Costco Connection - February 2012

goods in a no-frills setting could be a new and pro;table niche in the retail world. ;ey called the store Fed-Mart, and over the next two decades the company grew to a successful regional chain in the Southwest.

A German retailer purchased Fed-Mart with plans to make it into a leading national retailer, but the plan failed. Its top managers, including Price and his son, Robert, found themselves out of work and mulling new ideas. ;ey came up with a membership-based warehouse club operation they called Price Club. ;e ;rst store opened in 1976 on Morena Boulevard in San Diego in an old manufacturing building built by Howard Hughes. Several former Fed-Mart managers went to work for the new Price Club, including Jim Sinegal, who had started at Fed-Mart as an 18-year-old student, unloading mattresses o; trucks.

;is bit of history is relevant, because at Fed-Mart key relationships were formed and concepts developed that would build today’s Costco. Many Costco executives started as box boys or cart pushers at Fed-Mart in the 1950s and 1960s, then went on to management roles at Price Club in the 1970s, before starting Costco in the early 1980s.

Costco history

Jim Sinegal and Jeff Brotman at the first Costco, 1983.

COURTESY OF COSTCO WHOLESALE

1976 Price Club opens in San Diego; introduces hot dog and a soda for $1.50

From those earliest days, Fed-Mart had a set of operating principles for employees, spelled out by president Sol

for Costco came a;er Seattleite Je; Brotman, whose family had deep roots in the retail business in that area, was urged by his father to check out the bustling Price Club stores in California. Je; immediately ;ew down and quickly was in

1983 First Costco Wholesale, Seattle

“We learned that you must have high standards of ethics and that there is no room for shortcuts.
And to do the right thing, even if it’s hard or painful.”

—Franz Lazarus, Senior Vice President, Global Operations

1986

agreement: ;ere was nothing like it in the Paci;c Northwest.

Pharmacy

Looking for somebody with experience to help start and run the new business, he asked around among his contacts and was told there was really only one guy for the job: Jim Sinegal.

The pair reached an agreement, scraped together $7.5 million from investors to back the start-up and in 1983 nervously opened the ;rst Costco, in an industrial area in south Seattle. According to a popular story among company long-timers, the store’s ;rst employees were told to park their cars in the parking lot to make the place look busy.

Sol and his young
team carried these
principles on to Price
Club and they were
taken north to Seattle
by some of the team
members when they
le; to create Costco
in 1983. The idea taken north to Seattle e c

COURTESY OF COSTCO WHOLESALE

1987 Optical, Bakery, Produce, Meat

But the business survived, grew to 10 warehouses within a couple of years and, in an ambitious and complex move, merged with its competitor, Price Club, in 1993, creating a company with almost 200 warehouses and 43,000 employees. Along the way it helped drive revolutions in the way products are manufactured, distributed, marketed and sold.

1988

1-Hour Photo

A fair deal

Costco’s story is best told by those who founded it. Young as they were, they were still forming their approaches to things when they met one another on the loading docks or while sweeping ;oors.

1993 Price Club and Costco merge

 Sol and Robert Price, in the original San Diego Price Club, late 1970s.

Franz Lazarus, Jeff Brotman, Jim Sinegal and Dick DiCerchio, 1993.

“;e things we learned as we grew up were the same things we did in our business. ;e things Mom taught you were the same things that Costco does,” recalls Fed-Mart and Price Club alum Dick DiCerchio, who retired last January as Senior Executive Vice President of Costco. “We didn’t lie. We didn’t cheat. We didn’t take advantage of our suppliers. We always respected our people. ;is wasn’t just a statement on the wall.”