Side Quest: FedMart to Amazon Fresh

In This Edition:

The Latte Shot Heard Around the World

The Roots of Retail

FedMart’s Flame-Out

One Door Closes, Another Opens

1983 Was the Year of the Club

Amazon Fresh

Amazon Rises

Retails Irony

Retail Onward

The Latte Shot Heard Around the World

One of the most important coffee house meetings happened in 2001.? The fledgling Amazon founder and leader Jeff Bezos invited Costco Wholesale’s co-founder/CEO Jim Sinegal to coffee at (of all places) a Starbucks in a Barnes & Noble store in Bellevue, Washington.? It is too bad we may never see Amazon buy that real estate location. They could convert it into an Amazon Fresh and place a permanent display or memorial marking the historic meeting.? It is one of retail's most sacred hallowed grounds, in the same category as the "Sam's Five and Dime" museum in Bentonville, Arkansas town square. Perhaps Costco would be better suited to do take over the location and they could brag that “here lies the spot where Costco begat Amazon”.

The Roots of Retail

Recently, I had the opportunity to visit the 40k square foot “Just Walkout” Amazon Fresh store in Tustin, CA.? This edition is about the origins of modern retail’s DNA from FedMart to Amazon Fresh.? To understand Amazon’s DNA and most any modern retailer today, you have to go back to the first half of the previous century.? Sol Price, who is thought of as the godfather of club retail, started a chain of membership-only discount stores called FedMart in San Diego.? FedMart evolved to become Price Club which eventually would merge to become the third largest retail chain in the world Costco.? If retail was a tree, FedMart would surely be one of its roots.

FedMart’s Flame-Out

Ironically we would not have Costco if it was not for Sol Price selling two-thirds of FedMart in 1975 to German retailer, Hugo Mann as a means for financing broader expansion.? Hugo Mann would eventually force Price out of FedMart as his intentions were not expansion but for the real estate under the stores.? Subsequently, FedMart went out of business in 1982.? Following FedMart’s fall, Mann leased former FedMart retail locations to other retailers like Ralph’s and Target.

One Door Closes, Another Opens

The day after he was fired, Sol Price set out to start a new retailer called Price Club.? The first Price Club warehouse store opened in San Diego, California on July 12, 1976, in a former airplane hangar owned by Howard Hughes. ? Seven years later on September 15, 1983, Jim Sinegal who started as a grocery bagger at FedMart and was mentored by Sol Price, joined forces with Jeffrey Brotman and opened the first Costco warehouse in Seattle.??

1983 Was the Year of the Club

The year 1983 proved pivotal for the membership warehouse business as that same year, Kmart would start Pace Membership Warehouse and Sam Walton opened his first Sam’s Club on April 7, 1983.? This was no coincidence as in early 1983, Sam Walton and his wife, Helen had dinner with Sol Price and his wife, Helen in La Jolla, California.? During that dinner, Sam learned all he could about the Price Club wholesale model to understand how it was able to undercut his Walmart prices with very little overhead and the ability to sell below Walmart’s 22% margins.? Price Club’s negative to-cash conversion cycle and their ability to print money must have sent Sam flipping and he did not waste time copying the concept.

A decade later in 1993, Costco and Price Club agreed to merge operations following Sol Price’s rebuff to merge with Sam Walton’s, Sam’s Club.

Amazon Fresh

As for my tour of the Tustin Amazon Fresh store, I could not help but notice the Costco DNA in the store from the broad range of sampling and demo opportunities to how the store incorporates traditional retail wisdom with cutting-edge technology.? I even had the opportunity to play spin-the-wheel and answer a question to get a prize.? The attendant asked me if I wanted “easy” or “hard” and I said “hard”.? The question was “When was the first moon walk” and I answered “1969” correctly and received my choice of a gift.? I chose the metal Amazon logo lunch box as it gave me 1983 vibes.? I was able to walk out of the store without spending a dime and still had a handful of tchotchkes.? My loyalty to Amazon was off the charts.

Amazon Rises

Costco succeeds because of its fervent focus on building and maintaining customer loyalty by putting its members first, streamlined logistics, and the power to maintain low margins with a high volume sales to negative cash conversion cycle.? Amazon succeeded largely due to that 2001 coffee meeting.? At the time the new company was struggling in the wake of the 2001 dot-com bubble implosion and that meeting was pivotal in getting Amazon to change direction toward a more members-only customer-centric low-margin model.

Retails Irony

Ironically, the original Price Club store in the former airplane hangar in San Diego is still open today.? It is now Costco 401.? It is a massive store situated hard and fast to the east of the ten-lane north-south 5 Freeway (I-5).? Less than five miles away is the University of California San Diego Price Center.? Another massive building inspired by Sol Price, but in this case it is the main student center for the sprawling 35k student campus, the Price Center.? The Price Center is named after Sol, thanks to his philanthropic efforts.? Coincidentally the Price Center is also home to the only Target store in toney La Jolla, California.? This is retail!

Retail Onward

Standing in the middle of the Tustin Amazon Fresh, I reflected on witnessing first hand the century of retail innovation from FedMart to Amazon Fresh.? It’s been an incredible journey and based on what I saw in Tustin, this is only the beginning and we have more to be excited about the future.

#Amazon #Costco #California