Adam Smith presented the propaganda of the Bourgeois Deal by highlighting the important differences between commercial, political, and martial societies. Everyone, he argued, is always talking to others and trying to persuade them to cooperate: “Give it to me.” that what I want, you will have this what you want.”
Luke Froeb and his colleagues in a managerial economics book I used to teach MBA students explained that “the art of business involves targeting resources at low-cost uses and finding ways to profitably move them to high-cost uses.” Two of the most prominent of these in the mid-twentieth century were the well-known founder of Walmart, Sam Walton, and the less well-known but still important founder of FedMart and later Price Club, Sol Price.
In the 2023 paperCharles Courtemanche, Reginald Harris, and I examine how Price and Walton might fit among the “important” entrepreneurs described in Jonathan Hughes’ 1966 book. A Few Essentials: Entrepreneurship and America’s Economic Development. Hughes describes the founding of business in American history through the stories of political/religious entrepreneurs William Penn and Brigham Young; technological entrepreneurs Eli Whitney and Thomas Edison; financial entrepreneurs EH Harriman and JP Morgan; industrialists Andrew Carnegie and Henry Ford; and legal entrepreneurs Mary Switzer and Marriner Eccles. The rise of retail in the late 20th century and its continued importance made Price and Walton interesting candidates for inclusion in Hughes’ entrepreneurial lineage. Much has been written about Sam Waltonso here I will focus on Sol Price, whose commercial heritage includes modern warehouse clubs like Costco.
Not much has been written about Price beyond his son’s biography published in 2012, but even this provides a fascinating look at the man, his mind, and his methods. Price was the son of immigrants born in New York, and his father was a social worker organizer. They later moved to San Diego, and after graduating from law school, he began working as an attorney. Price raised public money by doing pro bono legal work for local merchants who (for example) found themselves in trouble with World War II price control boards. His greatness, he pointed out, led to very profitable work – such as divorces and large contracts – when the time came, we adopted the language of sales: he used pro bono work as a “loss leader” in big things. Among other groups, Price represented the Pawnbrokers’ Association, which was constantly under pressure from state political leaders until, invariably, the Association held a reception or fundraiser for one of them, thus easing the pressure a little.
Sol Price did not intend to change stores. He stumbled upon it by accident and by accident. He was an active member of his community in San Diego and worked as an attorney for several merchants and wholesalers, including jewelry and liquor, who sold to a Los Angeles store called Fedco. He accompanied his customers to Los Angeles to visit a Fedco store. Fedco was a store that sold to government employees at deep discounts. Price noted that many government employees move from San Diego to Los Angeles, and he believes a similar store would do well in San Diego. He and his colleagues presented their proposal to Fedco, which was rejected.
Price, however, had a warehouse in San Diego that he needed to do something about, and he thought, “Why not do in San Diego what Fedco doesn’t want to do?” Soon after, FedMart opened in that warehouse, offering deep discounts to members drawn from local city and county credit unions. The strategy had several advantages for Price because he chose a solid, middle-class clientele that was unlikely to write many bad checks. In addition, since the credit unions marketed the membership to him, he did not have to spend a lot of money on advertising. Both of these reduce the costs, and therefore, the prices they can offer.
Note that when he founded FedMart, he wanted to replicate Fedco’s success by targeting a specific customer. He looked at credit unions sponsored by city and county employees, the telephone company, and other major concerns. By doing so, he had the opportunity to screen FedMart customers first to reduce the costs that stores incur from theft and bad inspections. A member of the County Employees’ Credit Union said, Price thought correctly, which may be more reliable and trustworthy than a member of the general public; In addition, membership in a credit union indicates that one is less likely to write bad checks. Policy is an often overlooked but important difference between membership warehouses (especially in their early years) and stores like Walmart: FedMart and Price Club preselected their customers based on loyalty. Walmart, on the other hand, is facing a huge reduction because it will allow anyone to enter. For example, Costco didn’t accept food stamps until 2009, which is one way to screen its customers.
In a way, FedMart was a study in unnecessary discovery. The Retail Price Maintenance Laws made it legal for retailers to undercut the manufacturer’s suggested retail price unless – and this was important – it was a membership store. EJ Korvette’s in New York dealt with this by handing out membership cards at the door, thereby exploiting the loophole. FedMart included private labels at lower prices and refused to do business with companies that enforced so-called “fair trade” laws. Price received a major coup in the 1970s when California’s minimum price regulations for liquor ran afoul of federal price controls. Courts ruled that federal regulations trumped federal regulation, and Price was able to offer the liquor discounts he had sought for years.
Price identified six “Rights” to guide his business decisions. His companies had to put the right kind of product in the right place, at the right time, at the right price, in the right condition, and at the right price. He and his subordinates had to make tough business decisions at every step.
Price does what he calls “Smart Loss Trading,” which seems silly—in trading, it is possible be something like this wise losing sales?—but makes sense if you think about it a bit. Warehouse stores usually stock one type of product in one size. An example from Price stores was a three-in-one oil. They carried one size larger based on several beliefs. A quick Google revealed two sizes: eight ounces and three ounces. It costs less to sell three eight-ounce cans of oil than it costs to sell eight three-ounce cans; they have to be touched fewer times by fewer hands between the time they are received and when the customer leaves the store, and they turn around much faster, which means Price’s capital spends less time tied up in slow-moving inventory. Price could have sold more 3-in-one oil by setting a smaller size, too, but he was willing to stop selling—with wisdomone might say—gaining benefits from higher profits and lower handling costs.
Price is an overlooked inventor who deserves a prominent place, next to Sam Walton, JC Penney, the Kresge family, and Charles Walgreen, among the people who changed the way Americans shop and developed an entire industry based on creating value by discovering Price’s “six rights”. The right combination of “rights,” of course, does not exist apart from the process used to obtain them. It has to be found, and for that, Price needed freedom—and a wider space for people to search for the best it has to offer.
How did Price do it? He envisioned a future that no one else had, and he risked his resources to make it a reality. It was a dangerous proposition. Often, people think about the future and find that it does not correspond to reality.
Price and his people have a chance to discover things. Just as the inventor of Tabasco sauce was able to make big things out of a bunch of leftover cologne bottles, one of Price’s buyers, who was working with a supplier to see what they could sell in bulk, remembered that one of the vodka producers they worked with had used very large plastic bottles. It occurred to him that they could package the verbal expressions in the same way.
Sam Walton, Sol Price, and many other retail innovators also pioneered important approaches in using data to analyze and understand consumer behavior. In the 21st century, advances in statistical techniques and software make it easier for analysts to identify and eliminate costs in the supply chain. Delivery and distribution create value. In fact, this may be among the most important tasks performed in the entire farm-to-farm logistics process.
Did Price get it all right? No. In fact, he was once forced out of a FedMart following a violent takeover. He and his son, Robert, would continue to revolutionize retail and by starting Price Club, introduced the world to the modern club store. In a fitting coincidence, an entrepreneur named Jeffrey Brotman would approach Price Club about opening a store in Seattle. Price Club would go under, so Brotman would hire one of Price Club’s top executives, Jim Sinegal, and start his own company. You may have heard of it; it’s a store called Costco, which later merged with Price Club.
Adam Smith asserted that we are always “talking to others” in the commercial community. Value is a proposition. Bids and asking—”I’ll give you $50 for that box of baseball cards, dear eBay seller, again “This gallon of vitamin D milk can be yours for three dollars, dear Aldi customer“—are verbal exercises condensed into very simple, easy-to-define symbols. Sol Price, like Michael Cullen, Clarence Saundersand EJ Korvette before him, and Sam Walton and Jeff Bezos after him, changed the game by changing the way we talk about business.
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Some of the facts in this article come from Robert Price Sol Price: Retail Revolutionary and Social Innovator. Taylor Grace Carden provided helpful feedback on this article.
