In the realm of retail innovation, certain figures stand out for their remarkable contributions and visionary approaches. Among them, Sol Price and Sam Walton played pivotal roles in shaping the landscape of shopping today. By examining their groundbreaking methods and strategies, we can gain insight into the principles that transformed retail and continue to impact consumer behavior.
Adam Smith articulated the rhetoric of the Bourgeois Deal by highlighting fundamental differences among commercial, political, and martial societies. Everyone, he argued, is always practicing oratory on others and trying to persuade them to cooperate: “give me that which I want, and you shall have this which you want.”
Luke Froeb and his collaborators in the managerial economics textbook I used while teaching MBA students explained 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 notable figures excelling in this area during the twentieth century were Sam Walton, the renowned founder of Walmart, and the less widely recognized but equally important Sol Price, who established FedMart and later Price Club.
In a 2023 paper, Charles Courtemanche, Reginald Harris, and I discuss how Price and Walton might be considered among the “vital” entrepreneurs outlined in Jonathan Hughes’ 1966 book The Vital Few: The Entrepreneur and American Economic Progress. Hughes illustrates entrepreneurial innovation in American history through the stories of various entrepreneurs, including political/religious figures like William Penn and Brigham Young; technological innovators such as Eli Whitney and Thomas Edison; financial titans like E.H. Harriman and J.P. Morgan; industrial giants Andrew Carnegie and Henry Ford; and bureaucratic leaders Mary Switzer and Marriner Eccles. The emergence of retail in the late 20th century positions Price and Walton as noteworthy candidates for inclusion in Hughes’s entrepreneurial canon. Much has been written about Sam Walton, so I will focus on Sol Price, whose legacy includes the modern warehouse club concept exemplified by businesses such as Costco.
There is limited literature on Price, apart from a 2012 biography by his son, which offers a captivating glimpse into his life, thoughts, and practices. Born to immigrant parents in New York, Price’s father was a socialist labor organizer. They eventually moved to San Diego, where Price pursued a law degree and began his legal career. He built social capital through pro bono work for local merchants, assisting them during challenges with World War II price-control boards. He noted that this generosity often led to lucrative opportunities—like divorces and larger contracts—referring to pro bono work as a “loss leader” for more profitable endeavors. Among other associations, Price represented the Pawnbrokers’ Association, which faced constant scrutiny from political leaders until the Association organized receptions or fundraisers that alleviated some pressure.
Sol Price did not initially aim to revolutionize retail; instead, he stumbled upon it through a blend of chance and alertness. While actively participating in his San Diego community, he served as a lawyer for various retailers and wholesalers, including those selling to a Los Angeles store called Fedco, known for offering substantial discounts to government employees. Upon visiting a Fedco store with his clients, Price realized that many government workers commuted from San Diego, leading him to believe a similar operation could thrive in his hometown. However, Fedco ultimately rejected his proposal.
Despite the rejection, Price had a warehouse in San Diego that needed purpose, leading him to think, “Why not implement what Fedco won’t?” Soon after, FedMart opened, providing significant discounts to members from local city and county credit unions. This strategy proved advantageous; Price secured a reliable middle-class clientele who rarely wrote bad checks and received marketing support from the credit unions, minimizing advertising costs. Lower operational costs enabled him to offer competitively priced products.
When founding FedMart, Price aimed to replicate Fedco’s success by targeting a specific customer base. He collaborated with the credit unions frequented by city and county employees and local businesses, effectively screening potential customers to mitigate theft and bad checks. Price astutely recognized that members of the County Employees’ Credit Union were generally more trustworthy. Unlike Walmart, which allows anyone to enter its stores, membership warehouses like FedMart and Price Club took significant steps to preselect clientele based on reliability. In fact, Costco didn’t accept food stamps until 2009 as a means of filtering its customer base.
In several respects, FedMart exemplified a case of superfluous discovery. Laws regarding Resale Price Maintenance made it illegal for retailers to discount from the manufacturer’s suggested retail price unless they operated as a membership store. In New York, E.J. Korvette’s addressed this by distributing membership cards at the entrance, exploiting an existing loophole. FedMart stocked private-label brands at lower prices and refused to engage with companies that fiercely enforced “fair trade” laws. A significant breakthrough for Price occurred in the 1970s when California’s minimum price regulations for liquor were found to be superseded by federal price controls, allowing him to finally offer the liquor discounts he had sought for years.
Price developed six guiding “Rights” for his business decisions: the right product, in the right place, at the right time, in the right quantity, in the right condition, and at the right price. He and his team faced challenging entrepreneurial decisions at each juncture.
Price practiced what he termed “Intelligent Loss of Sales,” a seemingly absurd notion in retail. However, upon closer inspection, it becomes clear. Warehouse stores generally stock one brand of a product in a single size. For example, Price opted for a single large size of three-in-one oil, believing it was more cost-effective to sell three eight-ounce containers than eight three-ounce ones. This approach minimized handling and storage time, resulting in faster inventory turnover and reduced costs. While Price could have sold more of the smaller size, he wisely chose to forego those sales for the benefits of higher turnover and lower handling expenses.
Price is one of the overlooked innovators who rightfully deserves recognition alongside Sam Walton, J.C. Penney, the Kresge family, and Charles Walgreen for their roles in reshaping American shopping habits and laying the groundwork for an entire sector that creates value through effective implementation of Price’s “six rights.” The right balance of “rights” is not discovered independently but must be the outcome of a search process, wherein Price relied on liberty—allowing broader exploration for optimal offerings.
How did Price achieve this? He envisioned a future that others had not, risking resources to bring it to life. This was a bold endeavor, as many who envision the future often find it does not align with what actually materializes.
Price and his team were prepared to embrace discoveries. Much like how the creator of Tabasco sauce innovated using surplus cologne bottles, one of Price’s buyers, seeking to explore what products could be sold in bulk, recalled a vodka manufacturer that packaged their product in large plastic bottles, inspiring the idea of packaging mouthwash similarly.
Sam Walton, Sol Price, and numerous retail innovators paved the way by employing data analysis to comprehend consumer behavior. In the 21st century, advancements in statistical methods and software facilitate the identification and elimination of costs within the supply chain. Effective delivery and distribution practices hold significant value and may be among the most crucial aspects of the process aimed at bringing goods from production to consumers.
Did Price succeed in every aspect? No. He faced a hostile takeover that eventually forced him out of FedMart. However, he and his son, Robert, would later revolutionize retailing once again by founding Price Club, which introduced the contemporary warehouse club store. In an intriguing turn of events, an entrepreneur named Jeffrey Brotman approached Price Club with interest in opening a store in Seattle. When Price Club did not pursue the opportunity, Brotman hired one of its top executives, Jim Sinegal, to help establish his own venture—Costco, which eventually merged with Price Club.
Adam Smith argued that we are always “practicing oratory on others” in a commercial society. Each price is a form of offer. Bids and asks—”I’ll give you $50 for that box of baseball cards, dear eBay seller, and “this gallon of vitamin D milk could be yours for $3, beloved Aldi customer“—are exercises in oratory reduced to straightforward, easy-to-interpret signals. Sol Price, alongside pioneers such as Michael Cullen, Clarence Saunders, and E.J. Korvette, along with Sam Walton and Jeff Bezos, changed the nature of commercial oratory and interaction in industry.
In conclusion, the legacies of Sol Price and Sam Walton serve as cornerstones in the evolution of retailing. Price’s innovative strategies, particularly those focused on trust and operational efficiency, alongside Walton’s expansive vision, paved the way for modern shopping experiences. Their stories remind us that entrepreneurship is not merely about recognizing opportunities; it’s also about forging pathways that benefit consumers while redefining entire industries.
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Some of the facts in this article are from Robert Price’s Sol Price: Retail Revolutionary and Social Innovator. Taylor Grace Carden provided helpful feedback on this article.
