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Price Co. Ties Its Success to Low Prices : 9-Year-Old Retailing Giant Nearly Doubled Earnings Each Year

March 11, 1985|FREDERICK M. MUIR | Times Staff Writer

SAN DIEGO — The entrance to Price Co.'s corporate headquarters gives few hints of the retailing giant that lies within or the commotion that it is stirring in the industry.

Marked with only a hand-lettered paper sign that reads "Pull," the door opens into a lobby furnished with folding metal chairs, a bank of file cabinets and a drooping fern with its sales tag still dangling. Down the linoleum hallway in President Robert Price's office, corporate records and memorabilia are stored in shelves made of cinder blocks and wood planks.

"They help me maintain perspective," says Price, 42, chief executive of the 9-year-old company that is rapidly approaching $2 billion in annual sales. "Those shelves come from the days when we were struggling, and I don't ever want to get rid of them. We have to remember where we came from, because if we're not careful, we end up back there."

$5-Billion Industry

Welcome to Price Co., perhaps the only publicly held company that warns in its annual report, "Just as we in management are not allowing ourselves to be overwhelmed by our success, we suggest you, as stockholders, also do not become carried away."

Despite the odd warning, investors, retailers and shoppers seemed impressed by Price Co.

The 1976 opening of Price's first bare-bones, cash-and-carry store catering largely to small businesses spawned a new industry. Analysts and a growing number of participants estimate that the warehouse-membership store industry could approach $5 billion in sales this year and perhaps alter wholesale and retail distribution patterns. By the end of the decade, a Goldman, Sachs & Co. analyst predicts, annual sales of warehouse-membership stores could near $20 billion.

Since Chairman Sol Price, 68, and his son, Robert, opened their first aircraft-hangar-size Price Club in an industrial section of San Diego, there has been an explosion of copycat companies opening membership-required warehouse stores in cities from Anchorage, Alaska, to Tampa Bay, Fla. Currently eight companies operate 64 warehouse stores nationwide, and by year's end they plan to have 111 locations in operation.

Price Co. sales and earnings have almost doubled in nearly each of the past nine years, and the concern has grown to 20 locations in California, Arizona and Virginia, with four more scheduled to open by August in Inglewood, Oxnard, Pomona and Baltimore.

In the fiscal year ended Aug. 31, 1984, Price Co. reported net income of $28.6 million, contrasted with $14.7 million the year earlier and $7.9 million in 1982. Sales jumped to $1.14 billion from $632.9 million the prior year and $366.2 million in 1982.

'As Cheaply as I Can'

Some securities analysts estimate that Price Co.'s net income could hit $40 million in the current fiscal year, with sales climbing to $1.85 billion.

Asked about such estimates, the quiet and private Robert Price (he refused to be photographed for this article) said only, "Anything's possible."

And so it must appear to Price, having built a major corporation on a simple premise.

Founder Sol Price once confided that his "secret" was so simple that he was reluctant to speak openly about it for fear of appearing "stupid." Said the elder Price: "I sell things as cheaply as I can."

It is a formula he has used successfully since the early 1950s when he founded FedMart. The discount retailer was later sold to German industrialist Hugo Mann, who tinkered with Price's formula of discounting all products but not using any as loss leaders and was forced to shut down the loss-plagued public company in 1982.

The Price Co. formula--copied by competitors right down to the green paint selected for shopping carts--is based on offering brand-name, top-quality merchandise at an average gross margin of less than 9.5%. That markup compares with industry averages of 50% at department stores, 30% at discount stores and 20% at food retailers, and it allows Price to offer Pierre Cardin warm-up jackets for $24.99; one-gallon containers of Tree Top apple juice for $2.85; five pounds of Skippy peanut butter for $6.29; Sperry Topsider boat shoes for $32.99, and Prince Pro model tennis rackets for $54.99.

Price Clubs average 100,000 square feet in size, $85 million in annual sales and stock about 3,500 items ranging from cement mixers to Dom Perignon Champagne on the same plain metal racks that double in function as the store's own inventory storage area. Forklifts race about the broad aisles that, from time to time, include such diverse fare as sailboats, computers and spas, complete and with a working model churning away next to the book department.

Unwieldy Bargains

Securities analyst Bo Cheadle, with San Francisco-based Montgomery Securities, said he spent $500 on his first shopping trip to a Northern California Price Club. "You go in for a carton of cigarettes, and end up buying $100 worth of stuff," Cheadle says. "It's like an expedition every time you go. That's what brings you back."

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