Ethics in Costco

Topics: Costco, James Sinegal, Sol Price Pages: 7 (2563 words) Published: April 11, 2013
“Our business is to give the customer the best value we can. We’re going to be a company that is on first name basis with members. Strategic gives customers the best value, at the best price.” Costco’s first location in Seattle opened in 1976 under the name “Price Club.” Costco was officially founded in 1983 by two veterans of retail, Jeffrey Brotman and James Sinegal, but the first seed of Costco was sown three decades earlier by a man named Sol Price. In 1953 Price Costco Inc became extreme in the warehouse retailing industry, challenging Sam’s Club (owned by Wal-Mart). The member’s only club was created by Sol Price. In 1954 Price started Fedmart, which was a discount department store designed for government employees who paid a member fee of two dollars per family. The store’s first year was successful; however Price sold Fedmart Corp after losing company membership in 1976. Small business owners had few options to buy products, therefore Price and his son Robert formed the Price Company and opened the first Price Club in San Diego which originally served only small businesses (Company’s website). According to Glenn Llopis at price Club was born as the world’s first wholesale warehouse club. With Price Club, Sol Price single-handedly grew a new industry and with it, a perpetual harvest of good fortune. Price Club’s concept was to offer a small selection of goods and sell them in bulk to keep prices low. To maintain low prices, overhead was kept to a minimum. Products were stocked on the sales floor, along with no advertising, besides the announcement of new store openings. Restricted membership was limited because fees would offset overhead costs. It also reduced bad checks, stealing, and allowed members to be financially secure. The store refused credit card payments to avoid fees, as of now Costco worldwide only accepts American Express credit cards under their company. As business boomed annual sales were high and word of mouth from their members remained the one and only advertisement. Their goods ranged from rice, candy, beverages, beauty products, televisions, and clothing. The rising inflation of the 1970s aided Price Clubs success. By then Sol Price’s warehouse concept had grown. In `1983, Price was faced with competitors mimicking their original idea. Wal-Mart also became extreme in the industry, including Kmart and Costco Wholesale, who directly challenged Price hold on the West Coast market (Press1996). Meanwhile traditional retailers began selling in bulk goods and large discounting, providing additional competition (Press1996). James D Sinegal, co founder of Costco formerly worked with Sol Price at Fedmart before joining him at the Price Company (Press 1996). Sinegal now executive vice president left Price and in 1983 formed Costco Wholesale Corporation, along with Jeffrey H. Brotman, a former oil company executive. This first Costco based on Price Club’s concept opened the same year in Seattle Washington.  In less than two years, Costco went public, expanded into Canada, and became one of Price's fiercest competitors.(Press 1996)  Costco was seen as a creative merchandiser, becoming the first warehouse to extend its product line to encompass such fresh foods as baked goods, meat, seafood, and produce (Press 1996).  Price's conservative approach to expansion during this period was also criticized (Press 1996). “Instead of responding to the threat by pushing into and dominating new markets,” Business Week reported, “Price Co. remained almost exclusively on the West Coast leaving the rest of the country wide open for more aggressive competitors.” Finally Mr. Price agreed to seal a deal with Costco, Sinegal would take the CEO position and Robert Price was chairman of the board. In 1995 Costco and Price Club formed a partial merger to form the company Price Costco, doubling each company’s size. In 1994 the household name was officially changed to Costco. With this merge the company had 206...
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