee law.
by teaching evolution in, public schools when this trial taking place, Sol’s gonna listen intently on the radio, and it really gave him fuel and it helped him submitthe fact that he wanted to explore the law.
In 1929, Sol and his family, they're gonna move to California and he's gonna enter 10th grade where he is gonna meet his future wife.
Helen Moscowitz, they would be set up on a blind date and after that they're gonna start spending a lot of time together. However, Sol, he'sgonna be met with some resistance from Helen's parents. They found out about Sol’s father with his disability and the fact that he wasn't doing anything with his life,
and they really saw this young, skinny Sol isjust a copy of his father and believed that he probably wasn't gonna be good enough for their daughter , from my view.
They [00:16:00] were just judging a person by the cover. Now, in the book it says that Helen, she would often arrange outings with her friends, or she would pretend to have new boyfriends, and then once she would leave the house, she would just go sneak off to be with Sol. And this continues for quite some time until Sol would graduate from high school,
at which time his mother, Bella, she decides to move the family back to New York. Once they're
back in New York. Sol’s gonna attend New York University, but this is gonna be really shortlived as Bella's gonna bounce afamily back to California once again, once he's back in California. Sol’s gonna bounce around here from universities. He's gonna start at San Diego State, transfer to UCLA, and then finally he would go to the University of Southern California where Helen was also attending college. And it says at this point, they were really seriously committed to one another.
On the home front. Sol’s parents, they're continuing to argue, [00:17:00] and Sol’s mother is gonna find out that he's in love with another woman, and this would lead to them divorcing in 1935. This was an extremely rare event amongst Jewish couples Helen's. Parents are gonna find out and they're gonna forbid her from seeing Sol anymore.
That was really a big disgrace.
Then to top things off, Bella's gonna decide once again to go back to New York. She's gonna drink Sol and his sister, and Sol’s gonna attend, uh, NYU in the evenings once he's back there. And then also it says that he would work in a grocery store, but once again, that's gonna be very short-lived. He's gonna get bounced back to California finally.
This time it's gonna be for good. Sol’s gonna find a little bit of stability here, and he would eventually graduate from USC and then start attending law school shortly thereafter at the same school.
Those down casting eyes of Helen's parents, they're still present. [00:18:00] Sol and Helen, they're seriously committed and they recognize that they're not gonna be able to change the views of Helen's parents. So they're gonna have to take things in their own hands. What they're gonna do is they're gonna elope, Sol’s gonna borrow his mother's car.
They would drive to Las Vegas, track down a judge who's on the golf course and get married right there. And I just wanted to read for you how this went. We went to Woolworths and bought her a little gold wedding band for $1. One of my law professors called the federal court judge in Las Vegas, and he was available to marry us.
When we found him. He was just starting to play golf and was on the first tee of the golf course. His caddy was one of the witnesses, and that is where we got married. I like to think the golf course was where the Flamingo Hotel now is. And if I had taken the $2 I had paid for the license and bought land, I'd be really rich.
Just a couple of [00:19:00] quick comments here on this. One. I think that's awesome that for a $1 wedding band that is more than sufficient, it's not about some fancy ring, it's about love and commitment. Two, I can really feel the passion here that these two had towards one another. And that says something impactful when you're willing to be married on a golf course.
More as a formality than anything. Again, just the level of commitment. Sol and Helen, they're gonna go on and be married for 70 years. Yeah, 70 years. That is impressive. It really shows their deep love and commitment towards one another. Plus Helen, she's gonna be very supportive of Sol as he's growing his law firm and then later on building Fed Mart and Price Club and more on this than a little bit.
Sol continues to press forward, and in the summer of 1938, he's gonna graduate from USC Law School where he graduated top 10 in his [00:20:00] class, and then his next step after this would be to study and pass the bar.
Now, by this time, Helen's parents, they started coming around a little bit after Sol had graduated I think they saw that he was really dedicated to doing good for himself and doing good for Helen. Before he would pass the bar exam over that summer, they're gonna have a proper Jewish wedding.
Then after the wedding, something important's gonna happen here. Helen's father is gonna introduce Sol to a gentleman by the name of Jacob Weinberger, who had a law firm in San Diego. He is gonna let Sol start out working there, just taking on small cases, allowing him to get his feet wet, and he would get to keep one third of anything that he brought in.
It says in the book that he made about $800 in his first year. But something more important is happening here. And this next sentence, I believe is very critical. First of all, working at Weinberger and Miller was less about [00:21:00] learning the technical aspects of the law and more about relationships and the community.
And I think right here, this is the first peak that we see at Sol’s purpose and what drives him, the relationships he develops now, and over the course of his life, he cherished relationships and also the community. He had a deep respect from the community in providing valuable services. Not only in the law, but also in business later on to come.
I love these first openings of someone's life when you can see that passion. let's keep going here. Things are gonna continue to open up for Sol. His boss, Weinberger's gonna be appointed as a judge, and this really opened up a lot of legal work for Sol.
He started taking on some of his clients, specifically the Jewish charitable organizations and a lot of the local businessmen as a young lawyer. This is gonna further strengthen his commitment towards the community [00:22:00] by not charging for legal services. He was doing a lot of work for free as described in the following way,
not charging for one's legal services, especially for a young attorney. Struggling to earn a living might not have been so obvious, but Sol must have figured that one part of being a good lawyer was to give back to the community by not charging nonprofits for his legal services. He certainly was in no position to donate money to Jewish charities and besides his pro bono legal work introduced him to many people in the community, some of whom eventually became his clients. This free work right here, it's allowing Sol to perfect his craft. He's developing those meaningful relationships, and it helps him to establish his name amongst the community. And this is really a small tuition to pay that later on in life is gonna have exponential results for Sol.
[00:23:00] He learns the ins and outs of businesses before he even makes the transition from a lawyer to an entrepreneur. So in my mind, he's really just gaining this business education early and he's gonna have these skills that he can pull from later on. I think this is also a similar concept that we saw in Henry Ford when he was growing up in Michigan.
He had this passion for taking things apart, repairing watches and farm tools. And he often did this for free for his neighbors. It was these free jobs that built him a reputation as a reliable mechanic. And most importantly, it gave him confidence to start experimenting with engines, steam engines, and then later on gasoline engines.
I've also found that by doing work for free. This has often been some of the most rewarding work that I have done. At the same time, I think my mind feels open to learning and looking at things differently. [00:24:00] Generally when I'm doing free work, it's something different. Supporting a charity or a volunteer cause, and I'm not an expert.
I'm there to learn and help, and I've always found that very rewarding and I do think it's a valuable lesson for both you and I,
This is an incredibly effective tool to help us build a foundation in our careers. Or if we're transitioning to a different career or just playing, have some passion or interest that we want to deeply follow. I challenge you to put yourself out there, take on some new challenges.
I think that is when you and I learn the most it just really fires me up. To be learning from Sol and tying this in with Ford. it gives us a really unique perspective on something that we may just gloss over while we're reading the book here,
as I've mentioned before a couple of times, I believe this is the magic of podcasting, being able to obtain a different perspective, stopping to think and talk about it. It's true magic, my [00:25:00] friend.
So at this point in the book, we're up to the point of where World World IIis. T was starting Sol, he's gonna be passed over by the Army due to his drooping eyelid. And he really felt like he was on the sidelines. He was watching all of his friends get accepted into the Army. So what would he do? Well, he goes and takes a job at consolidated aircraft doing engine maintenance.
He would continue his law practice in the day, and then he would go work there in the evenings. And this finds him working 15 to 16 hours a day. He wasn't required to work at Consolidated, but he felt obligated and he wanted to be part of the efforts. This is really building a deep character for Sol as described in the book.
Unlike his father Sam, who managed to find ways not to work, Sol thrived when he was busy working hard and feeling productive. His desire to work and get the most out of [00:26:00] every hour of the day was not characteristic of his early years. Sol commented that he never worked very hard in school, at least not until law school, beginning with his early career and law, and at consolidated, Sol would continue to live his life working hard and taking full advantage of every hour of the day.
Sol had this general feeling that there was always enough time in the day to get everything done that you need to do. The problem is that most people waste so much time. The first thing he says is to be aware of how much time you're spending on the necessary items, sleeping, eating, things of that nature, and then take a hard look at how you spend your time doing everything else.
Prioritize the top items and focus on them. There's always enough time in the day.
For Sol. [00:27:00] Things are progressing forward really nice. he's building his law practice and he finds himself in a position where he is helping a lot of small businessmen and he becomes really deeply ingrained in those businesses.
I see this knowledge as like a small seed in Sol that's starting to grow and Sol’s gonna say the following,
I was dealing with small businessmen and I was very involved not only with their legal problems, but with their overall businesses as well. I handled bankruptcies, real estate deals, partnerships, divorces, and estates. Over a period of time, I really learned far more from my clients than I ever learned in law school.
And because I involve myself so deeply, I think that is where I began to accumulate the knowledge and the interest in business. I just really love this one sentence. I wanted to read it again. Over a period of time, I really learned far [00:28:00] more from my clients than I ever learned in law school. That is the real education for Sol right there.
And it's a theme that you and I see over and over on the podcast. Just in the last episode when we were talking about Kent Taylor, he felt the same way that his real education came when his schooling was done, and he was grinding his way to starting Texas Roadhouse. Henry Ford taught us the exact same thing.
He says, we really begin our education once the schooling is complete. life is the greatest educator of all. Now, all of this hard work for Sol in the legal trade is about to put him into contact with a serious mentor in that of Mandel. WeissHe's 25 years older than Sol.
Almost immediately they would become good friends. And Weiss is gonna be a mentor to Sol. He had a lot of [00:29:00] business experience and he had a lot of knowledge in this area, along with established connections. they're gonna hang out a lot together and they're gonna enjoy some time going to the racetrack and just getting to know one another.
And this really blossoms into a nice relationship. And I'm gonna come back to Weiss in just a few minutes
because I wanted to take a look at how Sol’s legal dealings are gonna nudge him a little bit closer to his first steps in retailing his mother-in-law. Yes. The same one that despised Sol and Helen for so long. She is gonna come to him as a client. After her husband had died, he had owned a piece of property that was like a full city block.
It says, and this property was empty and it wasn't producing an income. Sol’s gonna generally just advise her to sell the property, but this is gonna yield like a $21,000 tax bill and she didn't wanna pay that much money. This piece of property was [00:30:00] estimated at $150,000. So Sol proposes that they try to find someone who would be willing to do a trade of a piece of property that might be of equal value.
So in 54, they would eventually find a match, Sol’s mother-in-law is gonna take over this 21,000 square foot warehouse. Now, once the deal's done, Sol’s gonna say the following, and believe it or not, that was the beginning of my business career. He doesn't quite know it until he reflects back on it, but at this point in time, Sol’s next step would be to find a tenant.
Enter back into the discussion. Mandel Weiss,
who's gonna nudge Sol closer to his retailing career? In the book it says, the following,
weiss not only helped find a tenant in doing so, he introduced Sol to his career in retailing. And how, so you might ask, that is a great question. Weiss, he had a business [00:31:00] associate who was a jeweler. This jeweler had a wholesale account with a membership retail store in LA that was called Fedco.
And this jeweler, he was selling suitcases of jewelry to these guys up in LA like crazy. Now Fedco, they had been set up as a nonprofit company and they were just selling discount goods to federal employees and postal workers. They had developed a great deal of customer traffic in this little specialty niche.
So Weiss is gonna convince Sol to take a little trip up to LA to check out this store that was located
in a non-traditional area of Los Angeles. Once they arrive, they are immediately impressed by what they see. I think they stumble upon something else that is extremely critical. They're gonna discover that as many as 5,000 Fedco members lived in San Diego and they were driving 200 miles round trip to take [00:32:00] advantage of the bargain pricing.
So on their way
home, the discussion is strictly on Fedco and their business model. And I would've loved to have just been in the car listening at that time, the discussion going back and forth and what develops because I believe this is literally the conception point of Costco that you and I know today.
This is the origin, my friend. It's the absolute beginning, the kindling that's gonna start the fire.
they had basically come to the conclusion that they were gonna try to convince Fedco to come to San Diego and Sol, he had the perfect spot.
they conclude that the Fedco approach would work really well in San Diego. They already had 5,000 members that they could pull right into that store. In addition, he also had the perfect spot in his mother-in-law's newly acquired empty warehouse. So you think it would be really easy to convince Vetco?
Right. Let's see what happens here. [00:33:00] As soon as they returned to San Diego, Sol took Weiss and Friedman. Uh, Friedman was the jeweler that I mentioned to see the Main Street warehouse. Everyone agreed that the building could be adapted to a retail business use. Initially, the plan was for Sol in his capacity as the lawyer for Weiss and Friedman to call Fedco and propose a joint venture to operate a Fedco in San Diego.
Sol made the call, but Fedco flatly turned him down. Then Sol made Fedco a second offer. Fedco would own and operate the business. Except for the jewelry department, which would be owned by Weiss and Friedman. Fedco again said, no, Fedco didn't want to have anything to do with us. Weiss called. In retrospect, we were lucky.
Weiss and Friedman with Sol assisting concluded that they just maybe could open their own Fedco type business [00:34:00] in San Diego. And I think the seed has just popped through the soil right here. I think Lucky is also very correct. While I'm sure they might have felt a little bit of disappointment in Fed CO's rejection, they dodged a bullet right here.
Plus it basically forces them to take an action, one, call it good and stop right here. Or number two, move forward on their own, which as we heard was gonna be their plan. So with a limited amount of retail experience amongst them, they're gonna be in for a lot of trial and error along with a wealth of learning. And before we hop into the beginnings of what they would call Fed Mart, I just wanted to set the landscape here real quick around what retailing was like in San Diego so you can get a feel for this.
First up is that of department store selection. In merchandise San Diego's department stores and chain retailers offered a [00:35:00] deep selection with their product lines. For example, the shopper interested in purchasing a toaster. There might be four or five brands to choose from, and three or four models of each brand.
Retailers premise, their business approaches on having something for everyone.
Then the next important concept was around fair trade laws. Stores sold their goods at full retail, with the exception of occasional sales. They operated on high markups to support their large overhead expenses. All retail stores adhere to fair trade laws, laws that gave manufacturers the right to set minimum selling prices for their products,
then the overall shopping experience when you went to a retail store. They had this really large overhead. A lot of these stores, and here's why. personal service was common in the fifties. Nicely dressed sales clerks provided a friendly service at the sales counter where [00:36:00] purchases were rung up at cash registers and individual departments and were paid for in either cash by check or store issued credit.
Once the sale had been finalized, merchandise was packaged in attractive boxes that clearly displayed the name of the store. These stores were a visual experience with colorful merchandise displays in the window facing the sidewalks, bright display cases inside the store, and special decorations at the holidays along with the Santa for the children.
A shopping excursion to downtown was a major event with women wearing gloves and hats and their best dresses. Shoppers would spend most of the day going from store to store, stopping for lunch with their friends at one of the more fashionable restaurants. As we can see right here, this is where all the overhead went to.
But things that are brewing in the retail industry in San Diego here, the middle class is expanding quite [00:37:00] rapidly. There were a lot of young families that were having lots of children, and they were needing a wide range of items for their newly purchased homes. As home ownership was also on the rise here.
Then another important thing happens in 1954 saw is gonna take a little trip to New York where one of his cousins is gonna convince him to go see a new kind of retailing discount store. And this was called ej. Corvettes that had opened in 1948.
And what Corvettes was doing is they were selling home appliances and products for deep discounts way below any of the fair trade prices. And you might ask, well, how were they getting around this? , That's a great question. What they did is they sold memberships.
This is a concept that was pioneered by Eugene Forough. He was the founder of Corvettes and he would build it into something like 50 stores.
And while he was doing [00:38:00] that, he also put a lot of those traditional five and dime stores out of business because they simply could not compete with him. I found that really quite interesting and I did a little searching and I was able to buy Eugene KO's autobiography on his Corvette's business. And once I have the chance to read that book, I'll either make an episode or a bonus episode to let you know how that is.
I really like how we're guided by the things that we read and having the choice to be able to explore it further or let it lie. I think that's huge Like how I was gonna start with Sam Walton, but decided to go back further to look at Sol and now even further to look at Eugene Furk. Now, the book doesn't really say how much of an impact this had on Sol, but I can only imagine that it really helped him cement the fact that he was onto something big here.
So at this point, they decide to keep moving forward with their plans to open the Federal employees Merchandise Mart [00:39:00] or Fed Mart. And Sol would say the following, reflecting back on those early days, most of us had backgrounds that were alien to retailing. We didn't know what wouldn't work or what we couldn't do,
but they were committed and Fed Mart was born. And right here we see a really valuable lesson for you and I. That you don't need to be an expert in something to simply get a business started. I believe starting is simply half of the battle. These gentlemen, they're all ambitious and they want to figure things out, and they would do so as they went along and, and if you have that drive and that focus, anything is possible.
Look at Elon Musk for example. He didn't know how to build rockets prior to starting SpaceX, but he went to great lengths to educate himself and hire the talent that could help him set aggressive schedules, learn from his mistakes, and they blazed a trail [00:40:00] forward to develop functional rockets.
And we have SpaceX today. As a result, the same things happen here with Sol To get things started, he's gonna go out and raise $50,000, of which 5K was his own money. And it says in the book that that 5K was really a lot for Sol and he believed that he is really gonna be successful. And he had that confidence.
And this really gives him more fuel to drive towards developing a profitable business.
It says that in the beginning they're gonna structure fed Mar. As a nonprofit. And then what they're gonna do is they're gonna set up a second company called Loma Supply, and that was their for-profit side of the business. Loma would go out and purchase all of the merchandise, and then they would market up like 5% and sell it to Fed Mart.
And it was that 5%. That was the only thing they really got to keep out of the operation. They're gonna lease that warehouse from Sol’s mother for a thousand dollars a month. And then another [00:41:00] smart thing here, what they did is they made an out in their lease. They basically said if they weren't doing very well after the first year, they could cancel that lease.
And I think that was actually a smart move on their part it can never hurt to ask for additional clauses or concessions in our leases here. And that was wise of them to do. They're all brand new. They don't know retailing, they're learning on the fly and they wanted to have that out. Sol, he's also gonna have an out when it comes to working in law and opening his retail business.
And we'll talk about that here in a little bit. So they're gonna get the business off the ground in November of 54 for just $50,000. And right here we're gonna see another insightful. comment by saw one that I really love. I used to say afterwards that when we didn't know what we were doing, it only took 50,000 to start a business.
And five years later, when we're really experienced at running Fed Marts, it took 5 [00:42:00] million to open. Such a great insight right there when they first started. They're scrappy, they build their own shelves and they're doing a lot of the hard work themselves. Then as they grew, things became a little bit more complex and fancy, but they had a model that they could work from.
For me, these are really the fun and exciting times when you're just getting started and you really gotta be scrappy and you're always hustling to make ends meet later on in life. When you reflect back, you can really see and appreciate all of this hard work that you put in. But when you're going through hell getting started, it doesn't feel so appreciative.
At any rate, they're gonna open in 54
and in order to shop at Fed Mart, you would have to be a member of the military. Or the federal government and then you were required to purchase a $2 paper membership that was good for life. They're gonna do something really wise here. They're gonna keep their stores open [00:43:00] until 9:00 PM And this was a major hit, especially for those working class families because those traditional stores that we talked about just a little bit ago, they all closed at like five or six.
So just by extending their hours, they made things available to their clients and their customers.
In addition, all of the products are gonna be what are considered self-service. So basically what that is, is everything was displayed on wooden shelves that they had made. You would collect whatever you want and then you would just take 'em to the front of the store where they had a central clerk. And this concept was considered self-service.
And this was really a new trend at the time in retailing. This is one that we're familiar with today, but when this was just getting started, this was really an innovative approach in retailing. Some of the first products that they sold would be mattresses, clothing, luggage, furniture, power appliances, hardware, large and small appliances and liquor.
Everything is gonna be cash only [00:44:00] except for the furniture and those large appliances. They were just starting to accept credit on those. And how much do you think they might sell the first year?
let's see what Sol has to say. From the day that Fed Mart opened for business in November of 54, the store was an immediate and spectacular success. Sol later recalled, we had anticipated that we might do 1 million the first year, but it ended up approximately three times more than what we expected.
It was the hottest thing to hit San Diego in a long time. With this smashing success, they're gonna see a little bit of trouble from some of the other businesses in the area. And one instance in particular is really gonna catch 'em off guard and it's gonna cause them to shift the way that they conduct business. It still plays into the way that Costco operates today.
Let me just read for you here how this went down. Right before we were going to open, [00:45:00] A guy came into the Fed Mart premises. He represented himself as being a betting inspector from the state of California, who's responsible for seeing that things like pillows and mattresses do not have any deleterious stuff in them.
Here comes the bedding inspector and he has a long list of questions and he hands them to Leo Friedman, our first President of Fed Mark Corporation. And the questions had nothing to do with pillows and mattresses. I politely and firmly told him to get the hell outta my place if he wanted to close this down to take his best shot. We never heard from him again As a result of the betting inspector's experience, Sol concluded that we fed Mart that is, had to be super careful about what we did.
We started developing rules of behavior, especially with regard to representations or things we were putting out to the public. So in the history of Fed Mart in [00:46:00] printed materials, never once did we use a superlative such as best, lowest, or cheapest. We did not use any comparative pricing as a result of the betting inspector incident.
our whole approach to the way we marketed to people from then on up to the present day was totally different than the conventional approach.
This just feeds into Sol’s passion about his fiduciary responsibility to the customer. He says the following,
Sol described his business approach as the professional fiduciary relationship between us, the retailer, and the member, the customer. We felt we were representing the customer. You have a duty to be very, very honest and fair with them. And so we avoided sales and advertising. We have in effect said that the best advertising is by our members.
The unsolicited testimonial of the [00:47:00] satisfied customer. This fiduciary relationship with the customer was similar to the golden rule the way Sol put it. If you want to be successful in retail, just put yourself in the place of a cranky, demanding customer. In other words, see your business through the eyes of the customer.
That is absolutely right. Service before profits. As we've learned from Henry Ford so many times, if you put yourself in the customer's shoes and you treat 'em with respect and you give 'em a fair and a decent value, you're sure to attract attention. And word of mouth is by far the most powerful advertising we have in our businesses.
with Sol and Fed Mart we can see that this worked. They tripled their sales in the first year Sol, he wanted to test his idea in a new market, would Fed Bar [00:48:00] work somewhere else, but before they did this, they're gonna make a few brief legal changes in their organizational structure.
The supply side Loma is gonna purchase the Fed Mart trademark and they're gonna continue to conduct business in a for-profit manner. And then they would close down the non-profit Fed Mark Corporation. Remember Sol, he's a lawyer. So all along the way, throughout the book, he's always adjusting the legal structure of the entities that he was involved with.
He's always wheeling and dealing different real estate projects. At the same time, Sol was very active and engaged. So what they're gonna do here is they're gonna open a second location in Phoenix, Arizona. Once it was open, it's gonna exceed any of their expectations beyond any of their wildest dreams.
This really validates for Sol that the concept, it wasn't a fad and that it could really work anywhere [00:49:00] and shortly after the second store opened. Sol’s gonna finally take over as the president of the company. Just a little bit ago, we had spoke about outs and I mentioned that he had that out on his lease after the first year they could get out of the lease if they weren't doing good.
Well, he also had an out for himself and his working career. He maintained his lawyer practice for the first two years while they were opening Fed Mart. Once he saw that things were gonna be successful, he's able to transition over to being a full-time businessman. Now, if things hadn't have worked out, he still has that out to stay in his law profession.
I think that was cautious, yet smart by Sol at that time, especially with not a lot of experience in retailing.
With the success in Phoenix, they're gonna go on and open a third location in San Antonio,
Here at this point in the book, we see Sol confront a wage issue. And this is really gonna help him shape his [00:50:00] policy around the way he paid employees all across his company. Let just read for you here.
At the time the San Antonio Fed Mart store opened employers were paying their employees 50 cents an hour. Sol knew that people couldn't live on 50 cents an hour. He decided that the wage rate at Fed Mart would be a dollar an hour. Of course, everyone wanted to work at Fed Mart. The fact that Sol was concerned about giving decent wages to employees was one thing.
But why would he require Fed Mart wages to be twice as much as his competitors
Fed Mart was paying employees $1 an hour in San Diego and in Phoenix? the wage decision in San Antonio was simple. Employees in San Antonio worked just as hard and as well as other Fed Mart employees. Fed Mart had excellent profits in San Diego and Phoenix while paying good wages.
Why not apply the same wage philosophy in San Antonio like what we've [00:51:00] learned on previous episodes when you pay your employees higher than market rate. You can really attract the top tier talent who's gonna come in and they're gonna work hard for you and they're gonna feel connected for the company.
Sol, he's a high integrity businessman. He treats others with fairness and respect, and he didn't care what the norms were in San Antonio. he did the correct thing by his employees. Imagine if he only paid them 50 cents an hour. I have to believe that his employee retention would be really low. Plus if someone came along and offered 70 cents an hour, what do you think those employees are gonna do? They're probably gonna split, and Fed Mart is always gonna be looking for new employees.
Many companies, they might spout off some cost of living bullshit or something silly like that. So he doesn't do that. He takes the high road, he pays his employees in honorable wage. That is [00:52:00] very, very respectful. And speaking of doing the right thing here, his next door is gonna be in Dallas. Just listen to this.
Fed Mart built its first store in Dallas. Sol was negotiating a mortgage for the property with a major insurance company when he noticed that the mortgage agreement stipulated that Fed Mart must maintain separate bathrooms for whites and color people. Sol told the lender that the separate bathroom provision was unacceptable, and he would not enter into the mortgage agreement unless the provision was removed.
The lender did in fact remove the provision, and Fed Mart was able to complete the mortgage on the Dallas property and operate its business with one set of restrooms. Once again, Sol chose the right way and was able to achieve a victory in the battle against segregation. We see Sol, he's changing the landscape of retailing yet again.
One restroom for all humans, regardless of color, [00:53:00] should have never been separated in the first place. But Sol, he chooses the right way for his customers and he gives them honor and dignity that they deserved
Now, the next step for Sol here with all of the success is gonna be to take the company public. And this happens in 1959. They're gonna sell 170,000 shares of the company at $11 raising almost $2 million.
They would end that same year with sales of 26 million and about $470,000 in profit, which is not too bad for a 5-year-old company. I must say.
Sol’s gonna continue to expand his product selection across his store footprint, and in 1959 he's also gonna add this concept of discounted prescription drugs. And this really blew up on him, but he holds his guns here and he pushes forward really hard on this. He believed in giving people value, [00:54:00] especially when it came to prescription drugs, the ones that they needed for their health.
And for some added context here, just listen to what their first director of pharmacy would be subjected to. This is brutal, and this is just for doing your job, trying to sell at a lower price.
Wayne Malloy withstood numerous obstacles in opening the first pharmacy
Pressure from the local and state pharmacy organizations. Pressure placed on the wholesale company not to deliver or sell to Fed Mart. difficulty in obtaining a permit from the state board pharmacy. He was expelled from the local and state pharmacy organizations. He received numerous death threats and a rock was throwing through his living room window, and he was treated like a traitor in his profession.
That really took a lot of courage to be put into that position and stand up for something that you believed in. However, within a few years [00:55:00] they're gonna see the landscape starting to shift in.
A lot of pharmacies are gonna start lowering their prices so that they could be competitive with Fed Mart most found it really difficult. And right here, Sol, he really believed in what he was doing and he held to his guns. He really believed that he could lower the price on anything including gasoline.
Sol’s gonna do a little bit of research, and he determines that he could buy premium gas for just two pennies more than that of regular gas. So with a little bit of basic math, he determines that he can just go ahead and sell premium gas to his customers for 2 cents more than that of regular.
This really set off a shit storm, especially with the major gas suppliers who also operated their own stores. And listen to this, they cut him off and they refuse to sell to [00:56:00] him. And do you think Sol’s just gonna roll over on this? Nope. He's gonna create a subsidiary that would act as a wholesale gas supplier, then he would acquire the gas in Texas from the suppliers.
He had it shipped through the Panama Canal and then they would offload it in Long Beach, California. That allowed him to keep the supplies flowing for his locations in California. And I tell you, that is brilliant, absolutely brilliant, and it's another super valuable lesson for both you and I that when we're faced with challenges like this, there's always alternatives.
We need to look for creative ways around these problems. It really reminds me a lot of Joe Colon that we spoke about back in episode three, and he was always looking for that reasonable strategy to move the business forward. He said there was no perfect strategy in business, just [00:57:00] a reasonable strategy.
and to put this concept into play, when Joe learned that seven 11 was coming to his town,
he knew that he was gonna get crushed. They're a thousand times larger than what he is. They have more resources and they're able to scale up quickly and they're gonna crush his six location convenience store business. So it takes a few days to develop a reasonable strategy to move things forward, and this is ultimately gonna become what we know today as Trader Joe's.
The lesson here, my friend, always be looking for different angles. Keep your eyes, your ears, and your heart's open For what your next move might be.
This will pay off big time for us down the road.
always have a reasonable strategy to move your business forward. Now, speaking of reasonable strategies, Sol, he's gonna push Fed Mart into private labeling and he's gonna seek out [00:58:00] products with specifications and standards that are nearly identical to that of the national brands. And then he would just blow 'em out of the water on price one example of this was private label liquor.
he was able to take his private label and just mark it up by 12% and it does so well that He decides to do the exact same thing with that of the national brands
and with the success of the national brand,
this really sets the tone for developing Fed Mart into what is known as a low margin retailer, not a discounter.
Another rule that Sol had put in place for Fed Mart was no loss leaders.
He said that when you have a loss leader. And you're selling something at cost or below cost, then you just need to go mark up other products beyond what was fair to cover that loss leader. In fact, this is amazing. Listen to this. For items that were cheaper in [00:59:00] traditional grocery stores or retail stores, he told his store managers to make signs so that they could tell customers to buy those products cheaper at those grocery and or retail stores.
And this does a few things right here. One is it shows your customer that you're serious about getting them the best price, even if it's not your price. And then two, it drives customers to those stores to buy those loss leaders hoping that the customer is just gonna buy everything that, they needed from Fed Mart.
This puts a lot more pressure on those grocers and retailers forcing them to really think about those loss leaders. imagine for a second if you are a manager of a traditional grocery store and people are just coming in, buying your sugar, that's your loss leader, and they don't buy anything else. And I would have to say after seeing this repeat over and over and over, you probably think about your [01:00:00] strategy a little bit differently. Then my third point on this is that it put expectations on his buyers to get things at the proper cost so that they could drive a fair and proper deal for all of their customers.
While we're talking about sales here, he's gonna take this even further and he's gonna limit the number of skews that they would carry. this is a concept that he had developed called Intelligent Loss of Sales, which seems a little bit odd when you say it out loud, especially if you're focused on sales and moving product.
Once you stop and think about it though, it really does make sense. And I just wanted to kind of walk you through what this entailed. So the conventional thought is.
to stock as many items as possible, and the example in the book is a three in one oil that came in sizes of two, four, and eight ounce. What Fed Mart decided to do is just carry the eight ounce size [01:01:00] because it offered the absolute best value on a per ounce basis.
The intelligent loss of sale turns this upside down, believing that the customer is more sensitive to price versus that of selection. The customer that really needed this oil well, they're gonna buy the eight ounce size because that's all there is on the shelf, and that was acceptable for most customers.
Now, there were a few who didn't need that eight ounce size and wouldn't buy it, and they would pass it over. That right there is the intelligent loss of sale. So by taking this approach, they found that they sold more of the eight ounce size than they would've sold if they carried all three sizes together.
Which I think is simply amazing, and it's just another one of those very simple, yet deep concepts that have a really big impact. This also has [01:02:00] an additional ripple effect on the backside of the business operations because you see in retail like this, 90% of their overhead costs are due to payroll.
So when you have fewer items, this results in reduced labor hours all across the supply chain. So you have to order less stuff, you have to ship less stuff, you receive less stuff, you don't have to stock as much. Checking out is easier. It takes the same amount of time to check out a two ounce or an eight ounce can.
So let's go with the bigger one. And then paying vendors, you only have to pay a limited number of vendors. So it's just so much cheaper to deal with 4,500 items versus 50,000 items. For Fed Mar, they just focused on the larger unit items, those that would offer the best quality for their customers. And if we jump back to Joe Kalo here real quick, at Trader Joe's, he took the same approach limiting the number of SKUs.
[01:03:00] He just focused on having the ones that drove the absolute highest value for his customers. And he saw a really great success with that model. He allowed each SKU to be a profit center. Once they were sold, he could look at the cost, the margins, and the profits and figure out which ones did the best. That was really a game changer for Joe Kalo when he was building Trader Joe's.
I think this is also something that we can seriously learn from. And I really urge you to think about this concept for your business and how it might have an impact. Sol, he was really passionate about providing top value and fair prices for his customers, and this is putting a lot of pressure on the retail world.
At the same time, so many retailers are cutting their margins and they're trying to drop their prices to compete with Fed Mart.
So another thing that I really like about Sol here he was passionate about giving great [01:04:00] value, but just as passionate about teaching and teaching his employees well. And he took really, really good care of 'em. One employee that we heard from at the top of the show that, of Jim Senegal.
He was hired by Sol in 1954, at the age of 18, and he started at the very bottom. He was unloading trucks and stocking merchandise. But Jimmy, he was an extremely hard worker and he was very intelligent and he rose up through the ranks quite quickly, reaching executive VP over shipping and merchandising for Fed Mart.
And he is also gonna be Sol’s protege for more than 60 years. That's phenomenal. I really just love what Jim said about Sol. We heard this at the top of the show, and I think these words are just powerful. I wanted to take a moment just to reread them again for you and I. Jim recounted the time that he received a call from a reporter to answer some [01:05:00] questions.
A newspaper reporter called me and said, gee, you knew Sol that long. You know, since 1954, you must have learned a lot. My response was, no, that's inaccurate. I didn't learn a lot. I learned everything. Everything. I know that. Such a profound statement because it really expands out to everyone in the business.
Sol was a really great teacher, but he also expected you to think Sol really wanted all Fed Mar employees to think about what they were doing, why they were doing their jobs, and why it was important to the success of Fed Mart. He wasn't a big fan of procedures and training manuals because he really thought that the manuals were a substitute for thinking.
I think that description of [01:06:00] Sol’s teaching methods carries a lot of weight. Sol really wanted his employees to feel connected to the business, taking that ownership and feeling empowered to be able to make decisions on their own, and I just really love that line of thinking and I wanna expand upon it here just a little bit.
It reminds me of a video that I saw not long ago with Mr. Beast, Jimmy Donaldson, where he said that his goal was to train his most trusted employees to think like him. And he says in doing so, that he has a little mini clone of himself. Now, he does say that this takes many years for this to happen, but he's been doing this so long that he now has several copies of himself in these people that he can trust to make decisions exactly like he would.
So thus, he's basically multiplying his decision making power. And this makes a dramatic impact in your business when you could have multiple [01:07:00] people thinking like you and making high quality decisions. And Sol right here, he's using the exact same approach, 60, 70, 80 years before Mr. Beast.
I think if you're in a heavy growth stage and you're stretched really thin, I would put a major focus on this concept that you need to develop what Sol calls your alter egos to help push you further. And let's just take a look at Sol’s thinking here. He must teach his employees to become his alter egos, So that they understand the importance of their jobs and perform their jobs as well, or better than he, the owner would if he had the time. As a corollary, the owner of the store needs to use his time to do the highest skilled work and delegate less skilled work to his alter egos. And that way the owner will devote his time to managing the business and making sure that his [01:08:00] alter egos are doing their jobs and doing them well.
SA really demanded that people use their brains and run the business. Don't let the business run you. You run the business. And he demanded this from his managers to stay in front of the business and he trained his employees really fricking well. And an added benefit here is that it could be seen and felt by customers. ' cause he expected employees to act on behalf of customers and in their best interest.
This is also expanded to the products that they sold and they implemented in the return policy,
which is stated in the following way. Everything we sell is guaranteed unconditionally. We will give an immediate cash refund to any customer, not completely satisfied with the purchase made at Fed Mart. No questions asked. And that policy [01:09:00] still exists today at Costco. I know I've taken several things back and have been issued a refund almost immediately, they take that really seriously and it went a long way for Sol to build that customer loyalty.
And I believe that Sam Walton must have lifted this concept in the early days of Walmart with his satisfaction, guaranteed positioning, and his immediate refund policy. And let's just hear what Sam would have to say about Sol. I learned a lot from Sol. Price, A great operator who had started Fed Mart out in Southern California in 1955.
I guess I've stolen, I actually prefer the word borrowed as many ideas from Sol Price as anybody else in the business. I really like Sol’s Fed Mart name, so I latched right on to Walmart. Quite impressive, I must say, and I'm really looking forward to the next episode when we'll cover Sam Walton [01:10:00] and how he built Walmart.
Now, right now we're in the year 1962, and we're gonna see the emergence of many discount retailers in this year, specifically Kmart, target and Walmart in Fed Mart. They're gonna start feeling the pressure from these discounters real soon, especially in Kmart, who would compete fairly hard against them in many markets.
So by 1975, they're definitely feeling this pressure. And Sol, he's gonna travel to Europe to take a look at some hypermarkets. These were basically stores that are selling everything under the sun. Sol was trying to get some ideas on how to expand, make Fed Mar better so that he could stand up against the competition that he was seeing now while he was in Europe.
He's gonna meet a gentleman by the name of Hugo Ma and he's gonna be immediately impressed by these hyper markets that Hugo's running.
At this point in time, it says in the book The Sol was generally open and quite [01:11:00] frankly, that he liked the idea of selling Fed Mart. So they are gonna work out a deal in which Fed Mart is gonna be taken over by Hugo Man and his company.
Now the next thing that happens, this is shitty and it's shady, and I just want to go through this during their entire negotiation process, Hugo was described the following way, man and his staff made an effort to treat us well and to demonstrate that the work cough concept was the wave of the future.
Mon was careful not to criticize Fed Mart yet he did not hesitate to tell us how beneficial it would be for Fed Mart to adopt many of the work CO's merchandising approaches. In fact, we were impressed with the dynamic nature of the work off concept demonstrated by the sales volume being achieved in their stores.
When we returned to San Diego, we had a meeting with Sol to confirm that yes, we thought work off was an impressive [01:12:00] concept that we liked the people we met, and the relationship with Mon and his company would help Fed Mart. So the deal's gonna move forward and they're gonna close and they're gonna transfer the business.
Over to Mon and part of the agreement would have Sol running the operations as normal. But the shit is about to hit the fan right here. And let me just read for you
for a few months. Immediately following change of control, fed Mart continued to operate as before the first indication of real trouble occurred at the first meeting of the new board in September, which was held in Sol’s office on Fifth Avenue. All board members were present, including Sol, Hugo Ma, Hees
Hines, gun Luck, David Lubert, and me, uh, me is Robert Price. This was the first time that Sol and I experienced the real Hugo man rather than the friendly person we had seen. Man launched [01:13:00] into a 90 minute tirade criticizing Sol and Fed Mart's performance during man's Harang. He looked only at me, never once looking at Sol or addressing a single remark directly to Sol
Neither saw nor I uttered a word, despite the humiliating attack launched against us. Some years later, Hans Scholin told us were finally seeing Hugo Man's true character, a side of him that executives in Germany saw every day. After the board meeting, Sol told me that it was only a matter of time before man would move to oust him from the company.
Sol said that we should continue to operate the company in a responsible way, but prepare for the inevitable. And the only thing that comes to mind for me is what a deceptive effort. Imagine you're in Sol or Robert's shoes seeing this for the first time [01:14:00] after you had just sold your company to him.
I would be completely shocked. Man is like a rabid dog right here just coming at you out of the blue. And then when you read this in print. It almost puts you in the room and it just really makes your stomach drop a couple of notches. It's just a true learning lesson for you and I to do as much homework as you possibly can, especially in these critical situations, or if you're thinking about selling your business, or you really gotta dig in and figure out who it is we're working with.
Because anyone could pretend to be something else for a short period of time, but eventually their two colors are gonna show up. And I'm sure that Sol did his absolute best, but he had been deceived by Mon, and this was just extremely unfortunate. But we also know Sol, and he's gonna find a silver lining in the very near future, and this will work out very well [01:15:00] for his benefit in the long run.
But for the short term here, that's just devastating that that happened.
Sol would continue on with Fed Mart for a few more months, and then it says on December 5th of 75, he's gonna be terminated from the company that he had started. Uh, his son Robert, is also gonna resign shortly thereafter. And then Jim Senegal's gonna be put in charge and he would have the unpleasant duty to deliver the news to everyone that Sol had been fired.
Sol was extremely popular all across the organization, and I'm sure that would've been very difficult for Jim to take on that action as well. But what happens almost immediately, I think it was like the next week, Sol forms the price company and where is he gonna put his offices in the same building as Fed Mart?
One floor above them. every day he's going to his new offices, riding the elevators, passing people that are still working at Fed Mart. I'm [01:16:00] sure that had to be a little bit uncomfortable, but.
he does it anyways, and he continues to move forward. He doesn't stop here. He's gonna bring in his two sons, Robert and Larry, and they're gonna start brainstorming some new business concepts.
They're gonna land on a concept that was known as the Price Club. And this would be an organization that's gonna be set up as a wholesale business that's selling merchandise to small and independent businesses.
this would allow those business owners to buy supplies directly from them, like a one stop shop versus going out to tens or hundreds of different suppliers. It just allowed them to go directly to Price Club and grab everything they needed in one convenient trip.
Plus they had all the knowledge from Fed Mart, so they're able to implement a lot of these concepts. It's just gonna be a different set of merchandise focused on a different set of clientele.
So once they got their ideas solidified, the next step was to go out and raise funds. [01:17:00] Sol’s gonna raise two and a half million dollars through equity financing, and in this approach he's gonna sell 500 shares at $5,000 each. Sol, he would purchase 160 shares for himself, it says, and then he would go out and secure a $4 million line of credit through bank of America.
Sol would also make arrangements in which his managers could buy shares up front and then pay for them over the course of the year, because he really wanted as many people as possible to invest in the company and feel like owners that gave him a real sense of empowerment there.
After they had raised all the funds, they're gonna open their first location in San Diego. and to be a member, you had to be a small business owner, and then you would have to pay a $25 yearly membership fee. I just wanted to say a few words here around the membership fee. structure. So he had figured that the average customer would spend something like a thousand dollars a year in [01:18:00] purchases. So that membership fee was equal to about 2.5% of that $1,000. So what this allowed them to do was reduce their markup even further.
if we think about that 12% markup on liquor, they can now go with a markup of 9.5%, and then they make up the other two point half percent through the membership fee. And this really gives 'em an advantage because now they can just lower their prices for all of their members across the board.
In addition, the membership concept also helped to reduce operating expenses for the business because the membership psychology is tied with the member to the price club, and it eliminates their need to advertise. So when you're a member, you want to keep going back over and over and over. They had nice customer retention and repeat business, and they didn't feel that they needed to advertise to those customers to get them to come back into [01:19:00] the store.
That's a powerful, powerful benefit of the membership right there.
So you might ask how would things start off for Price Club? Well, they're gonna be a little bit shaky. They're expecting to do around $200,000 a week. But instead, they would land at $30,000 a week. They would ask their employees to park cars in the front to make it look like they were busier than they actually were.
Sol and Robert both admit here that they made some wrong assumptions up front. The first was that they had a lot of options for hardware and variety stores when many of those smaller stores were already starting to go outta business. And they were kind of dwindling off at that time.
the second item was that they sold by the case when they discovered that a lot of business owners really wanted to buy single items. And then the third thing here is they said that the hours were wrong. They really believed that these business owners would wanna shop in the morning, but they found out that they would prefer to come in the evening after they [01:20:00] had finished working all day.
So they're gonna make some dramatic changes in these areas. They're gonna learn from their customers and their demands, and they're gonna make a lot of adjustments. Now, one day they would be out meeting with a purchase manager for the City of San Diego, and he's gonna ask if members of the San Diego City Credit Union Could join the price club. So i's gonna give this a little bit of thought. I don't think he had thought about that before. So he takes a little bit of time and he thinks it over and he comes to the conclusion that credit union members could join for free, but they're gonna have to pay 5% more than that of the wholesale customers.
He didn't want those business customers to feel like they were losing their value against the credit union members, especially since they were getting those free memberships. This really worked out to be a wise move for them. And it made all the difference in the world because those credit union members, they're gonna join in very large numbers and they're gonna outpace those business [01:21:00] customers
and then when many of those credit union customers found out that they could save 5%, they either wet informed businesses or they found family members who had businesses and they would urge them to sign up and then that just allowed them to save even more. So this concept is really catching on here, and that was just a brilliant move and it was unexpected and I think it's just a great lesson for you and I.
That we should always be open to taking some risk like this and doing some experiments, as we never know what might result for us here,if they would've passed on this, possibly they wouldn't have survived long term, or maybe it would've just taken longer to get them into the black.
By November of 76, they're doing 151,000 a week. That's quite a dramatic jump up from just 30,000 a week. From this point, they're gonna start repeating the Fed Bar expansion playbook. They're gonna open in Phoenix, followed by another location in San Diego, and then [01:22:00] Mesa, Arizona.
And they would become extremely efficient at moving merchandise. so efficient in fact, that their suppliers were basically funding their business. And listen to this goodness here, price Club, they had $8 million in inventory and accounts payable of $7 million. So that's about a 90% payable to inventory ratio now by the end of fiscal year 81.
Price Club accounts payable ratio had increased to over 120%. So in short, the price Club suppliers were basically financing the price club business. So if we stop and think here at 8 million, basically you have 30 days to pay those vendors. So that gives you 30 days to sell those products. And with a 90% payable to inventory ratio, you're basically outlying about 10% of true cash to those [01:23:00] vendors.
Now if we look at 120%, that would be like having $12 million in inventory, 30 days to sell it, and then you only owe $10 million. So this means that they're turning inventory quicker than every 30 days. And then they were reordering inventory that went into the accounts payable. They were just selling it that stinking fast.
this is really magic for 'em because they're able to stockpile a large war chest of cash. it's simply incredible. If you ask me a low number of SKUs with the largest items, priced fairly and reasonably at a low margin, just blowing them out of the water. Now I'm gonna talk about something here that we haven't mentioned yet that is the famous hot dog.
So the story goes that they were getting a lot of inquiries from vendors to sell hot [01:24:00] dogs, but Sol, he really felt that if anyone was gonna sell 'em, it should be the Price Club. So they would go to Hebrew National and they would agree to sell them hot dogs at a discount, and then they would also provide their first carts.
The Price Club is gonna sell that quarter pound hot dog in a can of soda for a dollar 50. And for those of you who are Costco fans, well you know so well that even to this day you can get a hot dog and a can of soda for the same price of a dollar 50.
I don't think it's a can of soda, I think it's a fountain drink. But regardless, a dollar 50, that's quite impressive. And they stuck to their guns on this. They wouldn't change the price and they would keep it the same. I can really feel Sol in the price club each time I look at that sign in Costco.
And for me it's just a nice flashback to the pioneering nature of Sol and his team. if we keep going forward here in 1978, they're gonna become a public [01:25:00] company
and this would be a result of having more than 500 shareholders. And then in 82, they're gonna get listed on the Nasdaq, and things are going really well for Sol right here. But they're soon gonna lose a valuable member of the team in that, of Jim Senegal.
Who would be part of the founding team and the CEO of the newly formed Costco. And he's gonna oversee the opening of their first store in Seattle in 1983, I believe it was. That same year, Sam Walton is also gonna start up Sam's Club they're gonna expand quite rapidly, much more so than the Price Club was doing.
And it says after about 10 years, price Club was finding it really hard to compete head to head. Each time they explored new markets, it became really challenging because Costco and Sam's, they were often already there. They are gonna expand into Canada and Mexico and it says that they would do [01:26:00] really nice under some joint ventures there.
Those operations, they prove to be very successful for the company. But however.
Sol, he's gonna begin shifting his focus to real estate, trying to make sure that they own the land in their buildings. And then he was always working on other commercial developments. This is said to become a little bit of a distraction and it really impacted their stock price because Wall Street was like, well, are you a retailer or are you a real estate company?
So that really threw him off a little bit there. And then something tragics gonna happen here in December of 1989, Sol’s grandson Aaron is gonna pass away at the age of just 14. He had battled a brain tumor and it was Sol that really took care of his grandson during that time. He would bring him to one of the best brain senators in the United States had been located in San Diego.
So Aaron would stay [01:27:00] at Sol’s house while he was going through this treatment. And this is said to have a really big impact on Sol. I think that he really saw life as precious. And at this point he had been really successful in his career and he was set financially and he really wanted to focus on giving back to the communities and what he serviced.
I just wanted to read from the book here so that you can get a feel for his thinking about selling the price club.
He had began to ask me and me, is Robert Price here? What do you want to do? Do you want to continue operating the company or should we look for a buyer? And depending upon the day he asked, I might say, maybe we should sell. I don't wanna sell, or I don't know.
These conversations continued on and off for the next few years. By 1990, Sol no longer had any official connection with the price company having resigned as chairman of the board, and even as a board [01:28:00] member, he was the company's largest stockholder and continued to be the person I went to for advice and assistance in making decisions.
At this point, it's described in the book that Sol was really spending a lot of time on his philanthropy and his public policy. So in 1993, they gotta make the logical choice to approach Costco about a possible merger. Robert Price describes it so well.
Jim Senegal was SOL's protege. He had the same business philosophy as Sol with respect to giving the best possible value to the Costco members and providing good wages and benefits to Costco employees. Many of Costco's senior employees had worked at Fed Mart and the Price company. So Robert, he's gonna lead negotiations with Jim, and this is gonna allow the number two and then number three, warehouse clubs to merge together and be known as price Costco.
At [01:29:00] the end here, they had 195 stores that operated in the United States and Canada and Mexico with sales of roughly $16 billion a year. Jim Senegal, he's gonna take over as the CEO and then Robert Price, he would be the chairman of the board. Now, about a year and a half after this merger took place, Jim, Robert, and Sol, they're still continuing to discuss things and they're gonna come to an agreement to spin.
all the company owned real estate into what would be called Price Enterprises. And at this point, they gave stockholders an option they could keep all of their shares in the new entity of just Costco, or they could take them in Price Enterprises. and it said that this gave them a really clean break.
As we know Costco, they're gonna go on to become what it is today with over 900 locations and sales of more than $250 billion a year. And even more impressive is what you see in [01:30:00] Costco today can directly be traced to the pioneering efforts of Sol Price and his early team of Warriors. Now past this point in the book, Sol is gonna be heavily involved in real estate dealings, but he's primarily focused on his philanthropic efforts.
Mostly those would come through the Price Family Charitable Fund. He's gonna direct something like $6 million into UCSF Brain Tumor Center. That was the location that had treated his grandson, Aaron. And so he was really dedicated to providing funding for them. And then Sol, like he did in business, he's gonna scale up his giving efforts
One such effort was known as the City Heights Initiative. And this was a project to revitalize a rundown section of San Diego. With his involvement, he's gonna invest more than $50 million to help the local community and turn it into a vibrant, multicultural [01:31:00] neighborhood, is what it says in the book.
And he really put a lot of heart and soul into this
As a result, it made a big impact for those residents that were living in those communities.
As we pivot towards wrapping things up here, I just wanted to share a selection from the book that was written by Robert, and I think it sums things up real beautifully here. First of all, the business world was a seamless extension of his personal values. Many business people have the attitude that in business,
you do what you have to do to be successful, including sometimes paying lower wages and not providing healthcare benefits to employees, or perhaps fudging a bit on adhering to the letter of the law, not Sol. He always strived to do the right thing
Sol, the capitalist, lived his business, philanthropic and personal life as a socialist, drawing on the values instilled in him by his socialist [01:32:00] Jewish parents, combined with the principles he had learned in law school. In the end, he saw himself as a fiduciary for his customers and his employees.
So well written. I really enjoyed that selection. So he's gonna pass away December 14th, 2009 due to natural causes in La Jolla, California. His life was well lived. He made a major impact to everyone that he came in contact with, and he molded the retail experience, the one that you and I know today.
My deepest thanks to Sol for his leadership, his honesty, his integrity, and for living with full purpose that kept him deeply driven. At this point in the episode, I'd just like to turn our attention to some of the key lessons that you and I spoke about today. I really believe in reflection.
It helps us build those deeper [01:33:00] connections. as I'm going through these, just imagine how they might help you in your business in full, or even in part.
The first lesson is to embrace hard work and self-reliance as core values. We saw that Sol’s mother instilled a very strong work ethic in Sol through her tireless sewing and her factory work, what really shaped his overachieving nature, despite all of the childhood teasing that he would suffer, we saw Sol working 15 to 16 hours a day early on as a lawyer and working in the consolidated, aircraft engine department.
And this really gave him the focus and the drive that he needed.
At the same time. He expected that same dedication from employees and for you and I, we should be setting the pace for our teams and leading on the front lines, be in the trenches and know your business from A to Z, my friend. The second lesson was around [01:34:00] building deep relationships and giving back to the community.
Sol said that his law career was less about technical skills and more about forming bonds with clients and nonprofits. This built him a reputation that led to business opportunities like that of Fed Mart. The same was also true for Henry Ford that we saw. He often worked for free as a young man helping to repair watches and farm equipment, and he did this for his neighbors and it gained him a solid reputation and also confidence that allows them to progress into building those gasoline engines later in life.
So the lesson here is don't be afraid to build those solid connections in the communities that you're servicing because this is gonna pay off big time for you. They may not be immediate rewards, but over the long run, those connections will yield great dividends. The third lesson here was learn from real world experience [01:35:00] over formal education.
Sol, he said that he learned more from his clients than he learned in law school. He also emphasizes thinking over manuals, and he likes to train employees to act as his alter ego,
and he expects them to use their brains to think deeply so that they can act as if Sol would act. We also mentioned Kent Taylor, who started Texas Roadhouse and said that his real education came when his schooling was done. Same thing with Henry Ford, who's had a similar view.
He says, we really began our education once the schooling is complete. Life is the greatest educator of all. So I guess the moral of the story here, always be learning, my friend, let life be your teacher. The fourth lesson was to prioritize fair treatment of employees and suppliers. Sol, he paid above market [01:36:00] rate and he insisted on benefits like healthcare and this attracted top talent.
He treated suppliers with respect
and he fought for one restroom for everyone against the segregation norms. At the time in Texas, Sol, he always took the high road and it's just a super strong lesson for us. Take care of your employees and they're gonna take care of you. It's another one of those simple and deep concepts in business.
The fifth lesson today was innovate through low margins, value inefficiency. Sol, he pioneered the low margin retailing concept, oftentimes just marking products up 11 or 12%. And this leads him to the concept of the intelligent loss of sale. We talked about that three in one oil.
By just having one size, he reduced his cost
and he focused on price sensitivity over [01:37:00] an endless selection. How might that impact your business? I ask you, could you streamline a few SKUs, focus on your top selling products or services, and would that possibly open up more space or time in your physical locations? I would urge you to give that some serious consideration, even start small with a test like Sol would've done.
And once you see the benefits, then you can start rolling those out more widespread across your organization. The sixth lesson here is to adapt creatively to challenges and competition.
And we spoke about the reasonable strategy, and this is one that we talk about quite a bit here on the show. When Sol saw that gas suppliers had cut him off, he goes out and forms a subsidiary to have fuel brought to California via the Panama Canal. When they faced rejection from Fedco, they went and started Fed Mart.
later on, when Price Club was suffering from a shaky start, they [01:38:00] adjusted all of their assumptions and they expanded their membership base out to those credit union customers.
This made a huge impact for them. It's just a valuable lesson that we learned from Joe Kalo on episode three over at Trader Joe's, that in business there's no perfect strategy, but there is a reasonable strategy to always move forward in business. The seventh and final lesson here was around customer-centric policies to build loyalty. As an example of this, unconditional guarantees, so that means no questions asked on refund. if you're not satisfied, here's your money back. They put signs in the stores directing customers to go to their competitors.
If they had better prices, they had low displays and wide aisles. This created a comfortable shopping experience. They had convenient store hours, and they [01:39:00] focused on maximum value. I believe that these lessons alone can have major, major benefits for you and I in business. Those are the top lessons and my takeaways from the episode today.
I believe that Sol is a legend of legends whose simple Yet deep principles influence everyone around him directly and every one of us listening today indirectly. I want to thank you today for listening. I've had a really great time reading this book and learning so much more about Sol Price, and then just taking the time to outline all of my notes so that I could record this podcast today for you.
For me, I really feel a great sense of purpose. What I'm learning about these great entrepreneurs that you and I get to study
and being able to share them with you is really a great pleasure for me. I sincerely hope that you found some value today in the show and can use some of these [01:40:00] lessons in your business and that they will make an impact for you and the customers that you service. If you like this show today, if you could possibly just consider leaving me a review or maybe even sharing it with a friend or a business associate, that would mean a great deal to me.
Again, just thank you for listening. I hope to see you back here soon. Until next time, make it a beautiful day in the neighborhood. My friend.