How Costco Built a $249 Billion Dollar Company

Costco's start begins with its earliest predecessor, Price Club, who opened their first store on July 12, 1976, on Morena Boulevard in San Diego, California. It was founded three months earlier by Sol Price and his son, Robert, following a dispute with the new owners of FedMart, Price's previous membership-only discount store. Price Club was among the first retail warehouse clubs, beginning with its Morena Boulevard store inside a series of old airplane hangars once owned by Howard Hughes. Price Club's sales model targeted small business owners, selling items in bulk for a discounted price at no-frills outlets that were accessible only with an annual membership fee.The company launched an initial public offering in 1980 and expanded to 24 locations in the Southwest and 1.1 million members by early 1986. Price Club expanded into Canada in 1986, opening a store in Montreal, followed by a Mexico City store in 1992 as part of a joint venture with hypermarket chain Controladora Commercial Mexicana. The company also announced plans to open stores in Spain and Portugal through their Canadian subsidiary.
Costco Opens
Jim Sinegal and Jeffrey H. Brotman opened the first Costco warehouse in Seattle on September 15, 1983.Sinegal had started in wholesale distribution by working for Sol Price at FedMart; Brotman, an attorney from an old Seattle retailing family, had also been involved in retail distribution from an early age. During this time, small businesses were given an 8% or 9% discount on inventories. He began his retail involvement as a grocery bagger. A second store opened in Portland in October, and a third in Spokane in December 1983. The company went public in 1985. The company was initially headquartered at its first warehouse in Seattle but moved its headquarters to Kirkland in 1987.
The "PriceCostco" merger
In 1993, Costco and Price Club agreed to merge operations themselves after Price declined an offer from Walmart to merge Price Club with their warehouse store chain, Sam's Club. Costco's business model and size were similar to those of Price Club, which made the merger more natural for both companies. The combined company took the name PriceCostco, and memberships became universal, meaning that a Price Club member could use their membership to shop at Costco and vice versa. PriceCostco boasted 206 locations generating $16 billion in annual sales. PriceCostco was initially led by executives from both companies, but in 1994, the Price brothers left the company to form PriceSmart, a warehouse club chain in Central America and the Caribbean unrelated to the current Costco.
Costco moved its headquarters from Kirkland to Issaquah in 1996; it chose to build a new headquarters campus next to a warehouse store to allow buyers to check sales and merchandise. They had originally planned to move by December 1993 to Redmond, another Eastside city, but delays in road construction near the warehouse site caused the company to reconsider. The former Kirkland headquarters, a 10.7-acre campus, was sold in late 1996.
The company began testing store conversions to Costco branding across the Southwestern United States in late 1996. It officially reverted to using the Costco name and stock symbol in February 1997, with all remaining Price Club locations subsequently rebranded as Costco. After the rebranding Costco had a 5 year run of straight profit-earning increases. However, Costco experienced an unexpected decline in earnings in the first half of 2001. Much of this was beyond the company’s control, as the West Coast of the U.S. suffered from an energy crisis that sent energy prices skyrocketing. The state of California, where fully one-fourth of Costco’s warehouses were located, experienced some of the worst of the crisis, as rolling blackouts became a concern. “Energy prices in California will certainly impact Costco more than another national retailer,” David Schick, an analyst at Robinson-Humphrey, told the New York Times in June 2001, “It costs more to operate in California, and they have an awful lot of operations in California.” The company responded to the crisis by equipping California stores with backup generators to keep refrigeration units running in case of blackouts, turning down air-conditioning, and designing new warehouses with as many skylights as building codes permit to allow the company to turn off lights during the day. For fiscal year 2001, net sales totaled $34.14 billion. Adding memberships fees of $66 million, the total income for 2001 was $34.8 billion, reflecting an increase of $2.6 billion over fiscal year 2000 total revenues of $32.16 billion.

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