Cap your Downside

Sol Price is one of the founding fathers of American retail. The Warehouse Store model of Costco, Sam’s Club, and Home Depot can all trace their roots back to his entrepreneurial career.

Sol didn’t grow up in retail. He spent years as a lawyer in San Diego and learned business through serving his clients. He learned two things;

1) Cap your Downside

2) Focus on the Customer

When he secured a location for his first business, FedMart, he negotiated a 10-year lease. FedMart eventually grew to 45 stores and over $300 million in annual sales. But, Sol negotiated a 1 year out in his lease ‘in case the business didn’t work out’. Downside capped.

FedMart’s founding insight was a $2 per family membership fee, offered exclusively to government employees. This fee allowed him to charge his retail customers substantial discounts compared to his competition.

He could charge wholesale prices, knowing his margin was already baked in via the $2 membership.

This constraint allowed his business to create a substantially better experience for the customer. He barely needed to market because his customers were raving fans.

After selling FedMart to German retailer Hugo Mann, Sol founded Price Club.

Price Club eventually merged to become Costco.

Focus on Your Customer and Cap Your Downside.

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