Sol Price became a legend in retail by making money dropping margins instead of raising them.

He founded the members-only warehouse store concept in 1976 with Price Club, which inspired Costco and Sam's Club.

The idea was to sell a limited range of popular items in bulk — priced as low as possible, thanks to a no-frills approach — to customers dedicated enough to pay a membership fee.

The secret of Price's success? He rigorously studied his industry, applied logic and creativity to problems, and worked hard and smart to get the results he wanted.

Price uses the same strategy in his philanthropic efforts.

"He's fantastic. He's the best," Costco Wholesale Chief Executive Jim Sinegal, who started working for Price at age 18 in the 1950s, told IBD. "He just became a student of the business and was always coming up with a different way of getting the job done."

Price deduced that by carrying a relatively small group of products and turning that inventory over fast — up to 20 times a year — his business could thrive on thinner-than-usual margins.

That was an invention in retail the U.S. had never seen, says Howard Davidowitz, chairman of retail consultancy Davidowitz & Associates in New York.

"Sol Price went out and built a different mousetrap. And he did it at age 60," Davidowitz told IBD.

From Law To Business

Born in 1916, Price went to high school in San Diego, graduated from San Diego State University in 1934 and earned a law degree from the University of Southern California.

He was the Price in the law practice Price & Nottbusch, which in 1947 merged with another firm to become Price, Nottbusch, Cory & Schwartz.

By 1954, Price was heading in a new direction — reputedly because he hated fair-trade laws that discouraged discounting. A backlash against such laws was brewing, but some stayed on the books until the mid-1970s, when federal legislation finally closed them out.

Back in the mid-'50s, Price found a legal way to drop prices. He co-founded Fed-Mart, a department store chain that catered to government employees and their families for an annual membership fee. Members owned the store, so it could give them price cuts.

The idea proved to be a winner. By the 1970s, Fed-Mart was dozens of stores strong, a regional retailer with sales in the hundreds of millions of dollars annually.

"It probably sounds strange to suggest Sol's style was collaborative — he's such a dynamic person and very forceful," Sinegal said. "But he clearly understood he had to get everybody on board."

Price set a great example for employees and made it clear he valued them highly.

"He was passionate," Sinegal said, noting that Price would come in early and go home for dinner, yet still return to the store to see how things were going.

"As hardworking and serious as he was, he always had a touch of humor — that makes a difference," Sinegal said. "Zealots wring you out quickly."

In the mid-'70s, German retailing entrepreneur Hugo Mann bought two-thirds of Fed-Mart. Price stayed on as chief executive, eyeing an opportunity for expansion. But the new owners fired him several months later. Price's sons Robert and Laurence also left the business.

"He really ran Fed-Mart; it was successful until he left," Davidowitz said.

Foundering under its new ownership, the chain would close its stores in a few years. Many would be taken over by Target, for which Davidowitz consulted.

Rather than retire, Price raised money and started a venture called Price Co. In 1976 it opened a bare-bones store in San Diego called Price Club. To join, customers had to show proof of being in business.

"To start another business from scratch and get the whole team, the concept, source the products, get logistics together — this is astounding," Davidowitz said. "I always found his life to be the life of a giant."

Norm McMillan, the now-retired founding partner of retail consultancy McMillan Doolittle in Chicago, worked with Target at the time.

"This was the mid-1970s, and there weren't any warehouse stores," he told IBD. "This store appeared out of nowhere, and it was in an obscure location close to the I-5 freeway. I went in to see it and absolutely was floored by it because of what they were doing — the quantities you could see from the floor and the pricing and so on. These folks were remarkably low-cost."

In 1980, Price's company went public. Three years later, Wal-Mart founder Sam Walton had dinner with Price.

"I didn't tell him at the time that I was going to copy his program, but that's what I did," Walton wrote in his autobiography, "Made in America."

Walton — who named Wal-Mart after Fed-Mart in the 1960s — opened the first Sam's Club in 1983, and other warehouse clubs soon formed.

Sinegal co-founded Costco. In 1993, Price Club, which had annual revenue of about $7.5 billion, merged with Costco.

Amid other endeavors, Price turned his attention — and wealth — to philanthropic goals. His family formed Price Charities.

A newspaper article about the closing of a Vons supermarket in San Diego's low-income City Heights neighborhood caught Price's attention. The area is called the Ellis Island of San Diego because it's an immigrant melting pot where more than 30 languages are spoken.

Price initially wondered whether City Heights, which his old high school had served, could be revitalized partly through a store opening.

As Price delved into the issue, he realized other things were more crucial, so he funded a project that involved bulldozing the store and putting in a park, library and police substation that had a community room and gym for area residents.

Price didn't stop there. He got his alma mater, San Diego State, involved.

"About nine years ago, he approached the university and asked us if we'd be interested in operating three schools in City Heights," Ethan Singer, associate vice president for academic affairs at San Diego State, told IBD. "He knew K-12 education needed to be upgraded and there needed to be a focus on that, and we could do that."

Millions For Schools

Singer became coordinator for that project, which began a year later. Called the City Heights Educational Collaborative, it has raised test scores at three area public schools. Singer says Price Charities has probably put in more than $30 million and the university has matched that through grants and contracts.

Price makes a point to stay involved.

It was his idea to relieve overcrowding at City Heights schools by creating a novel program called School in the Park. Groups of elementary school students spend a week every month in field-trip study programs at a dozen museums in San Diego's Balboa Park.
BY DONNA HOWELL