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Discount Stores in County Proliferate: a Profile of Fedco

February 19, 1988|KAREN NEWELL YOUNG | Karen Newell Young is a regular contributor to Orange County Life

When people describe Orange County as a shopper's paradise, they're usually referring to the glistening shops of MainPlace/Santa Ana, South Coast Plaza, Fashion Island and the beach towns. But the area is a fertile hunting ground for discount shoppers as well as those prowling the upscale stores.

Membership shopping clubs, stores that sell goods at near-wholesale prices to cardholders, are spreading throughout Southern California like tract houses in San Bernardino. These clubs, usually cash-and-carry warehouses with merchandise stacked on industrial shelves, sell everything from aspirin to eyeglasses.

The warehouse club concept started with barely a ripple in 1976, when the Price Club opened in San Diego. In the last few years that ripple has become more like a wave as membership warehouses have sprung up throughout the Southland. And now the trend is spreading across the country.

Until 1985, Price Co., the San Diego-based firm that owns 38 Price Clubs nationwide, had the discount warehouse field all to itself. Then came Costco, Pace and Price Savers, crowding the warehouse club market.

With $3.2 billion in sales for 1987, Price Co. is considered the leader in the warehouse club business. And it is Price Co.'s success that has spawned a slew of copycat stores across the country.

Although there are about 300 warehouse clubs nationwide, Southern California has the largest number, with about 30. It is the only region of the country with more than two, according to Glenn Johnson, a retail analyst with Piper Jaffray, a regional investment banking firm in Minneapolis.

And they keep multiplying. In the spring, there were 13 warehouse clubs in the three market areas tracked by Piper Jaffray (Los Angeles-Long Beach, Anaheim-Santa Ana-Garden Grove and San Diego). Now there are more than 20.

For the next few weeks, the Shopping column will profile a variety of discount shopping clubs in the county--looking at their concepts and merchandise, membership requirements and prices.

Today, Shopping focuses on the granddaddy of membership stores, Fedco, which has one county store, on Harbor Boulevard in Costa Mesa. Started in the late 1940s by federal workers, Fedco was the first membership discount store in the state and the only one until 1976, when the Price Club opened. Fedco is still the only one of its kind in many respects: It offers lifetime memberships rather than annual; its buildings are stores, rather than warehouses, and Fedco carries a wider variety of merchandise than most of the warehouses.

The year 1948 was a tough one for federal employees. Slapped with a wage freeze and feeling the pinch of inflation mounting after World War II, 800 postal workers got together and chipped in $2 apiece to launch their own discount store. They called it Fedco.

The $1,600 collected was used to open a small store on South Broadway in downtown Los Angeles, where federal employees could order supplies and come back a week later and pick them up. When enough orders for an item were accumulated, the members bought the merchandise from a local wholesaler.

The Federal Employees Distributing Co., as Fedco is formally known, had no inventory and no employees in the beginning. Members did all the work. At the end of the year, the "profits" went back into the operation, as they still do.

In the early years, employees and retirees of the federal government were the only people allowed to join. But the exclusive membership requirements didn't dampen enthusiasm for the club: In its first five years, membership jumped from 800 to 53,000. Now Fedco, with 12 stores and much looser requirements, has a membership of 3.4 million.

Fedco is a nonprofit organization, which means there are no stockholders seeking dividends and large profit margins, only members who decide where the money goes. The money accumulated at the end of the year, which most stores call profits and which Fedco calls "working capital," goes into sustaining the operation: building and renovating, introducing new product lines and paying salaries.

From its inception until 1985, Fedco charged $2 for a lifetime membership. It was raised to $5 for life because the cost of administration went up, according to Philip Jick, vice president. The fee includes a membership card and a subscription to the monthly Fedco Reporter.

Jick says the proliferation of discount warehouses has not cut into Fedco sales.

"It really hasn't affected us," he says. "We have enjoyed more sales each year. In fact, 1987 was our biggest year."

He says the company expects to report earnings of $700 million in retail sales for 1987.

Jick attributes Fedco's stability to service and variety of merchandise.

"We cater to our members," he says. "And we have more merchandise than the others."

Fedco, Jick says, is unlike other stores because it is not a warehouse and, because of its club format, it is not a discount store like K mart.

"No one is similar to us. We are the only one owned by its members."

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