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Poor Richard's Almanack: Benjamin Franklin's Incredibly Popular Book of Aphorisms, Forecasts, and More
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Sol Price revolutionized large-scale retailing by combining low prices with a paid membership model, while also paying high wages and great benefits, for the first time. Sol's creative brilliance changed the way we shop, first with FedMart in 1954, the retail format copied by Walmart, Kmart, and Target in 1962, and then, with the Price Club, the warehouse club format adopted by Costco and Sam's Club in 1983.
Sol Price is a legend in the retail business. Price founded one of the first discount retailers, FedMart, in the 1950s, and then later the pioneer warehouse club Price Club, which he later sold to Costco, a business started by his former protege Jim Sinegal. Price’s innovations would go on to change the retail landscape dramatically and permanently. Costco now does $120 billion in sales and Sam’s Club, owned by Wal-Mart, does about $60 billion. Adding in other smaller operations, warehouse retailing is at least a $200 billion business in the United States alone.
Price innovated in several ways: Membership fees, way fewer product SKUs in stock, much larger sizes, extremely low profit margins bordering on break-even, low employee turnover and a lean labor model. But these were all mere symptoms of his overall stance: Price’s fundamental innovation was his approach to the customer relationship.
Whereas most retailers saw customers as adversaries, bodies to be sold to, Price saw the world differently. He felt he was on the customers’ side. He felt his job as a retailer was to become the customer’s greatest friend and advocate, and in return, the customer would pledge his loyalty back. He understood that trust given is trust earned.
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A collection of my favorite quotes from Sol Price.
“If you recognize you’re really a fiduciary for the customer, you shouldn’t make too much money.”
“Fortunately, most of us had backgrounds that were alien to retailing. We didn’t know what wouldn’t work or what we couldn’t do.”
“Our first duty is to our customers. Our second duty is to our employees. Our third duty is to our stockholders.”
“You had 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 satisfied customer.”
“When we didn’t know what we were doing, it only took $50,000 to start a business and five years later, when we were really experienced at running FedMart, it took $5 million to open.”
One thing that's hard to overstate about Sol Price is that he literally invented the discount warehouse model and was the main inspiration for Sam Walton's Walmart and Jim Sinegal's Costco.
“I learned a lot from Sol Price, a great operator who had started FedMart out in San Diego in 1955. I guess I’ve stolen—I actually prefer the word ’borrowed’ as many ideas from Sol Price as from anybody else in the business…I really liked Sol’s FedMart name so I latched right on to Walmart.” — Sam Walton
“He motivated us to do our very best, not just because he had a formidable presence, but we really did not want to let him down. We idolized the guy. We thought about him on a continual basis. What would he do? How would he handle this situation? And, it influenced our lives.” — Jim Sinegal's, Founder of Costco, Eulogy at Sol Price’s Memorial Service
“Sol Price was an incredibly generous person, compassionate and a great teacher. One time a reporter found out how long I had worked for Sol. He said ‘you must have learned a lot.’ ‘That’s inaccurate,’ I said. I learned everything. I was a fly on the wall observing Sol. I had such a great admiration for him, and the things he stood for and his intellect.” — Jim Sinegal, Founder of Costco
Sol Price had one powerfully simple idea: See the world through the eyes of the customer. His son Robert, influential in his own right, describes Price’s unusual attitude (which is still uncommon) in a book called Sol Price: Retail Revolutionary & Social Innovator:
Sol’s experience as an attorney representing clients, and his own moral code, became a foundational feature of the FedMart business. 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 had 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 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.
Clearly, Sol Price followed Tussman’s Dictum to understand the world and act accordingly, and understood the value of a win-win relationship. The success of Costco in his wake, and the continued loyalty of its customers in the face of a rapidly changing retail landscape, is a testimony to the value of his attitude.
Sol Price had a few simple tenets in running FedMart and Price Club, which Jim Sinegal would later adopt at Costco:
Regarding the last point, it was clearly important to Price to make money, and if you look at Costco today, the model is obviously profitable. But it’s not that profitable. Costco makes solid returns but not incredible ones. And that is by choice.
Price — and Jim Sinegal by extension — wanted a win-win relationship whereby he made his investors a reasonable return on their capital and the customer got a better deal than they could find elsewhere, while employees were paid well enough and treated well enough that they wouldn’t want to leave. In his words, “If you recognize you’re really a fiduciary for the customer, you shouldn’t make too much money.” This model has been tough to beat.
Price was so hardcore about his fairness philosophy that he wouldn’t even engage in loss-leader pricing, which is common in retail. Have you ever found yourself saying _How can they make any money at this price?_ Well, they may not be — products are frequently priced below cost to induce you to buy other products at a more inflated profit margin. But Price wouldn’t do this: It meant he was selling some portion of his goods at inflated prices to make up for the loss leaders, and _that_ he would not abide.
His customer advocacy went so far that if Price’s competitors were selling a competing product below cost, Price did one of the most unusual things I’ve ever heard: He put up signs telling his customers to go shop there.
To make it easy to do your own research I've complied my favorite books written on Sol Price and the story of FedMart.