4장
A Revolutionary Business Philosophy
"Customers come first, employees second, and stockholders third." This simple yet profound hierarchy formed the foundation of Sol Price's business philosophy. Unlike many executives who prioritize shareholder returns above all else, Sol understood that taking care of customers and employees ultimately created sustainable value for investors.
Sol viewed the retailer-customer relationship as "fiduciary" in nature, believing retailers shouldn't make excessive profits at customers' expense. This philosophy manifested in FedMart's unconditional refund policy and pricing strategy-not as a "discount store" but as a "low margin retailer" that priced from cost up rather than from manufacturer's suggested retail price down.
Perhaps his most counterintuitive innovation was what he called "the intelligent loss of sales"-deliberately limiting selection to increase overall sales and efficiency. His classic example was 3-in-One Oil. While most stores carried all three available sizes, FedMart stocked only the 8-ounce size, which offered better value per ounce. This approach resulted in higher total sales than carrying all three sizes would have achieved, as most customers accepted the larger size when it was the only option.
Limited selection dramatically improved efficiency since labor costs represent approximately 80% of retail operating expenses. Handling 4,500 items costs significantly less than managing 50,000 items across ordering, receiving, stocking, checkout and payment processes. This insight would later become central to the warehouse club model that revolutionized retail.
Sol's approach to employees mirrored his relationship with customers-based on a sense of fiduciary duty. He paid substantially higher wages than competitors, not simply out of generosity but because he believed higher compensation attracted better employees who remained loyal and performed better. This created a virtuous cycle: well-paid, well-treated employees delivered better performance, which improved productivity, which enabled the company to maintain low prices despite higher wages.
His ethics extended to all business relationships. FedMart employees were prohibited from accepting even small gratuities from suppliers. Meanwhile, suppliers were treated with remarkable fairness. In one instance, when a price reduction experiment on ladies' hosiery proved unsuccessful after six months, Sol instructed the buyer to return the supplier's 50-cent concession-an act of integrity that astonished the manufacturer.
Sol refused to do business with suppliers who mistreated their employees. In 1969, he switched grape suppliers to United Farm Workers even though their prices were higher, because the previous supplier wasn't providing fair wages and working conditions. This principle extended to labor disputes; rather than simply seeking legal remedies to end secondary boycotts, Sol would first question whether the union's underlying cause was just.
5장
Expansion and Innovation at FedMart
After opening in Phoenix, FedMart's expansion followed opportunity rather than strategic planning. The third store opened in San Antonio, Texas, through a partnership with Morris Jaffe, a local developer. In segregated Texas, Sol creatively addressed racial issues by removing tables and chairs from the snack bar so everyone stood while eating. He also insisted on paying employees $1.00 per hour, double the local rate-a practice that reflected his commitment to fair wages regardless of local standards.
In 1958, FedMart opened its flagship store in Kearny Mesa, San Diego, which became company headquarters. The company went public in 1959, raising nearly $2 million. When opening a Dallas store in 1960, Sol refused to sign a mortgage requiring segregated bathrooms, successfully getting the provision removed-a small but significant stand against institutionalized racism.
FedMart continued expanding its merchandise offerings, introducing a pharmacy that sold prescription drugs at lower prices (facing fierce resistance from the pharmacy industry) and selling premium gasoline at competitive prices. When major suppliers cut off their gasoline, Sol created a subsidiary to import fuel through the Panama Canal. The company also developed private label merchandise under the "FM" brand to circumvent Fair Trade laws, offering products at about half the price of national brands.
FedMart's market impact was profound, forcing almost all retailers to reduce prices and margins to stay competitive. Department stores eliminated entire product categories they couldn't competitively sell, while grocery stores relied on newspaper advertising and "specials" to maintain market share.
By the early 1960s, FedMart faced new competition from emerging discount retailers. In 1962, Walmart, Kmart and Target all opened their first stores. Sam Walton, who had visited San Diego to study FedMart's operations, admitted to "borrowing" many ideas from Sol Price, including the "mart" portion of his store name. Kmart similarly borrowed from FedMart, combining the "K" from Kresge with "mart."
Despite FedMart's continued success, Sol grew concerned about the company's direction by 1969, believing it had become too focused on controls and procedures rather than merchandising and sales. After a series of management changes and mounting challenges, Sol began considering a sale or merger of the business.
6장
From FedMart's End to Price Club's Beginning
In 1974, Sol and Helen traveled to Europe where Sol met with executives from three retail chains. In Amsterdam, he visited Makro stores, where he was particularly impressed with their business membership concept. The Prices then traveled to Germany where they met with Hugo Mann, owner of the Wertkauf hypermarkets. These European retail formats would later influence Sol's Price Club concept.
Sol returned from Europe excited about forming an alliance with Hugo Mann. After sending his executive team to Germany to validate the potential benefits, negotiations began in March 1975 for what initially was planned as an investment in FedMart but ultimately became a buyout.
Despite warning signs about Mann's character during negotiations, Sol believed the deal could benefit FedMart's future. Initially, FedMart continued operating as before, but the first board meeting revealed Mann's true character when he launched into a ninety-minute tirade criticizing Sol and FedMart while never once looking at Sol directly.
Tensions escalated when Sol discovered Mann was conducting secret negotiations with Dillard's Department Stores without board approval. On December 5, 1975, Sol was terminated as FedMart's president, with Mann refusing to honor the $120,000 severance provision. That night, the locks on Sol's office were changed.
Sol wasted no time moving on. Within a week, he leased an office directly above his former FedMart office and established The Price Company. With approximately $1 million in savings and investments, Sol never considered returning to practicing law. He brought his sons Larry and Robert into the new company, providing them small offices and salaries while they worked through the transition.
Within weeks, father and son dismissed several business ideas before focusing on elements they'd liked from FedMart-particularly the International Distribution Company (IDC), FedMart's distribution subsidiary. By mid-January 1976, they conceived the Price Club idea: a wholesale business where small, independent businesses would pool buying power by shopping at their warehouse. Business owners would trade traditional services like delivery and credit for significantly lower prices, using the warehouse as their storage facility.
7장
The Warehouse Revolution Begins
"And it all started right here, on Morena Boulevard, in a former Solar Turbines warehouse building with a cracked, oil-stained floor." Despite market research yielding mixed interest from potential customers, Sol decided to proceed with his warehouse club concept. Rick Libenson, who had quit FedMart after Sol's firing, joined as one of the first employees. On February 13, 1976, The Price Company was officially incorporated in California.
Sol made the crucial decision to raise substantial capital-$2.5 million in equity by selling 500 shares at $5,000 each, plus securing a $4 million line of credit from Bank of America that would become the company's lifeline. The name "Price Club" was chosen to leverage the family reputation in San Diego while suggesting low prices, with "club" indicating the membership requirement.
The warehouse building required significant modifications to make it user-friendly. Since the building was elevated four feet above grade, a specially designed ramp was built for members to navigate with loaded carts. They purchased NCR cash registers with software allowing merchandise to be rung up by item number rather than price-a system that protected business members from revealing their costs to customers and simplified inventory tracking.
Price Club opened at 4605 Morena Boulevard on July 12, 1976, but business started slowly. The cavernous building featured twenty-foot-high steel racks of merchandise, but first-week sales averaged below $30,000-far short of the $200,000 weekly target. Employees parked in customer spaces just to make the business look open. The management team realized they'd made numerous mistakes: their product selection assumed hardware and variety stores would be major customers when few remained in San Diego; products were sold by the case when small store owners wanted smaller quantities; morning hours didn't match customer preferences; and the location was difficult to access.
A breakthrough came when the San Diego City Credit Union's purchasing manager inquired about allowing credit union members to shop at Price Club. After much debate, management decided to let credit union members shop without paying the $25 membership fee but paying 5% above wholesale prices. Credit unions began including Price Club flyers in monthly statements, leading to an unexpected surge in both group and business memberships.
8장
From Struggling Startup to Retail Phenomenon
"I didn't expect it. Nobody in their wildest imagination could have anticipated such success," Sol Price reflected about Price Club's journey. After a slow start, the introduction of Group Membership in September 1976 turned the business around. By November, weekly sales had grown from $47,000 to $151,000, and by January, Group Memberships totaled nearly 13,000 while Business memberships approached 1,500. The company achieved its first profitable month in June 1977.
Price Club's success stemmed from more than just luck. It combined FedMart merchandising features with a warehouse format, carrying only 3,000 items compared to the typical 50,000 found in grocery or discount stores. The concrete-floored warehouse sold everything from auto tires to institutional-sized toilet paper at prices far below competitors.
Despite Robert initially thinking one $10 million location would be sufficient, Sol pushed for expansion. The second Price Club opened in Phoenix in fall 1977, followed by locations in Santee and Mesa in 1979. All were successful from the start without cannibalizing sales from existing stores. The financial model proved remarkably efficient compared to FedMart, with Price Club achieving a 11.7% markup versus FedMart's 30%, operating expenses of just 9% versus 17%, and sales approaching $1,000 per square foot-twice FedMart's performance.
The company continuously innovated, introducing the now-famous hot dog and soda combo for $1.50 after noticing demand at the Morena Boulevard exit. They pioneered product sampling to introduce new items and expanded into unexpected categories like clothing and frozen foods despite initial internal resistance.
The Price Club's influence spread throughout retail: Bernard Marcus visited in 1978 after being fired from Handy Dan, and following Sol's advice, launched Home Depot incorporating Price Club's warehouse format. Other visitors included Jack Goldin (founder of Click's and Priceline) and Stew Leonard.
The Price Company became public in 1979 simply by exceeding 500 stockholders through private trades, later listing on NASDAQ in 1982 as investment analysts "discovered" the company. Success bred competition: Henry Haimsohn opened PACE in Denver, John Geisse launched Wholesale Club, and in 1983, Bernie Brotman and his son Jeff hired former Price Company employee Jim Sinegal to start Costco in Seattle. That same year, Sam Walton opened his first Sam's Club in Oklahoma City.
9장
Legacy and Lasting Impact
By the late 1980s, despite Price Club's seven-year head start, competitors like Costco and Sam's Club were expanding more aggressively. Additionally, specialized "big box" retailers like Home Depot, CompUSA, Staples, and Office Depot emerged as formidable competition, undercutting Price Club on specific product categories.
In early 1989, Robert Price's fourteen-year-old son Aaron was diagnosed with a brain tumor, creating a devastating family crisis. Despite courageous efforts, Aaron passed away in December 1989. This personal tragedy profoundly changed both Robert and Sol in ways they didn't fully comprehend at the time.
Following Aaron's death, Sol began carefully broaching the subject of selling The Price Company. He believed their strengths were in creativity rather than managing a large enterprise. By 1992, Sol and Robert decided to pursue a serious effort to sell, with Costco emerging as the ideal partner. Jim Sinegal, Costco's founder who had started working for Sol in 1954, shared the same business philosophy about member value and employee benefits.
After months of negotiations, the merger was announced on June 16, 1993, combining the number two and three warehouse clubs into a new company called PriceCostco with 195 stores, 39,000 employees, and annual sales of nearly $16 billion. Unlike the earlier FedMart transaction, this merger protected all employees' jobs.
Sol devoted his later years to philanthropy, establishing the Price Family Charitable Fund in 1982. Following Aaron's death, the Aaron Price Fellows Program became Sol's living tribute-a civic education program for high school students that exposed them to local government, business, and cultural institutions while promoting diversity and career exploration.
His most ambitious philanthropic endeavor was the City Heights Initiative in San Diego, where Sol applied his business acumen to urban redevelopment. What began as an idea to open a store in an old Vons building evolved into one of America's most ambitious community interventions, with nearly $200 million invested through Sol's two foundations. The initiative stands unique nationally for both its comprehensive approach and substantial financial commitment over 17 years.
As Sol approached his 90th birthday in late 2005, his priorities shifted to caring for his wife Helen, who suffered from progressive dementia, until her passing on June 21, 2008. Sol remained intellectually engaged with friends of all ages, discussing politics, ethics, and literature rather than dwelling on past accomplishments. He passed away on December 14, 2009, leaving behind a legacy that transformed both retail and philanthropy.
10장
The Man Behind the Revolution
Sol Price's most enduring legacy may be his profound impact on those who knew him personally. For his son Robert, Sol served as both father and mentor, methodically teaching everything from sophisticated financial analysis to nuanced management principles. Their remarkable 45-year working relationship exemplified a perfect balance of professional collaboration and familial bonds, characterized by unwavering trust, shared values, and mutual respect. Even during occasional disagreements, their foundation of respect remained unshaken.
What made Sol truly exceptional was the seamless integration of his personal values into his business practices. Unlike many executives who compromise ethics in pursuit of profit, Sol maintained an unwavering commitment to doing right by customers and employees. He revolutionized retail shopping twice: first with FedMart in 1954, introducing the discount store concept that would transform American retail, then with Price Club's warehouse format in 1976, which created an entirely new category of shopping. His innovative membership model and focus on quality products at razor-thin margins became industry standards.
Later in life, Sol channeled his business acumen into philanthropic efforts, applying the same determination and innovative thinking to improving San Diego. The Aaron Price Fellows Program, named after his father, has helped develop young civic leaders for decades. His City Heights Initiative demonstrated his comprehensive approach to community development, combining retail development with educational and social services to revitalize an struggling neighborhood.
As the first college graduate in his family, Sol embodied the American dream in its purest form. From humble immigrant roots in the Bronx, he rose to become not just a successful businessman but a visionary who transformed an industry while maintaining his integrity. His 70-year marriage to Helen, the values he instilled in his sons, and his unflagging sense of responsibility to community and employees set him apart from typical business titans. His friend, Pulitzer Prize-winning author Herman Wouk, aptly compared Sol to Steve Jobs, describing him as a sardonic, tough ethical man who "changed the way the world lives" through retail innovation while becoming "a quiet major philanthropist" who "made a valued difference in modern times."
Jim Sinegal, who worked alongside Sol for nearly six decades before co-founding Costco, perhaps best captured his mentor's essence: "Sol's greatest legacy is that he knew what was right, did what was right, and taught others to do what was right." His business model proved that treating employees well - offering high wages, good benefits, and opportunities for advancement - could coexist with low prices and healthy profits. In a business world increasingly dominated by short-term thinking and questionable ethics, Sol Price demonstrated that doing good and doing well are not mutually exclusive. This fundamental principle, which guided his entire career from that first warehouse on Morena Boulevard, remains perhaps his most important lesson for modern business leaders.
