Rather than chasing e-commerce convenience like Walmart, Costco has doubled down on being the exact opposite of Amazon, betting that lowest-price-in-person beats fastest-delivery-to-your-door.

Costco has intentionally stayed Spartan on e-commerce, betting that its identity is 'you go to the Costco.'
This is a rare example of an incumbent, not a startup, wielding counterpositioning power against a dominant rival.
Amazon today competes largely on convenience and trust rather than lowest price, a gap Costco exploits by remaining the low-price leader.

“It is completely counterpositioned to Amazon's whole reason for being, which is convenience.”
Ben Gilbert · 2:14:00

“The whole point is we are not an e-commerce company.”
Ben Gilbert · 2:15:00

#e-commerce#amazon#competitive-strategy

Explainer· 3

Explainer23:00

How Membership Clubs Were Invented to Skirt Retail Price-Fixing Laws

In the 1950s, manufacturers could legally set minimum retail prices, so Saul Price discovered that membership-only clubs weren't 'open to the public' and could legally sell below those floors — inventing the discounter format.

Manufacturer-set minimum retail prices made it illegal for general retailers to discount goods.
Membership clubs, since they weren't open to the general public, could legally sell below those price floors.
This loophole led directly to Fedmart becoming the first scaled national discounter, a format Kmart, Walmart, and Target later copied.

“there were actually laws on the books in the US at the time that manufacturers of goods could set a minimum selling price for retail.”
Ben Gilbert · 23:00

“maybe I should have worn a condom”
Saul Price (quoted) · 20:00

#fedmart#regulation#retail-history

Explainer1:14:00

Reuniting the Family: The 1993 Price Club–Costco Merger

Two companies built by the same lineage of people merged in 1993 as a near-equal deal, driven partly by loyalty and partly by the competitive threat of Sam's Club.

Costco shareholders received 52% of the combined company and Price Club shareholders 48%, despite the two being roughly equal size at the time.
Saul Price preferred merging with Costco (run by his protégé Jim Sinegal) over losing Price Club to Walmart's Sam's Club.
Sam's Club's aggressive expansion created urgency to merge quickly rather than wait, since Costco was growing much faster than Price Club.

“52% of the equity in the combined company goes to Costco shareholders, 48% to Price Club shareholders.”
Ben Gilbert · 1:14:30

“Saul Price didn't want it to be Walmart and very, very much wanted to join forces with Jim Senegal.”
Ben Gilbert · 1:14:00

#merger#price-club#costco

Explainer1:33:00

How Kirkland Signature Became the World's Largest Consumer Brand

Named after Costco's old Kirkland, Washington headquarters, the house brand now generates $52 billion a year — more than Nike — by being one of only one or two options in each category rather than competing among many.

Kirkland Signature was named for the Seattle suburb where Costco's headquarters used to be located.
Because Costco stocks so few SKUs per category, Kirkland Signature often has little or no direct on-shelf competition.
Kirkland Signature sales ($52B/year) exceed all of Nike's revenue, making it arguably the largest consumer packaged brand in the world.

“It's the largest consumer package brand in the world.”
Ben Gilbert · 04:00

“$52 billion a year that they sell, which inches by Nike by just about a billion dollars”
Ben Gilbert · 04:00

#kirkland-signature#house-brand#private-label

Story· 7

Story07:00

From the Lower East Side to Retail Royalty: Saul Price's Origin Story

The unlikely path from Jewish immigrant garment-factory workers in New York to Saul Price becoming the most influential figure in American retail, more influential on Jim Sinegal than any business school.

Saul Price's parents were Jewish immigrants from Belarus who worked in NYC garment factories near the era of the Triangle Shirtwaist Factory fire.
The family later moved to San Diego, where Saul met his future wife Helen, echoing Sam Walton's own story.
Jim Sinegal says he learned literally everything he knows about retail from Saul Price.

“Saul's parents were Jewish immigrants from Belarus.”
David Rosenthal · 07:00

“Absolutely everything I know, I learned from Saul.”
Jim Sinegal (quoted) · 09:00

#biography#origin-story#saul-price

Story39:30

Locked Out: How Saul Price Lost Fedmart to a German Partner

Saul sold majority control of Fedmart to European hypermarket operator Hugo Mann seeking a growth partner, and was fired and locked out of his own company within months.

Saul was looking for a growth investor to help Fedmart adopt the European 'hypermarket' concept, but ended up selling a majority stake and effectively getting bought out.
Hugo Mann fired Saul and Robert Price at the very first board meeting and changed the locks on their offices.
Jim Sinegal, then a Fedmart executive, was the one tasked with informing the company of what had happened.

“Literally fires Saul, I think and Robert too, and changes the locks on their office doors.”
Ben Gilbert · 41:00

“He is now 60 years old at this point, and he is a man on a mission.”
Ben Gilbert · 42:00

#fedmart#cautionary-tale#deal-making

Story43:30

The Warehouse Pivot: Turning an Internal Division Into Price Club

After being ousted from Fedmart, Saul and Robert Price realized Fedmart's most profitable division was really its centralized warehousing operation — and built a whole new business, Price Club, around serving other small businesses that way.

Fedmart's warehouse operations, run by Jim Sinegal, generated most of the company's margin, while individual stores were barely profitable.
Saul and Robert designed Price Club to sell wholesale directly to small business owners (gas stations, restaurants, independent stores) rather than to consumers.
Because manufacturers deliver straight into the warehouse, Price Club never had to run its own trucks or logistics network.

“You really could say that Jim ran our warehouse operations kind of like its own business.”
David Rosenthal · 44:00

“The manufacturers deliver the product right into your warehouse. You don't need to run trucks.”
David Rosenthal · 47:00

#price-club#business-model-pivot#wholesale

Story50:00

The Credit Union Deal That Accidentally Opened Wholesale to Consumers

When business memberships were slow to catch on, a partnership with the San Diego City Credit Union let its members shop Price Club too — accidentally unlocking a consumer wholesale market that changed retail history.

Price Club's first store nearly failed because selling memberships to businesses one at a time was slow and had little viral word of mouth.
The San Diego City Credit Union agreed to let its members buy a 'group membership' at slightly higher prices than business members.
This unlocked viral consumer word-of-mouth and proved consumers were willing to shop directly from a warehouse.

“this unlocks the gusher of consumers into Price Club.”
David Rosenthal · 51:00

#price-club#membership#growth

Story52:30

The Birth of the $1.50 Hot Dog and Soda

Local hot dog vendors kept asking to set up carts outside the first Price Club store, so Saul Price cut a deal directly with Hebrew National instead — creating a deal that's stayed at $1.50 for 47 years.

Growing foot traffic at the first Price Club store attracted local hot dog cart vendors wanting to set up at the exit.
Saul Price called Hebrew National directly, who agreed to supply both hot dogs and the cart.
The $1.50 hot dog-and-soda combo has stayed the same price for 47 years and Costco now sells 130 million hot dogs a year.

“And thus the Costco dollar fifty hot dog and soda deal is born.”
David Rosenthal · 53:00

“it's a buck fifty forty-seven years later.”
Ben Gilbert · 53:30

#price-club#costco-hot-dog#trivia

Story1:07:00

How a Cold Call Brought Jim Sinegal to Found Costco

Seattle retailers the Bratmans wanted to open a Price Club franchise, got turned down, cloned the model anyway, and a chain of cold calls led them straight to Jim Sinegal to run it.

Bernie and Jeff Bratman asked Price Club for a Seattle franchise, were turned down, and decided to clone the concept themselves.
Price Club's head of merchandising — who happened to be Saul Price's nephew — declined to join but referred them to Jim Sinegal.
Jim Sinegal, then doing retail consulting, agreed to move to Seattle and co-found Costco.

“Jeff calls Jim, convinces him to come up to Seattle. He's ready. He's ready to run his own show, as they say.”
David Rosenthal · 1:09:00

#costco-founding#jim-sinegal#seattle

Story2:27:00

500 Million Chickens: Costco's Vertical Integration Playbook

When Costco worried the handful of national chicken processors might squeeze pricing, it built its own processing plant in Nebraska and now processes 200 million chickens a year to keep suppliers honest.

Costco sells roughly 500 million chickens a year, including 130 million rotisserie chickens.
With only 4-5 major chicken processors in the US, Costco built its own fully-owned processing facility in Fremont, Nebraska.
The company now processes 200 million chickens a year across owned and dedicated facilities, giving it leverage to keep the remaining processors' pricing honest.

“They sell 500 million chickens a year.”
Ben Gilbert · 2:27:30

“That facility processes two million chickens a week now.”
Ben Gilbert · 2:29:00

#vertical-integration#supply-chain#kirkland-signature

Tool· 1

Tool2:44:30

Costco-Flavored E-Commerce: Big & Bulky Delivery and CostcoNext

Instead of copying Amazon, Costco built e-commerce around its own strengths: delivering big, bulky items like appliances and sheds, and letting members get Costco pricing on partner sites via CostcoNext.com.

Costco spent roughly $1 billion to acquire what became Costco Logistics, focused on delivering big and bulky items like sheds, refrigerators, and washers.
Costco often keeps its low price even when manufacturers run 'sale' promotions elsewhere, since it never marks products up to inflate a discount.
CostcoNext.com lets members shop directly on partner websites and receive a Costco-member discount without Costco having to handle logistics itself.

“They spent a billion dollars to buy a company that became Costco Logistics, and they do things like deliver sheds to your house.”
Ben Gilbert · 2:45:00

“Costco cuts a deal with those companies to say we're gonna send you traffic as long as the traffic we send you, once you verify…”
Ben Gilbert · 2:46:30

#e-commerce#logistics#costco-next

Takeaway· 2

Takeaway2:37:00

Bull and Bear Case for Costco as an Investment

Hosts weigh Costco's slow, physically-bottlenecked growth and late e-commerce entry against its unmatched flywheel, huge international runway, and decades of shareholder-friendly capital returns.

Bear case: Costco's low-overhead model structurally can't support Amazon-style e-commerce logistics, and physical constraints cap how fast it can open new warehouses.
Bull case: Sam's Club has fallen further behind, China stores are wildly oversubscribed relative to US stores at maturity, and Costco has returned ~80% of net income to shareholders over the last decade.
A $10,000 investment at Costco's 1985 IPO would be worth about $3.3 million today, excluding dividends.

“The average Sam's Club only generates about half the revenues of a Costco, and that gap has widened over time.”
Ben Gilbert · 2:41:00

“it is better to be an employee or a customer than a shareholder”
Ben Gilbert · 2:35:00

#investing#bull-case#bear-case

Takeaway2:48:00

Wild Costco Stats: Fine Wine, Infinite Returns, and Chicken Bakes

A grab-bag of jaw-dropping Costco stats, from being the world's largest fine wine seller to a lifetime no-questions-asked return policy that covers ten-carat diamond rings.

Costco is the largest seller of fine wine ($20-$300 bottles) in the world.
Costco's return policy is effectively infinite (except 90 days on electronics), inspired by Nordstrom's original policy — and covers items like diamond rings.
Costco sells a third of the world's jumbo cashews and 2.2 million pumpkin pies in the three days before Thanksgiving.

“Costco is the largest seller in the world of fine wines.”
Ben Gilbert · 2:48:00

“They sell one third of the jumbo cashews in the entire world.”
Ben Gilbert · 2:52:00

#trivia#fun-facts#costco

Frameworks in this episode

Scale Economies Shared With Customers

The Intelligent Loss of Sales

The Negative Cash Conversion Cycle Model

The Priority-Order Code of Ethics

Insights & moments

◆Hot Take· 1

Costco's Counterpositioning Against Amazon's Convenience Model

✶Explainer· 3