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Costco

Explore episode Mar 4, 2026
History
Why Membership Was the Original Legal Hack

Costco · Mar 4, 2026 History

In the 1950s, US law allowed manufacturers to set minimum retail prices, making discounting illegal for retailers selling to the general public. Sol Price's FedMart skirted these laws by operating as a membership club — not open to the general public — which let it sell below manufacturer minimums. This legal workaround accidentally invented the membership retail model that Costco perfected.

1m 40s

Where this was said

FedMart Grows Up: Gas, Pharmacy, House Brand & Core Values

At 23:20 · chapter starts 21:30

FedMart's formula proves immediately reproducible: Phoenix opens to lines half a mile long in the parking lot. The business goes public in 1959, raising $2 million to fund further expansion and product-line additions. First comes gasoline, priced a few cents below local competitors and used as a loss leader to drive store traffic — the direct ancestor of today's Costco gas lines. Then comes pharmacy, where the aggressive undercutting of fat industry margins generates literal death threats and a rock through the pharmacist's window — mafia-style retaliation for exposing artificially inflated drug prices. The protégé of that pharmacist later goes on to run Costco's pharmacy division. Sol also develops the FM house brand to capture margin on high-velocity products — a direct precursor to Kirkland Signature. Most importantly for the episode's through-line, Sol codifies FedMart's four management priorities in rank order: 1) best possible value to customers, 2) good wages and benefits to employees (including health insurance, radical for the 1950s), 3) honest business practices, 4) make money for investors. These priorities will reappear nearly verbatim in Costco's Code of Ethics decades later. And at some point in these years, Sol hires a young part-time bagger from San Diego City College named Jim Sinegal.

History
FedMart Year 1 sales vs expectations

Costco · Mar 4, 2026

FedMart's first store did $3 million in sales in its first year — three times the $1 million wildest-dream expectation — validating Sol Price's for-profit version of the Fedco model.

24:57 – 25:25

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