The Untold Story of When Price Club Became Costco

How a Groundbreaking Merger Reshaped the Retail Landscape

In the world of retail, few companies have as fascinating and impactful a history as Costco. Today, Costco stands as the undisputed king of the wholesale club industry, with a massive global footprint, a fiercely loyal customer base, and staggering sales numbers. However, Costco‘s rise to dominance was profoundly shaped by one pivotal event: its 1993 merger with Price Club.

While often overlooked in discussions of retail history, the story of when and how Price Club became Costco offers a master class in business strategy, innovation, and the power of a well-executed merger. By joining forces, these two industry pioneers created a company that would go on to redefine retail and become one of the most successful and enduring business models ever conceived.

To truly understand the significance of the Price Club-Costco union and the lessons it holds for retailers today, we must first examine the history and DNA of these two groundbreaking companies. Only by appreciating their unique strengths, strategies, and cultures can we grasp why their merger was such a brilliant move and how it laid the foundation for the Costco we know today.

Price Club: The Wholesale Pioneer

The story of Price Club begins with Sol Price, a serial entrepreneur who is often credited with inventing the wholesale club model. In 1954, Price founded FedMart, a chain of membership-based department stores in San Diego. FedMart was a novel concept at the time, offering a wide range of products at discounted prices to members who paid an annual fee.

While FedMart found success, Price had an even bolder vision for transforming retail. In 1976, he left FedMart to start Price Club with his son Robert. The idea behind Price Club was to strip away the frills of traditional retail and focus on selling a limited selection of goods in bulk quantities to small businesses. By cutting operational costs to the bone and leveraging massive purchasing power, Price Club could offer unbeatable deals to its members.

Price Club‘s model was an instant hit. The company quickly expanded throughout the late 1970s and 1980s, spreading across the U.S. and international markets. Along the way, Price Club pioneered many of the signature features that would come to define the wholesale club experience, such as:

• No-frills, warehouse-style stores
• Limited SKU selection focused on bulk sizes
• Merchandise stacked high on pallets
• Treasure hunt-style "when it‘s gone, it‘s gone" deals
• Lean staffing and operational efficiency
• Annual membership fees to drive loyalty and cash flow

By 1990, Price Club had grown into a retail powerhouse, with 94 warehouses and over $7.5 billion in annual sales. However, as Price Club plotted further expansion, it faced stiff competition from other wholesale club upstarts, most notably Costco. Unbeknownst to either company, a merger that would reshape the industry was on the horizon.

The Costco Way

Like Price Club, Costco traces its origins back to a visionary entrepreneur. In 1983, Jim Sinegal, a former protégé of Sol Price at FedMart and Price Club, went into business with Jeff Brotman to create a new kind of wholesale club in Seattle. With just $11 million in initial capital, they opened the first Costco warehouse on September 15, 1983.

Costco adopted many elements of the Price Club model, including the spartan warehouse environment, bulk packaging, and paid annual memberships. However, Sinegal and Brotman fine-tuned the concept in several key ways:

• Expanded focus on individual consumers in addition to small businesses
• Even more ruthless operational discipline and efficiency
• Enhanced focus on high-quality, name-brand merchandise at deep discounts
• Introduction of signature products like the $1.50 hot dog and soda combo
• Prioritization of employee welfare via higher wages and generous benefits

Thanks to this formula and the leadership of Sinegal and Brotman, Costco quickly emerged as a force in the wholesale club industry. Throughout the 1980s, the company gradually expanded down the West Coast and began pushing eastward. By the early 1990s, Costco had reached over $3 billion in annual sales.

However, Costco‘s ambitious growth plans began to collide with those of Price Club, setting up a showdown between the two dominant wholesale club chains. Both companies were on a mission to blanket the country in warehouses, and a merger began to look like an increasingly attractive way to leapfrog the competition.

The Wholesale Club Mega-Merger

By 1993, the U.S. wholesale club industry had largely consolidated around three key players: Price Club, Costco, and Walmart-owned Sam‘s Club. All three were locked in a high-stakes race to snap up market share by rapidly expanding their warehouse networks. For Price Club and Costco, the pressure to keep up with each other and fend off Sam‘s Club was intense.

Realizing there was more to gain together than apart, Price Club and Costco began exploring the idea of a merger in 1993. On paper, the two companies looked like ideal partners. In addition to their similar business models and cultures, a combined Price Club-Costco would have immense scale, with 206 total warehouses and over $16 billion in annual sales.

After a brief bidding war in which Walmart attempted to acquire Price Club to bolster Sam‘s Club, Price Club ultimately decided to join forces with Costco. On October 21, 1993, the merger was officially announced, with the two companies forming a new entity known as PriceCostco.

Under the terms of the deal, the combined company would be jointly controlled by the Price and Costco leadership teams, with the Price family owning 21% of shares compared to Costco‘s 15%. Sol and Robert Price became co-chairmen along with Costco‘s Sinegal and Brotman.

While the merger created instant access to new geographies – Price Club had a strong presence in the South and Southwest, while Costco dominated in the West and Northeast – it also posed significant integration challenges. Both companies maintained their own management structures and systems post-merger, creating redundancies and internal tensions.

*Source: Costco annual reports*

The Birth of Costco as We Know It Today

Just one year after the Price Club merger, Costco made a series of moves that would dramatically alter the trajectory and identity of the combined company.

First, the Price brothers unexpectedly left the company in 1994 to form a new wholesale club chain called Price Enterprises focused on international markets. Their departure, combined with Costco‘s stronger financial performance relative to legacy Price Club stores, tilted the balance of power firmly towards the Costco leadership.

Then in 1997, the PriceCostco board made the historic decision to consolidate all operations under the Costco Wholesale name. Overnight, the Price Club brand disappeared, as all remaining locations were rebranded as Costco warehouses.

While the Price Club name was retired, its legacy lived on in the DNA of Costco‘s strategy and culture. The combined company took the best elements of both organizations – Price Club‘s relentless efficiency and Costco‘s commitment to quality and service – to form an even more formidable competitor.

Newly unified under the Costco banner, the company began an aggressive global expansion push while continuing to hone its merchandising and operational strategies. Several key initiatives during this period further defined the Costco model, including:

• Introduction of the Executive Membership program with 2% cashback rewards
• Launches of Costco.com, Costco Home, and Costco Travel to expand brand reach
• Adding fresh foods like produce, meats, and baked goods to drive sales and traffic
• Vertical integration via the Kirkland Signature private label brand
• Refined real estate selection process to optimize for high-income suburbs

*Source: Costco annual reports*

The Costco Legacy

Today, it‘s hard to overstate Costco‘s impact and stature in the retail world. The company has grown into a global juggernaut, with over 800 warehouses worldwide and annual revenues approaching $200 billion. Its membership base is the envy of the industry, with over 100 million loyal cardholders and a staggering 90% renewal rate in the U.S. and Canada.

Costco consistently ranks at the top of customer satisfaction surveys, and its Kirkland Signature private label brand is now synonymous with quality and value. The company‘s focus on taking care of its employees has also earned it a reputation as an employer of choice, with above-average wages and benefits for retail.

However, none of this success would have been possible without the fateful decision in 1993 to merge Price Club with Costco. By combining forces, these two pioneering companies were able to achieve a level of scale, efficiency, and customer loyalty that would have been impossible alone.

The merger also allowed Costco to stay true to its core values and business model in the face of stiff competition and a rapidly changing retail environment. While other retailers have struggled to adapt to the rise of e-commerce and shifting customer preferences, Costco has thrived by doubling down on what it does best: offering unbeatable value on a curated selection of products in a no-frills setting.

*Source: Costco FY2021 annual report*

Lessons from Costco‘s Ascent

As retailers look to Costco‘s incredible run of success for insights, several key lessons emerge:

1. Relentlessly focus on the customer experience. Everything Costco does, from its merchandising to store design to employee training, is geared towards making the shopping experience as seamless and satisfying as possible for members.

2. Be willing to zigging when others zag. In an era of endless choice and on-demand delivery, Costco has thrived by purposefully limiting its assortment and hours. By not trying to be everything to everyone, Costco has built a deep connection with its target customers.

3. Never stop innovating, even with a winning formula. While Costco‘s basic model has remained intact since the Price Club merger, the company has continuously experimented with new categories, services, and technologies like scan-and-go to keep improving.

4. Take the long view. Costco has never been afraid to sacrifice short-term profits for long-term member loyalty. Its policies around restricting markups and investing in wages reflect a patience and focus on sustainable growth over fleeting gains.

Perhaps most of all, Costco‘s incredible ascent from its Price Club merger demonstrates the transformative power of a well-executed combination. By finding the right partner in Price Club and melding the best of both companies, Costco was able to achieve a level of scale and market power that enabled it to become the apex predator of wholesale clubs.

So the next time you find yourself walking through a cavernous Costco warehouse, hunting for oversized jars of mayo and great deals on 85-inch TVs, take a moment to remember the company‘s origin story. The Costco we know today would not exist without the foresight to acquire Price Club in 1993 and spin that merger into wholesale gold. It‘s a reminder that in business, as in shopping, it pays to buy in bulk.