#107 Sol Price Costco

Summary Notes


In the episode, Jim Senegal, co-founder of Costco and protégé of retail pioneer Saul Price, reflects on the profound impact Price had on his life and the retail industry. Price's rare compliments were as infrequent as Haley's comet, yet his leadership qualities and teachings on business ethics, core values, and merchandising philosophy left an indelible mark on Senegal and many others at Fedmart and later Costco. Price's commitment to operational efficiency and customer savings laid the groundwork for big box retailers, influencing industry giants like Sam Walton of Walmart. Price's legacy extends beyond his innovative Price Club concept, as he instilled principles that business should serve society, a philosophy echoed by his son Robert Price in his book "Saul Price: Retail Revolutionary and Social Innovator." The episode delves into Price's early life challenges, his entrepreneurial drive, and his teaching approach, which emphasized understanding over rote procedures. Despite his success, Price's focus shifts, leading to the eventual merger of Price Club and Costco, highlighting the importance of maintaining focus in business. The episode concludes with a touching tribute from Robert Price, celebrating his father's life and the profound personal and professional influence he had on those around him.

Summary Notes

Personal Impact of Saul Price's Mentorship

  • Jim Senegal expresses deep admiration and respect for Saul Price, his mentor.
  • Saul's leadership qualities inspired confidence and perseverance.
  • Jim credits Saul for teaching him business ethics, core values, and merchandising philosophy.
  • Saul's emphasis on operating efficiencies and customer savings influenced Costco's success.
  • Saul's legacy includes the creation of the Price Club concept, which was emulated by many.
  • Sam Walton admitted to borrowing ideas from Saul for Walmart.

"You've been very generous about giving me some credit for influencing you. I suspect that's true, but you would have been a great achiever under any circumstance."

The quote signifies Saul's recognition of Jim's potential and influence on his career, highlighting the importance of mentorship.

"Saul gave us incredible opportunities to learn the business, teaching us the skills and core principles we applied throughout our business careers, and then later when we launched Costco in 1983."

This quote emphasizes the role Saul played in educating and preparing Jim and others for successful careers in retail, particularly at Costco.

Saul Price: Retail Revolutionary and Social Innovator

  • Saul Price's book, written by his son Robert, illustrates the interconnectedness of business ideas.
  • Saul's expectation for honesty and information influenced his son's approach to business.
  • Saul's immigrant background and high parental expectations shaped his drive.
  • His physical deformity motivated him to overachieve and excel in school and life.
  • Saul's early life experiences, including the Great Depression and World War II, influenced his business philosophy centered on service and fair employee treatment.

"For more than 40 years, we had worked together. I had learned that my father expected to be fully informed, openly and honestly, even if he did not like what he heard."

The quote reveals Saul's expectation for transparency and honesty in business dealings, a principle passed down to his son.

Saul Price's Early Life and Motivations

  • Saul Price faced challenges due to a physical deformity, leading him to overachieve.
  • Saul's mischievous nature in school led to a warning that he could become a gangster or someone who would do much good.
  • Saul's parents' high expectations and his own drive pushed him to succeed.
  • Saul skipped grades and excelled in school but also got into trouble, showing his misfit nature.

"The kids teased me a lot, and consequently, I was shy, and I compensated this by being an overachiever in school."

Saul's response to childhood teasing was to excel academically, demonstrating how early life challenges can motivate personal achievement.

  • Saul learned more from his entrepreneurial clients than from law school.
  • His pro bono work introduced him to community members who became clients.
  • The bombing of Pearl Harbor changed life in San Diego, impacting Saul's perspective.
  • Saul's work ethic and appreciation for time efficiency developed during World War II.

"Over a period of time, I really learned far more from my clients than I ever learned in law school."

Saul credits his clients for providing practical business education, emphasizing real-world experience over formal education.

The Influence of Saul Price's Family and Early Work

  • Saul's father's lack of work ethic contrasted with Saul's drive for productivity.
  • Saul's early career included working long hours at a law office and at Consolidated.
  • His granddaughter recalls Saul's lessons on the importance of using time wisely.

"Unlike his father, who had managed to find ways not to work, Saul thrived when he was busy working hard and feeling productive."

This quote contrasts Saul's work ethic with his father's, highlighting the development of his character and business philosophy.

Saul Price's Entry into Retailing

  • Saul's involvement with Seven Seas locker club provided insights into niche-focused businesses.
  • Saul's accidental entry into retailing came from finding a tenant for a commercial property.
  • Saul recognized the potential in niche markets and applied these lessons to his own business endeavors.

"The Seven Seas was another learning experience for Seoul, an opportunity to see how a large store selling a variety of goods and services all under one roof, could be successful catering to a focused segment of the marketplace."

This quote underscores the significance of understanding niche markets, which later influenced Saul's approach to creating FedMart.

Retail Innovation and the Birth of Fed Mart

  • Saul Price and his friends visited Fedco, a non-profit retail store for federal employees.
  • Fedco's location in a non-traditional retail area and its brisk business inspired Saul.
  • They discussed the membership concept, non-profit nature, and product categories of Fedco.
  • Saul saw potential for a similar business model in San Diego.
  • The group identified a warehouse in San Diego that could be adapted for retail.

"So what's Costco famous for? They are located in non traditional retail, right." "They were convinced that Fedco type businesses could be successful in San Diego." "As soon as they returned to San Diego, Seoul took these other two guys to see the main street warehouse."

The quotes highlight the inspiration Saul Price took from Fedco's unique location and business model, leading to the idea of starting a similar business in San Diego, which would eventually become Fed Mart.

Business Philosophy and Strategy

  • Saul Price was adept at analyzing other businesses to find competitive advantages.
  • He observed that most shopping in San Diego was done downtown with limited hours and personal service.
  • Contrary to downtown stores, Fed Mart and Costco later adopted different operating hours and self-service models.
  • Saul learned from other entrepreneurs and adapted their ideas, such as discount retailing.

"Seoul was also really good at analyzing the business decisions and philosophies of other businesses and finding areas where he could do things differently and give him advantage." "So when I read this section, you realize that like Costco, Price, club, Fedmore, they do essentially the opposite of what everybody else was doing."

These quotes reflect Saul's strategic thinking in differentiating his business from traditional retail models, leading to the unique approach taken by Fed Mart and later Costco.

Adapting and Challenging Traditional Retail

  • Saul Price and other entrepreneurs were motivated to innovate due to increasing consumer demand.
  • Eugene Ferkoff's discount store, E.J. Corvette, challenged traditional retailing by selling at deep discounts.
  • Corvette's membership model circumvented fair trade laws, an idea Saul would later adopt.

"So this is a guy that was innovating and retailing a decade before Seoul even starts working in the industry." "Corvettes sold home appliance and other household products at deep discounts from the manufacturers, suggested fair trade prices."

These quotes show the influence of early retail innovators on Saul Price and how their strategies, such as discounting and membership models, were precursors to the practices adopted by Fed Mart.

Ignorance as an Advantage

  • Saul Price and his team were not experienced in retail, which they saw as an advantage.
  • They were not limited by what was thought to be impossible in retail.
  • Henry Ford also valued the lack of preconceived limitations in his employees.
  • Saul raised $50,000 with his own significant contribution of $5,000 to start Fed Mart.

"Fortunately, Soul later recalled, most of us had backgrounds that were alien to retailing. We didn't know what wouldn't work or what we couldn't do." "That is the way with wise people. They are so wise and practical that they always know to a dot just why something cannot be done."

These quotes emphasize the benefit of approaching a new venture without preconceived notions of what can or cannot be done, allowing for innovation and experimentation.

The Success of Fed Mart

  • Fed Mart's early days were marked by challenges from downtown merchants.
  • Saul Price developed a business philosophy focused on the customer and avoiding traditional sales and advertising.
  • Word of mouth from satisfied customers was considered the best form of advertising.
  • Fed Mart's strategic decisions included consistent merchandising philosophy and fair wages for employees.

"From the day that Fedmart opened for business in November 1954, the store was an immediate and spectacular success." "Sol described his business approach as the professional fiduciary relationship between us, the retailer, and the member, which is the customer."

These quotes capture the immediate impact of Fed Mart's opening and Saul's customer-centric business philosophy, which prioritized the customer's interests and employee welfare.

Saul Price's Career Transition and Philosophy

  • Saul Price transitioned from a business attorney to a full-time businessman.
  • He was never driven by the need to have the most stores or money but to provide the best deal to customers and fair wages to employees.
  • Saul insisted on paying a living wage, which attracted employees and reduced turnover.

"By the late 1950s, Saul had changed his career from business attorney to businessman." "He was never driven by the need to have the most stores or the most money, but by the desire to give the customer the best deal and to provide fair wages and benefits to fed Mart's employees."

The quotes reflect Saul's career shift and his principles in running a business, which emphasized fairness to customers and employees alike, contributing to Fed Mart's success and employee satisfaction.

Virtuous Feedback Loop and Employee Compensation

  • Jim Senegal highlighted the benefits of happy employees and better customer service through a virtuous feedback loop.
  • Costco's reputation for good pay led to a high number of applicants for job openings.
  • The discussion emphasizes the importance of fair employee compensation in creating a positive work environment and attracting talent.

"People are happier at work. They serve your customers better. So Jim gave an example of, like, this is a virtuous feedback loop that he would get that." "Costco has a reputation for paying well, and so they just had a job opening. They needed to hire 200 new people. 22,000 people applied for those 200 positions."

The quotes underline the correlation between employee satisfaction and customer service, as well as the competitive advantage gained by Costco through its reputation for good wages.

Wage Philosophy and Social Responsibility

  • Saul Price's wage philosophy involved paying fair wages regardless of market rates.
  • Saul Price's commitment to social responsibility is evident in his stance against segregation.
  • The narrative illustrates the importance of ethical leadership and its impact on business practices.

"Fed Mart was paying a dollar an hour in San Diego and 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." "Seoul told the lender that the separate bathroom provision was unacceptable and that he would not enter into the mortgage agreement unless the provision was removed."

These quotes demonstrate Saul Price's commitment to equitable wages and his proactive approach to combating discriminatory practices, which were part of his broader ethical approach to business.

Overcoming Industry Barriers

  • Fedmart faced significant resistance when entering the pharmacy market.
  • Saul Price encountered threats and was ostracized by pharmacy organizations.
  • The discussion highlights the challenges of disrupting established industries and the resistance faced by innovators.

"They withstood numerous obstacles in operating and opening the first pharmacy. They had pressure from the local and state pharmacy organization, pressure placed on wholesale companies not to deliver ourself to fed Mart."

This quote reveals the difficulties Fedmart faced in breaking into the pharmacy market, showcasing the extent to which established players will go to protect their interests.

Innovative Solutions in Gasoline Sales

  • Saul Price researched the gasoline market and found a creative way to offer premium gasoline at competitive prices.
  • He established a subsidiary to circumvent supplier restrictions and maintain a steady supply.
  • The narrative shows how innovation and strategic thinking can overcome market challenges.

"He created a fed mart subsidiary that functioned as a wholesale gasoline supplier. Gasoline was acquired in Texas and then shipped throughout the Panama Canal and offloaded in Long Beach, California."

The quote details Saul Price's innovative solution to the problem of being cut off by major gasoline suppliers, demonstrating his resourcefulness and determination to succeed.

Emphasis on Teaching and Leadership

  • Saul Price was regarded as a great teacher who emphasized the importance of understanding one's role in the success of the business.
  • He favored hands-on teaching over reliance on manuals and procedures.
  • The discussion reflects on the role of effective teaching and leadership in business growth and employee development.

"Jim Senegal started working for Seoul in 1954 at the age of 18. Jim recounted the time that he received a call from a reporter to answer some question, some questions." "You train an animal, you teach a person."

These quotes illustrate the profound impact Saul Price had on his employees and his philosophy on the distinction between training and teaching, which emphasizes personal growth and understanding.

Intelligent Loss of Sales and Efficiency

  • Saul Price introduced the concept of "intelligent loss of sales" to increase efficiency and reduce costs.
  • The strategy involved offering fewer product selections but at better prices.
  • The narrative explores the counterintuitive approach to retail that focuses on efficiency and customer price sensitivity.

"Conventional wisdom in retailing is to stock as many items as possible in order to satisfy every customer's needs and wants. The intelligent loss of sales turns that theory on its head, postulating that customer demand is most sensitive to price, not selection."

The quote explains the rationale behind the "intelligent loss of sales" strategy, highlighting how it challenges traditional retail thinking and leads to greater efficiency.

Influence and Legacy of Saul Price

  • Saul Price's business practices and innovations influenced other retailers, including Sam Walton of Walmart.
  • The discussion emphasizes the importance of learning from others and building upon their successes.
  • The narrative acknowledges the impact of Saul Price's ideas on the retail industry.

"I learned a lot from Sol price, a great operator who had started fed Mart out in southern in southern California in 1954." "I believe in the discipline of mastering the best that other people have figured out."

These quotes from Sam Walton and Charlie Munger respectively underscore the value of adopting successful strategies from other businesses and the role of continuous learning in achieving success.

Challenges and Transitions in Business

  • Fedmart faced increased competition and challenges as it expanded.
  • Saul Price sought innovation by learning from European retailers and exploring partnerships.
  • The narrative discusses the difficulties businesses face as they grow and the need to adapt and innovate.

"The early years of the 1970s were proving to be quite a challenge for Fed Mart." "Sol later commented that we were good at creating the business, but we weren't as good at running the business."

These quotes reflect on the challenges Fedmart encountered during a period of growth and the realization that different skills are required for starting versus running a business.

Learning from Mistakes and the Importance of Control

  • Saul Price's decision to sell to Hugo Mann led to a loss of control and negative experiences.
  • The narrative touches on the importance of maintaining control for entrepreneurs and the potential consequences of relinquishing it.
  • The discussion highlights the contrast between founders who sell their businesses and those who maintain control for long-term success.

"Despite the humiliating attack launched against us, we were finally seeing Hugo Mann's true character, a side of him that executives in Germany saw every day."

This quote captures the moment Saul Price realized the consequences of selling his business and underscores the lesson on the importance of maintaining control over one's business ventures.

Iterative Innovation and Copying Smart Ideas

  • Copying smart ideas and improving upon them is a key strategy for success.
  • Charlie Munger's approach was to copy smart ideas rather than invent new ones.
  • This strategy involves letting a good idea compound and grow over time rather than starting over.
  • The contrast in approach becomes clear when comparing the stories of successful entrepreneurs like Jeff Bezos, Sam Walton, and Jim Senegal.

"Remember I just said, remember I asked you to remember what Charlie Munger was telling us? Remember he said he never invented anything. He just copied what anything else that was smart. And he blew right past them."

This quote emphasizes the effectiveness of Charlie Munger's strategy to copy and improve upon smart ideas, which has been successful for many entrepreneurs.

The Genesis of Price Club

  • Saul Price conceived the idea for Price Club in January 1976, inspired by his previous experience and observations in Germany.
  • Price Club was a wholesale business catering to small independent businesses, allowing them to pool their buying power.
  • The business model was a shift from businesses purchasing from various specialized suppliers to buying from a centralized wholesale warehouse.
  • Price Club's model was the precursor to Costco, with a membership fee and a focus on covering operating costs while offering bulk products at significant discounts.

"The Price club idea was finally conceived sometime in the middle of January 1976. A wholesale business selling merchandise to small independent businesses."

This quote describes the initial concept of Price Club, which was to sell wholesale merchandise to small businesses, a novel approach that eventually evolved into the Costco model.

Early Challenges and Innovative Solutions

  • Price Club had a slow start with sales significantly lower than expectations.
  • To make the business appear more active, employees were asked to park in front to simulate customer activity.
  • The membership fee and merchandise selection were questioned as potential reasons for the lackluster performance.
  • A breakthrough occurred when they partnered with the San Diego City Credit Union, allowing credit union members to shop at Price Club, which aligned with the credit union's mission to save money for its members.
  • This partnership led to an increase in both credit union and Price Club memberships and ultimately turned around the business.

"The numbers clearly showed that if something were not done soon to change the trendline, the Price club was on its way to bankruptcy."

This quote highlights the dire financial situation Price Club faced before the innovative solution involving the San Diego City Credit Union, which helped to avert potential bankruptcy.

Price Club's Differentiating Factors and Success

  • Price Club stood out from competitors by offering a limited selection of items in a warehouse format, which was different from typical grocery or discount stores.
  • The business catered to both business and retail customers, offering prices far less than those available elsewhere due to operating efficiencies and direct delivery from suppliers.
  • This unique approach to retail led to the business's eventual success and drew attention from other industry players.

"Price Club was new and different, combining merchandise features brought over from Fedmart with a warehouse format."

The quote captures the essence of Price Club's innovation, combining previous retail concepts with a warehouse format, which was a key factor in its differentiation and success.

Influence on Other Entrepreneurs

  • Saul Price's influence extended to other entrepreneurs, including Bernard Marcus, who visited Price Club and later founded Home Depot, incorporating the warehouse format into the home improvement industry.
  • Sam Walton, who had previously modeled Walmart after Fedmart, visited Price Club and later opened Sam's Club, a direct competitor.
  • Both Marcus and Walton were inspired by Saul Price's innovations and business model, demonstrating his widespread impact on the retail industry.

"Bernard Marcus, soon to be the founder of Home Depot, came to see the Price club and to visit with Saul."

This quote shows the direct influence Saul Price had on Bernard Marcus, who took inspiration from Price Club to create Home Depot, a successful home improvement warehouse chain.

Focus and Expansion

  • Saul Price's focus shifted from the core business to real estate development, which was seen as a diversion by senior executives and investors.
  • The real estate investments had lower immediate financial returns compared to the operating business.
  • This shift in focus was considered a mistake by some, but it led to the creation of a real estate investment trust that Saul took public.

"Real estate development was a diversion from the company's core business."

The quote reflects the criticism Saul Price faced for diverting resources from the successful Price Club business to real estate development, which was seen as a less profitable venture.

Legacy and Personal Impact

  • Saul Price's legacy is not only in his public accomplishments but also in the personal impact he had on his son and others who knew him.
  • His son Robert Price reflects on the life lessons and business acumen he gained from his father, emphasizing Saul's influence on his personal and professional growth.
  • Saul Price's life story serves as an inspiration for future generations of entrepreneurs and philanthropists.

"Whatever I have learned about business, I learned from my father everything from how to read a financial statement to management, to good judgment and fair dealings."

This quote from Robert Price encapsulates the profound personal and professional influence Saul Price had on his son, teaching him valuable life and business lessons.

Conclusion and Reflection

  • The podcast concludes by reiterating the importance of learning from past founders and the value they bring to current and future entrepreneurs.
  • The host encourages listeners to draw inspiration from the stories shared and to apply the lessons learned to their own lives and ventures.

"I hope the stories on this podcast inspire you like they do me. I hope these ideas add value to your life."

The closing quote from the podcast host highlights the overarching goal of the podcast: to inspire and impart valuable lessons from the stories of successful founders to the listeners.

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