Adam Smith once eloquently captured the essence of what we might call the Bourgeois Deal, delineating the distinct characteristics that set apart commercial, political, and martial societies. He posited that in our daily interactions, we are all engaged in a subtle dance of persuasion: “give me that which I want, and you shall have this which you want.”
In the realm of managerial economics, Luke Froeb and his co-authors pointed out that “the art of business consists of identifying resources in low-value uses and finding ways to profitably move them to higher-value uses.” Two titans of this craft in the twentieth century were Walmart’s Sam Walton and the lesser-known but equally impactful Sol Price, founder of FedMart and later Price Club.
In a recent 2023 paper, Charles Courtemanche, Reginald Harris, and I argue that both Price and Walton deserve a place among the “vital” entrepreneurs highlighted in Jonathan Hughes’ 1966 classic The Vital Few: The Entrepreneur and American Economic Progress. Hughes chronicles the contributions of various entrepreneurial figures in American history—from political/religious innovators like William Penn and Brigham Young to industrial giants Andrew Carnegie and Henry Ford. Given the remarkable evolution of retail in the late 20th century, Price and Walton are indeed compelling candidates for Hughes’s entrepreneurial hall of fame. Much has been written about Sam Walton, so let’s shift our focus to Sol Price, whose influence is evident in contemporary warehouse clubs like Costco.
There’s a surprising dearth of literature on Price, aside from a biography penned by his son in 2012, which offers intriguing insights into his character and strategies. Born in New York to immigrant parents, with a father who was a socialist labor activist, Price eventually moved to San Diego. After earning a law degree, he began his career as an attorney, primarily aiding local merchants facing challenges during World War II price-control regulations. His altruistic legal work, he believed, would yield more lucrative opportunities down the line—think of it as a “loss leader” strategy in retail, where initial sacrifices lead to larger gains. Among his clients were the Pawnbrokers’ Association, which often found itself under the thumb of state officials, until the Association hosted a fundraiser for those very officials.
Interestingly, Sol Price didn’t intentionally aim to revolutionize retail; rather, he stumbled upon it through a combination of luck and insight. While serving various retailers and wholesalers in San Diego, he visited a Fedco store in Los Angeles, a discount outlet for government employees. Noticing the number of San Diego residents commuting to Fedco, he envisioned a similar venture in his hometown. When Fedco declined his proposal for a partnership, Price, undeterred, decided to open his own store in a San Diego warehouse.
Thus, FedMart was born, catering to members from local city and county credit unions and offering significant discounts. Price had the foresight to target a solid, middle-class clientele, minimizing risk from potential bad checks. Moreover, with credit unions actively promoting memberships, he reduced his advertising costs significantly. This strategic approach starkly contrasts with Walmart’s open-door policy, which invites a wider range of consumers but also grapples with higher shrinkage rates.
Price’s retail model was not merely about discounts; it was about smartly navigating regulatory frameworks. The Resale Price Maintenance laws prevented retailers from discounting unless they were membership-based. Price capitalized on this loophole by stocking private-label products and managing to circumvent companies enforcing “fair trade” laws. His big break came in the 1970s when federal price controls allowed him to discount liquor, a long-awaited move that solidified his market position.
Guided by six foundational “Rights”—the right product, in the right place, at the right time, in the right quantity, in the right condition, and at the right price—Price made critical decisions that shaped his entrepreneurial journey.
One of his more intriguing strategies was the “Intelligent Loss of Sales.” While it may sound counterintuitive in retail, this approach made perfect sense upon reflection. Warehouse stores typically stock a single size and brand of products, reducing handling time and costs. For instance, Price opted for larger containers of three-in-one oil, thereby minimizing inventory turnover time and maximizing efficiency. He understood that sacrificing some sales could lead to overall gains in profitability.
Price stands out as an overlooked pioneer alongside retail giants like Sam Walton, J.C. Penney, and Charles Walgreen, each of whom transformed the American shopping landscape. His success hinged on a delicate balance of the “six rights,” and this success was only possible within the liberty that allowed for exploration and innovation in retail.
How did Price achieve this? He envisioned a future that others could not see and took calculated risks to bring it to fruition. This pursuit was fraught with uncertainty; after all, not every visionary’s forecast aligns with reality.
Price and his team were primed for discovery. Just as the creator of Tabasco sauce leveraged surplus cologne bottles for innovation, one of Price’s buyers recalled a vendor packaging mouthwash in large plastic bottles. This sparked a new product line that would further redefine retail practices.
Both Sam Walton and Sol Price, along with other retail innovators, pioneered the use of data to decode consumer behavior. In today’s world, enhanced statistical methods and software allow analysts to streamline supply chains and enhance delivery processes—crucial for adding value in the journey from farm to table.
Did Price always hit the mark? Certainly not. He faced significant challenges, including being ousted from FedMart during a hostile takeover. Yet, he rebounded by co-founding Price Club, further revolutionizing the retail industry. Interestingly, an entrepreneur named Jeffrey Brotman once approached Price Club to open a store in Seattle. When Price Club declined, Brotman went on to hire a top executive from Price Club, ultimately founding a little store you might recognize: Costco, which later merged with Price Club.
Adam Smith noted that in a commercial society, we are perpetually “practicing oratory on others”. Each price tag is an invitation, a proposition, as simple as “I’ll offer you $50 for that box of baseball cards” or “this gallon of milk could be yours for $3.” Sol Price, along with innovators like Michael Cullen and Sam Walton, transformed this commercial discourse, reshaping how we engage with one another in the marketplace.
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Some of the insights presented in this article are derived from Robert Price’s Sol Price: Retail Revolutionary and Social Innovator. Taylor Grace Carden provided invaluable feedback on this piece.
