“We found out there were 5000 employees of the federal government in San Diego, and they were all going up to Los Angeles once a week to do their shopping at FEDCO."
To those who know him, there is no great mystery to Sol Price. He is almost always described in the same terms — he’s down-to-earth, he’s brilliant and clearheaded, he’s honest, energetic, and outspoken. It comes as a surprise to some who think of him as a modest man that his latest merchandising bonanza, the Price Club, takes its name from his name. But that little hint of vanity — very little, considering the natural attraction of the double meaning — in the naming of this enterprise is accompanied by other little hints of the same trait: he’s rarely photographed, but when he is, it’s usually from the right side, apparently to de-emphasize a drooping left eyelid; the last four digits of his office phone number are the same digits as his home address and his license plate number; the gift of a finely tooled wallet to a friend carries not the friend’s initials, but Price’s own.
Mandell Weiss says the ten or so investor/directors of the operation were convinced in the store’s early months that if they did a million dollars in sales the first year, they’d be doing well. ‘We wound up doing $4.5 million."
All this would be hardly worth mentioning were it not paradoxical. Price does not at all enjoy publicity and, beyond a ten-minute conversation by telephone, recently refused a request to be interviewed. “I’m flattered, I really am,” he said, “But these days, who needs publicity? I’ve got a wife and children to think of. I just don’t want my name in the paper. If you say anything about me — good or bad — you’ll have to do it without Sol Price’s help.’’
“At first the downtown merchants thought we were crazy, so they left us alone." But in fact, the very first FedMart newsletter, in February of 1955, contained evidence that the battle was joined early.
It’s not as if he’s led a highly private life. Price is the man who went toe-to-toe in 1974 with one of Germany’s richest men, Hugo Mann, in a long court battle over control of FedMart, the huge discount chain that Price founded and led for twenty years until it became one of this country’s largest no-frills merchandisers. He was, during those same twenty years, the hidden benefactor and organizer of the Democratic Party in San Diego, playing an indispensable role in the elections of Pat Brown to the governor’s mansion in 1958, of Hugo Fisher and Jim Mills to the state senate, of Lionel Van Deerlin to Congress. He was Mr. Democrat for a while, and Brown, according to a venerable Democratic Party activist here, had to clear numerous nominees to the Superior Court bench with Price first. “If I had to name one single person who singlehandedly and personally influenced business and politics in this county, it would be Sol Price, ’ ’ says the Democrat.
All through 1976, while the FedMart founder and his son were setting up the Price Club, and on through 1977, suits and countersuits were producing motion after motion in both state and federal courts.
That influence ranged in time right up to the 1970 election of underdog Ed Miller to the office of District Attorney, an election that snatched control of that crucial local office from the Republicans. Price has also held public office. In 1962 Governor Brown named him to a seat on the eleven-member Commission on State Government Organization and Economy, or as it is more familiarly known, the “Little Hoover Commission. ” That was a fairly meaningful appointment, considering that the group’s mission is to oversee the operations of government agencies and to advise the governor on these operations, an appointment at least as important as one to, say, the Board of Regents of the University of California. “So what?’’ Price says into the telephone. “What did I do?’’ Well, what did he do? "I spent a year on it and quit. I’m just not a good member of organizations.”
He says he just doesn’t enjoy being a personality, would say no to the New York Times or the Wall Street Journal if they asked for his cooperation in preparing a profile, and he doesn’t even want to talk about the Price Club merchandising concept either. “The thing either wins in the marketplace or it doesn’t. The idea doesn’t need explanation; it’s pretty obvious. Many people can explain it better than I.” Still, when a business, in less than five years, moves from a loss to a pretax profit of $10.2 million on $226.8 million in sales, when it goes from one warehouse/ store on Morena Boulevard to five stores in Southern California and Arizona (with another on the way in Tucson), when its managers and Price say they’re keeping the price of a share of stock in the Price Company low so that common people can get a piece of the action, and that the design of the membership arrangement (you can shop there only if you have a retail business license, or if you ’re a government worker, hospital employee, or schoolteacher) is at least in part to keep prices low enough so that small business people can stay in business by buying goods at nearly the same price as their large competitors, then you want to hear from the founding genius. Isn’t he more than just another businessman? “I’ll be damned if I know what I am,” Price says into the telephone.”
Well, in a way, maybe Price is right. He doesn’t have to describe what he is, and he doesn’t have to explain the Price Club. History can.
Back in late 1952 Mandell Weiss was sitting around outside his apartment on El Cajon Boulevard near the Red Fox Steak House soaking up sun during a nine-month vacation from business, forced by the loss of his lease. He’d been selling jewelry at the downtown comer of Fourth and Broadway for years when the landlord decided to reclaim the spot for his own uses. Mandell didn’t really give much of a damn; he had some savings stashed away, and he was tired. A little lounging around at the Imeg Apartments was fine with Mandell. But then up walked Leo Freedman, a fellow jeweler who, right in the middle of one of those snoozy, preboom San Diego days, says, “Mandell, are you going to sit there forever? Don’t you wanna get back into business?” Right then, right there the first step was taken toward the founding of FedMart.
“The Korean War had started. I don’t know why, but during war years, waterproof watches always seem to be very big and he [Freedman] had a bunch of them, so he proposed selling to the Navy bases and some of the stores,” Weiss recalls. “I had some money, Leo had the watches, and Sol drew up the incorporation papers. [Price was then a thirty-six-year-old attorney.] He was attorney for both of us.
“We hired a young man to do the outside selling — Earl Bertrand. He’d been in, I think the Marines, so he had some contact with the bases, which is what we needed. We just got started. We were buying watches at nine and ten dollars and marking them up a buck.
“We were doing okay, nothing big, of course. One day we noticed he [Bertrand] was getting rid of most of the watches up in Los Angeles.” The place in Los Angeles was FEDCO, an interesting new wrinkle in the retail economy at the time. From its modest outlet at the end of Slauson Avenue near a cow pasture, FEDCO sold wares at extraordinary discounts to federal employees only — discounts made possible because it was a nonprofit corporation acting almost as a commissary for civilian federal workers.
“We found out there were 5000 employees of the federal government in San Diego,” Weiss continues, “and they were all going up to Los Angeles once a week to do their shopping. So we all wondered, why not have one here? Sol went up there for us. He offered a joint venture, with us managing the San Diego store. They turned him down. It was said that a second offer by the four to FEDCO, one that would have the Los Angeles firm running the store here and the local group operating the jewelry concession, was also refused. Weiss now says of the rejections, “We were lucky.”
Following FEDCO’s rebuff, the quartet began looking for a different answer. ‘ ‘We approached all the government agency heads here — Bertrand did — and asked, If a similar store were started here and offered the same prices, would they all shop there? They said they would.”
Weiss, Freedman, Bertrand, and Price then began searching around for partners with money. Price convinced Tony Procopio, the owner of the law firm at which he was working, to come in. Procopio, convinced a man named Bill Schmidt, who had interests in the tuna fishing industry and who, as Weiss says, ‘"knew everybody in town,” to enter with an investment. Edward J. Schwartz, then a partner of Procopio and now chief judge of the U.S. District Court here, also put some money up. By the time the group counted their start-up kitty, it measured $50,000, $35,000 of which went toward remodeling the old Fruehauf trailer yard on Main Street, in an area now overshadowed by the Coronado Bridge.
Weiss took charge of the retailing of jewelry. Schmidt supplied canned tuna and management of the company. A man who later established a large furniture business on his own here managed that section of the store. A friend of Price’s, Yale Kahn, whose brother Irving went on to build Rancho Penasquitos and to buy up the land for what is now University Towne Centre, put up some cash and organized the store’s liquor department.
The warehouse, at 2380 Main Street, opened on December 3, 1954 with a merchandise stock of large and small appliances, garden supplies, luggage, household wares, liquor, men’s and women’s clothing, televisions and record players, as well as the jewelry counter that, with its binoculars, cameras, and clocks, was managed by Weiss and was considered central to the store’s success. The first monthly newsletter to FedMart members/ shoppers trumpeted in February, 1955 “a new concept of merchandising has been ushered into San Diego, ” which was more or less true. FEDCO was a long way from establishing its own store here, and the claim to a “new concept” of member-only shopping was only a slight fudge; the idea belonged to FEDCO, to the military with its post exchanges, and to the mining companies, whose stores were made nationally famous in those days thirty or so years ago by Tennessee Ernie Ford’s recording of the woeful “Sixteen Tons. ” You could buy a rotisserie broiler for $21.95, a hew twenty-one-inch black-and-white television set for $129.95, a lazy Susan for $2.49, a clock radio for $22.98, an electric shaver for $ 15.99, and an 11.7 cubic foot, push-button auto defrost refrigerator with full-wide freezer compartment for $223.46 — prices which in these days of printed circuits, plastic-injection molding, and cheap foreign labor might not seem so exceptional but which were in fact dramatically lower than otherwise available.
By March, the members’ newsletter announced that FedMart would be opening a full-service gasoline station featuring major-brand fuel at some fifteen percent below the gallon prices at conventional dealers. By April the store was offering in-house labels on liquor produced by major distillers — a fifth of hundred-proof bourbon was $3.59, of gin, $2.69, of eight-year-old California brandy, $3.29; and you could buy a full case of Rheingold beer under the FedMart label, Savoy, for just $2.89.
Says an early board member of FedMart, “When we started selling gas at that little Main Street store, the volume of business we did almost immediately was astounding; people in the business would look at it and not even believe it. We were selling three cents to four cents cheaper by the gallon, and when gasoline was at twenty-five cents per, that was a big discount.”
Mandell Weiss says the ten or so investor/directors of the operation were convinced in the store’s early months that if they did a million dollars in sales the first year, they’d be doing well. ‘We wound up doing $4.5 million,” Weiss recalls. “At that point, Sol (he was chairman of the board) called us all together for an end-of-the-year talk and reorganization. In the middle of it he announced that anyone who wanted out could get $75,000 for his $5000.” There weren’t many takers.
Mandell Weiss is now ninety years old and rich enough to have given UCSD $1.2 million for its live-performance theater that is soon to be dedicated in the name of the man whose money brought it into being. Rich as that may be, Weiss still lives in a modest lower Hillcrest garden apartment complex built by Price and a fellow FedMart board member back in the late Fifties. According to Weiss, it was Sol Price who suggested the recent donation to UCSD. “He and I got together not long ago to make out my will — he was doing that for me — and he asked me, ‘Mandell, don’t you want to give something back to the community that was so good to you?’ And of course I did, I just hadn’t thought about what I might give to. The theater has always been a pet of mine. When I see credits being reeled off at the end of even a television show, I always wish my name could be on the list. . . So Weiss gave his money to UCSD.
What Weiss knows about Price is probably as much as anyone other than Price himself knows. He’s known him from the time Price, fresh from USC’s law school, took a job as a researcher without a desk in the office of an attorney named Jacob Weinberger who, like Schwartz, was later named to the federal bench here. By the time Price was working in Procopio’s firm, Weiss says, “there was another angle to Sol that showed up. He had become the attorney for the Seven Seas [a locker club where sailors just arrived in port could buy street clothes and rent space for their uniforms]. He’d gotten tired of just writing up incorporation papers and watching everybody else make money; he wanted a piece of the action. ” So Price, in place of fees, had begun accepting interests in various businesses, the Seven Seas among them. Weiss, even before the formation of FedMart, joined Price in investing in some of those businesses, as did others who eventually founded FedMart.
The first full year of FedMart’s operations, 1955, may have been making money for Weiss and the young partners around him, but it wasn’t bringing them the community’s love and esteem, at least not the business community’s, which thought it sniffed something wrong with FedMart. For one thing, there were really two entities at the outset: the Federal Employees’ Merchandise Mart (FedMart for short) was the name over the door at Main Street. It was a California nonprofit corporation whose members could only be government employees. The other entity was Lomas Supply Corporation, which was Price, Weiss, and all the others, and that was not a nonprofit corporation. The Lomas Supply Corporation operated the store, employed the help, ordered and laid out all the goods, and paid the bills — doing, in other words, all the things any profit-making retailer does. Weiss, who says the name was his creation because he liked the musical sound, concedes that Lomas Supply Corporation was “a subterfuge” designed to get manufacturers to sell goods to a co-op when they otherwise might not run the risk of alienating other retailers who were charging customers full markup for the same goods. “It was a remarkably sophisticated legal thing, and it was Price’s contrivance,” says another early FedMart figure. Weiss’s recollection today is that the initial months of FedMart operations were not particularly plagued by warfare between downtown merchants and the upstarts over on Main Street. “At first the downtown merchants thought we were crazy, so they left us alone, ” he says. But in fact, the very first FedMart newsletter, in February of 1955, contained evidence that the battle was joined early. Members of FedMart were warned “that those merchants who cannot keep up the pace are quite likely to engage in sniping and in attempts to spread phony and damaging rumors about those whose prices they cannot meet.”
Whatever the rumors were, it was a fact that FedMart and Lomas Supply Corporation were in violation of California’s ‘‘fair trade” laws, selling articles and goods well below minimum prices agreed upon by manufacturers and retailers and legislated into law. Manufacturers and suppliers, under pressure from their other retailers, began refusing to do business with FedMart, and between 1956 and 1958, a number of them sued. Revere Products won a temporary restraining order against the upstarts, blocking sale of their cookware at below fair-trade prices. Upjohn asked for an injunction against the busy new pharmacy within the Main Street store. FedMart’s pharmacist retaliated with a complaint against the pharmaceutical firm of McKesson and Roberts and against the San Diego County Pharmaceutical Association alleging price-fixing and restraint of trade, but the complaint was dismissed. On the other hand, a state Board of Pharmacy criminal complaint against the pharmacist for filling an out-of-date prescription was dismissed by a Superior Court judge because, he ruled, the compfaint was really an attempt to harass FedMart. Revlon and Gillette filed for injunctions. ‘‘We were looking for injunctions,” says an early employee. “Every time we got a news story, the store would fill up. Can you imagine the advertising value of a story that said, ‘FedMart is selling Royal typewriters at five percent above cost’? We'd be enjoined and always — always — the injunction would be lifted because the judges would rule the laws to be a restraint of trade.”
Still, legal skirmishes against the pricing law were to continue for years, right up to the Nixon Era, when spiraling inflation led to the imposition of federal wage and price controls. In some cases, federally fixed prices were in conflict with the state’s fair-trade prices, and FedMart in 1972 sued for a ruling on whether it should obey the federal or state pricing standards. That suit, in turn, led to a federal suit against the state.
“We didn’t successfully meet the fairtrade laws head on,” says another early principal in FedMart, who agrees with Weiss that the young corporation was “able to exist because we had private labels.” The store came to rely on what amounted to generics (products without brand names) to beat the competition. “Take booze, for example,” the former director says. “Say Jim Beam or Seagram’s wouldn’t sell to us. We’d be able to tell them, ‘Okay, we’ll just go out and get some sour mash from another distillery, put our own label on it, and whip your ass. ’ There was always a manufacturer who’d sell to us. We could always get the stuff as long as we agreed not to say whose booze or whatever was behind our label. ” It was a comfortable arrangement for the manufacturers, who could rely on large shipments sold to the renegade retailer at the same wholesale rates their other retail customers were paying and, because the FM label was an “off-brand,” the fair-trade laws technically weren’t being violated when FedMart priced its house brand below the legal minimum.
By 1957 the little shop on Main Street was too small, even though its clientele was still limited to federal employees, and a larger site at Balboa and Genesee on Kearny Mesa was purchased and stocked. FedMart was on the move. Stores in Chula Vista and El Cajon opened, so did one in Phoenix. In 1957 Price was also looking around San Antonio for property with which to expand deeper back along the southwestern growth strip. The site he was eyeing belonged to a group of Texans who owned a few shopping centers and an insurance business under the name Rifco, and Price and the Texans first put together a joint venture in a FedMart outlet, then merged the two companies. The Texans, Morris Jaffe, Harry Evons, and Roger Zeller, came to sit on the FedMart board of directors, buying some of FedMart’s privately issued stock, selling FedMart principals some of Rifco’s stock.
Early in 1959 the decision — a mutual one among the directors, according to some who were in the corporation at the time — was made to offer FedMart stock to the public. The company filed with the Securities and Exchange Commission an offering of 170,700 shares on the over-the-counter market. The opening price was eleven dollars per share and within a week it went to fifteen dollars. Later that year more stock was offered as Price and his partners searched for capital with which to expand a business that was now more than just a discount department store and included an oil distributing company, shopping centers, life insurance, and franchise stores bearing the FedMart logo but which were open to the public. By May of 1959 FedMart had added a $575,000 outlet in Houston and a $500,000 store in El Paso for a total of five large, membership-only outlets. In its first year of business as a publicly held corporation, FedMart reported sales of $26 million, yielding a profit of $470,000. A year later, in 1960, the numbers were $33 million and $436,000, a slight dip in profitability because of acquisitions and other expenses of expansion. By 1961 there were eight stores in operation with 400,000 member/shoppers and 2000 employees. A San Diego builder, sensing the public’s appetite for the stock, as a come-on declared that anyone who signed a sales agreement on one of his houses would receive a share in FedMart. By the next year, sales hit $82.4 million and profits rose to $537,000. In 1963 the sales figure stayed the same but profits for the first time in FedMart’s history broke one million dollars. The discount merchandising trade journal Discount Merchandiser called FedMart the tenth-largest chain in the nation; the company had reached that point little more than seven years after the opening of the Main Street store. The same year, Price announced that all thirteen stores in California, Arizona, and Texas would be thrown open to the public. Sol Price, at forty-seven years of age, was chairman of the board of a diversified and influential new company that was beginning to soar high in the currents flowing over the Sun Belt in general and San Diego in particular. “I’ll tell you what FedMart really meant in this town, and what the fair-trade battle meant to it, ” says the Democratic Party activist. “It meant a tremendous transfer of power from the downtown merchants, that downtown was going to crumble. It took traffic patterns away from downtown; it started the shopping center idea. And it meant a transfer of political power.”
In 1963 Mandell Weiss was one year shy of seventy and having the time of his life, flying off to Antwerp and Amsterdam on diamond-buying excursions to stock the jewelry counters he was supervising for the stores, and doing his part in organizing each new outlet. Because the stores were virtually devoid of decoration and the FedMart formula of self-service eliminated the need to hire and train a large staff, start-up times were negligible. “Here’s how we’d open places,” explains Weiss. “Each man who ran a department would acquire the inventory for a new store’s department. You didn’t have to think, you didn’t have to worry about it, it was just, send the stuff there and show up to lay it out. When we opened San Antonio, there was all this stuff in the back of the store only a few days before we were supposed to open up and Jaffe [the lead man of the Texans who was president of FedMart while Price remained board chairman] was going crazy. He took Sol aside and said, ‘What the hell’s going on? You ’ve got an old man in charge, nothing’s ready, and there’s only a week to go. ’ Sol told him not to worry, and we just went ahead and finished up on time. The night before the opening Jaffe had us all over to his house and as we were entering he’d greet us one by one. When it came to me, he gave me a big hug and said, ‘ Mandell, I love you.’”
It was an offbeat and sometimes screwy company, not your usual set of executives from the classic training grounds of Eastern business schools. The corporate carpets weren’t very plush. For a long time, there was no company jet. “Sol had apprehensions about flying back in the mid-Sixties, and that was a problem because we were getting kind of far-flung,” Weiss recalls. ‘ ‘So we bought a bus and put in beds and a galley and just hit the road on over-nighters. If we got stuck in some city during a traffic jam, we’d break out the cocktails, and people on the streets would look in and wonder who the hell we were. The bus was unmarked so you couldn’t tell a thing about it.”
One of those road trips in 1968 took the group to the Navajo Indian reservation in the northeastern comer of Arizona. “He’s always thought he ought to do something for minorities whenever he could, so he got this idea to open up a FedMart on the reservation,” Weiss continues. “It was sort of a gamble but he thought if he could establish it, he’d turn it over to the Indians to run. The day before the opening ceremonies was bright and sunny and it looked like it was going to be a great celebration. The Indians were ready with costumes, they had a band, the medicine man was going to be there, and there was going to be dancing. But on opening day it was snowing and cold, it kind of rained on our parade, so we took it indoors. Harry Post was going to run the store. He was a great linguist, knew some four languages and taught at Stanford, I think, but he didn’t know Navajo, of course. Still, he got up on the stage and gave his speech in Navajo and the Indians looked around at each other just stunned. They couldn’t figure out what he was saying, but it sounded good. He was doing it phonetically.”
In Houston, Price also made an unconventional commitment to black capitalism two years after the reservation store opened. With a group of residents who had incorporated under the name of Our Way he signed an agreement to sell to them land and buildings for a low-price department store at the same price FedMart had acquired the property. Our Way was given access to FedMart’s computers and FedMart also provided Our Way some management services in exchange for an annual fee of three percent of Our Way’s sales proceeds, a percentage to be collected only during years the fledgling Houston group showed a profit.
By 1968 there were thirty-five stores in the FedMart chain, sales had reached $135 million and after-tax profits were $1.8 million, so there was breathing room for these experiments. It wasn’t really altruism, but it seemed to come close. Throughout Price’s stewardship, stock prices were kept affordable by repeated splits and company officials pointed out whenever they could that the splitting of stock allowed little people to get into the game. But there were also business advantages the company enjoyed by broadening the market of share ownership. “If you have 10,000 shareholders in San Diego, they’ll take an interest in the store itself as well as the stock prices, they’ll tend to trade with you, come in and buy their refrigerators from you, ” says one of the early directors. “Then, too, when stock is broadly held, there’s less chance of the shareholders exerting influence over management. You can have better control.”
FedMart was sort of cold-eyed and warm-hearted. Company management viewed as so much baloney the arguments of fair traders and fair-trade supporters that those minimum prices were designed to prevent large companies from pricing goods so low as to drive out smaller competitors. “Ostensibly, the fair-trade laws were supposed to protect the mom-and-pop operations, ’ ’ says the former FedMart director. “In reality, they were a damned good way to stifle competition and agree on prices.” Price was also aware of the value of going easy on people who wanted to return goods. ‘ ‘He advocated things like giving people cash for their returned items, no questions asked. It was certainly Sol’s feeling that that’s the way you build good will.”
Of course, more than simple good will was required in order to keep customers. It wasn’t just the expansion into the Sun Belt or even the membership-only scheme that accounted for FedMart’s success. “It was the concept of merchandising, ” the former director explains. “It was the open shelves, the location of stores in nonprime [and hence low-cost property] areas, the self-service aspect [you could get someone to help you carry out the new water heater, but likely as not you’d dolly it out yourself rather than wait], and the offering of low-priced house brands. . . . The consumer movement was underway, and there was a more sophisticated buyer. They were willing to explore generics. They were using a bit of their intelligence.”
There is some disagreement as to how much of this formula was Sol Price’s personal creation. Weiss is inclined to give most of the credit to Price, who was far junior to him in years. “I was decades older and had been in business far longer, but I learned so much from that man. I learned inventory control. In the beginning, Sol didn’t have computers but he always kept track of what was selling well and he never got too heavy in one or another element. Ordinarily, stores think if they turn inventory once a year, they’re doing well; but he went for four times a year. He was against the idea of [special] sales, the psychology of them. He didn’t think it was smart in the long run to have people come in at Christmas and buy and then see the prices fall afterward. When an item didn’t sell well, he knocked the price off, but he wouldn’t leave the old tag on with the new one alongside it. He just took the old tag off. ” The former director says decisions to expand, to go public with the stock, and to discard membership requirements were shared, and he agrees with Weiss that the marketing formula was largely Price’s. A member of the Texas group says simply that Price was the key. “Sol seemed always to be the man, the leader of the group. He was a brilliant man, dynamic and opinionated, extremely independent . . . and domineering.”
The FedMart boom didn’t bring only joy and laughter inside the company. Diversification and expansion were producing new and increasing demands on the company’s management. Texas, though it was the Southwest and fit the chosen FedMart market, was nevertheless a long way away and stretched the California supply lines. The Texans on the board chafed a bit in the role of new boys in the club. “It seemed like there were two separate entities — the Texans and the Californians, ” Weiss says.
"Looking back, I think it would have been better to expand to the north [in California] rather than go east."
Then, too, going public with the company stock made necessary an increasing amount of attention to audits, and to pursuing a course that would keep interest in the stock high and the shareholders happy. “It was getting too costly, too time consuming. The whole thing about FedMart was to keep the costs of doing business down, and here he [Price] was at the mercy of the underwriting companies, the tax lawyers, the CPAs,” says a man who worked for Price.
By early 1974, with annual sales heading toward $320 million and with forty-five stores in operation, Price was downright uncomfortable with some of the headaches. He told a group of local financial analysts in a public meeting that he wished he’d never placed FedMart stock in the open market and was trying to find ways of buying back those shares and returning to private status. Later that same year, having lost his fear of flying. Price crossed the Atlantic and landed in Karlsruhe, Germany, to discuss with Hugo Mann, retail marketing baron, one such way of going private.
The deal the two men initially worked out late in 1974 called for Mann to purchase all $1.1 million of FedMart’s outstanding common shares at twenty-five dollars per share — a per-share price that could tempt the shareholders because the stock at the time was trading well below that level and never rose beyond $21.50 on the open market during subsequent wrangling over the terms of the acquisitions. By the time Mann and Price finally agreed, months had gone by and the deal was struck in March, 1975, that Mann would purchase 500,000 shares at twenty-five dollars, another 300,000 unissued shares at the same price, and however many additional shares were needed to give Mann fifty-one percent of the shares. Sol Price was to give up his chairmanship to Mann but remain as president and chief executive officer of the company. But not for long.
The relationship between Mann, the stern and reclusive multimillionaire, and Price, the American entrepreneur, began auspiciously. “There was quite a courtship between Sol and Mann; they became good friends,” Weiss says. The German wined and dined the visitor and at one point in the negotiations dispensed with his Teutonic reserve and slapped Price on the thigh, exclaiming, “Sol, we must make a partnership!”
Mann offers an interesting contrast to Price. He was a Soviet prisoner of war up to 1950, when he first began a chain of department stores in Germany. America was the land of mass merchandising — Europe was still operating on the traditional model of small shops — and in 1957 Mann made his first trip to the United States in search of stimulating new ideas. It was after that trip that Mann introduced the “hypermarket” to Europe, a concept that took the supermarket and applied its principles to all manner of goods, to be sold on a self-service basis and under one roof even larger than those FedMart was building at the time. By 1977 Mann’s holdings in Germany were estimated by Business Week to be worth $700 million. In 1980 Fortune magazine said Mann was profiting $25 million annually. And his European holdings were entirely his own. He was not the sort of businessman who could easily be convinced that others knew better how to run a corporation, be they Americans or otherwise.
So by March of 1975 Mann acquired fifty-one percent of the outstanding FedMart shares, and there was a new ten-member board of directors that included five Mann associates who, with Mann himself, formed a board majority independent of Price. Price could consider attorney Paul Peterson, Stanley Rosen, an accountant, and Robert Price (his son) his allies on the board. By August of 1975, Mann had purchased another block of outstanding shares, bringing his total outlay to about $28 million and some eighty-eight percent control of the shares, as ratified by the shareholders in an early August meeting. Also ratified at the time was a cutting of the board membership to just five — Mann, two of his lieutenants, Price and his son. Perhaps more indicative of the reality of Mann’s outright control of the company, the shareholders agreed to give that five-member board the right to change all bylaws of the corporation without seeking ratification from the remaining twelve percent of the shareholders, who at this point were pretty much Price and an estate for which he had become conservator.
Price found himself in the unfamiliar position of having to take and not give orders. He had gone from board chairman of a fairly widely held corporation to president of a closely held one, and soon after the events of August, he began complaining to Mann about this loss of control. During a visit to San Diego by Mann for the first full board meeting of the newly reconstituted FedMart, Price took Mann aside and begged him to sell the company back to him. Price was unhappy over not being able to carry on the company’s business in board meetings that amounted, simply, to the communication of Mann’s orders from far-off Europe. Just after that September board meeting, two Mann executives, without Price’s knowledge, began merger discussions with Dillard’s department store, a chain in the South doing $200 million in business. In November Price found out about those discussions and he erupted, sending off a strong letter to Mann upbraiding him for making what Price felt was an end run around him. The former FedMart founder asked for the resignation from the board of the two who talked to Dillard’s. In December an angry Mann answered that letter by instructing his managers literally to lock Price out of his own office.
‘‘It had been his baby, he’d breast fed it, got it walking, and then got it running,” says.one of Price’s men, who by this time was no longer with FedMart. ‘‘So when he got orders from Germany to buy some Japanese stuff, or some of the other from Taiwan, and just load the shelves, or do whatever, it wasn’t going to go down well. ” Price and Mann, a lot of onlookers agreed, were not constituted to do well together.
A month after the lockout of Price, the San Diegan filed a suit aimed at proving he was fired without cause and thus was entitled to continue to receive the $125,000 annual salary agreed upon in his contract. The company countered that it did not owe him the contracted salary because management had been suffering while Price spent time on non-FedMart business, refused marching orders from the Mann-dominated board, and because he had been threatening during the short year of his presidency to woo away key employees and start a rival to FedMart. Mann’s contention that Price’s heart really wasn’t in his FedMart work seemed to be bolstered when, in April of 1976, just four months after he was locked out of his office, Price announced that he and his son were going to start a new business similar to Fed-Mart’s at a location already chosen (Morena Boulevard) with twenty-four initial investors already lined up, a business that, like FedMart’s in its earliest days, would have a members-only clientele.
All through 1976, while the FedMart founder and his son were setting up the Price Club, and on through 1977, suits and countersuits were producing motion after motion in both state and federal courts. Price asked for additional damages in the millions of dollars and alleged that Mann had defrauded him by promising more control than was forthcoming. When Mann decided to offer the remaining FedMart shareholders rights to additional stock, Price sued again, contending that it was a complicated plan to dilute the holdings and give Mann an opportunity to buy up shares at low prices. Mann countered with a suit saying that Price had ‘ ‘cast a pall ’ ’ over the offering and was interfering with a FedMart plan to expand the chain through the offering.
While the battle with Mann was working its way through the courts here, another set of events had been twisting and tangling in Los Angeles. Price in the late Fifties had befriended an aging Los Angeles real estate investor named Ben Weingart. They’d stayed in contact during Price’s heydays at FedMart and Weingart, a millionaire many times over, bought stock in Price’s FedMart. By 1974, when Price was about to start talks with Mann, Weingart was eighty-six and showing unmistakable signs of senility. Price and two other Weingart associates went to court in Los Angeles, established that Weingart was mentally incompetent, and were named conservators of his holdings, then about $89 million. One of the reasons they’d applied for the conservatorship, the three would later tell the court, was concern over the influence exerted on Weingart by his secretary and girlfriend, who was some thirty years younger than the millionaire. Once the conservatorship was established, Price and the two other conservators fired the woman from her $60,000 secretarial position, ordered her to move out of Weingart’s house, and succeeded in blocking her from visiting the old man, who had been moved into a nursing home. The woman sued, accusing the conservators of draining the Weingart estate ’s real estate holdings and charging that Weingart had been moved to the hospital against his will.
The Mann vs. Price suit reached trial early in 1977, before the Weingart conflict did. A testy and curt Mann contended that Price in 1975 was busying himself in Weingart matters to the detriment of Fed-Mart’s business, and that Price’s demand for the dismissal of the Mann-oriented board members left no choice but the firing of Price. Three weeks after the trial opened the judge found no evidence that Fed-Mart’s business was suffering under Price’s presidency, and that the company had continued to expand. Moreover, it was ruled that Price hadn’t been given any explanation of what he might have been doing wrong, nor an opportunity to correct his actions before the firing. The judge ordered Mann to send Price his back pay, and to continue paying him the $ 125,000 salary through 1980. A San Diego Union reporter who covered the trial found Price looking out a window of the courthouse hallway after the verdict, asked him for a reaction and got one he didn’t expect. Price shoved his glasses to his forehead, started to say something, and then stopped, overcome with tears.
Two years later the Weingart case boiled over. The state attorney general had been watching the suit brought by Weingart’s former secretary and filed a petition for the removal of the three conservators. What bothered the state prosecutor was Price’s insistence that the estate retain FedMart stocks at the time Mann was offering to buy those stocks. Price had a conflict of interest, the state’s attorney argued, and it could be proved, he said, by the fact that Price was selling off his personal stock to Mann. Stung by the defeat two years earlier in San Diego, FedMart entered the attorney general’s civil suit as a friend of the court and asked for an order that the $600,000 it owed Price in back salary be turned over to a Weingart estate led by someone other than Price.
In that sixty-seven-day trial, the judge in Los Angeles ruled finally that Price and the other two conservators had not mismanaged the estate’s holdings and rejected the attorney general’s request that all three be replaced. The judge noted that, far from draining the estate, the three conservators had increased its value from $94 million at the time they took over its management to $185 million at the time of the trial.
The whole Weingart-Mann-Price war would have ended there had it not been for the fact that the Los Angeles County District Attorney had begun a criminal investigation of the ousted secretary’s claims that Weingart had been shanghaied by the conservators. Among the charges the district attorney was looking at were the secretary’s claims that the three conservators had misled the court in 1974 when they said Weingart was incompetent. A videotape of the old man made four months after the conservatorship was established convinced the district attorney to drop that charge. Eventually forty other allegations were judged to lack sufficient evidence and the case was closed early this year. Sol Price could finally breathe a little easier. And he could savor vindication in FedMart’s subsequent history. After spending an estimated $150 million to buy all of Vomado, Inc. (Two Guys stores here on the West Coast) and to remodel Fed-Mart ’s outlets, Mann had to report an $11.1 million loss in 1979 and a $6.3 million loss in 1980, the last year FedMart’s business was conducted as a publicly held corporation (and thus reportable) before Mann bought all the remaining shares. FedMart outlets in Texas and the Midwest were reported to be up for sale this year. Two FedMart presidents since Price have been fired, one of whom lasted only six months.
Politicians have an old line they pull out whenever some bad publicity appears imminent: “You can say anything you want about me as long as you spell my name right.” Price doesn’t react that way, isn’t as sanguine. About the attorney general’s entry into litigation against him, Price says into the telephone during his noninterview, “The AG had a little sonofabitch in the office who happened to think anyone with money has to be a bad guy.” About the Los Angeles district attorney’s investigation, the findings of which were released to the press in great detail even though there was no prosecution, Price says, “I think he [the district attorney] was a man not in control of his office. He had all this pressure from the papers that covered the [secretary’s] suit to investigate, and after spending so much money over three years on the investigation, he was afraid not to come up with something, because the papers might scream cover-up.”
In FedMart’s early days, however, there was a curious lack of attention paid the company by the San Diego Union; hardly anything was printed but news of manufacturers ’ lawsuits against the upstarts on Main Street. Much attention was paid Rohr Corporation and Cubic Corporation and other local companies, many of them much smaller than FedMart, but of FedMart there are little more than notices on the financial page reporting the company’s financial statements. In 1968, when Price had put together the money and plans to develop the thirty-nine-acre Sports Arena shopping center that is still the home of Mann’s San Diego FedMart store, the Union managed to announce the project with a headline that said, “Walker Scott Plans Branch Near Arena,” followed by a story that devoted just one paragraph to FedMart’s larger store and to FedMart’s role as developer. The rest of the story described Walker Scott’s planned store in Price’s shopping center, as well as plans for Walker Scott stores in National City, Southeast San Diego, and Coronado, all of which, like the Arena store, never materialized. “FedMart was a good story,” says an early director, “but it was a membership-only store and didn’t have to advertise in the Union or Tribune. But its competition did, and they didn’t like FedMart at all. So there was this good story and the Union didn’t do it.”
That kind of journalism seems to have died out a bit now and it’s possible to read Price Club stories in the daily papers. You can read in the Union and Tribune (and now the Los Angeles Times) that business is booming in the Morena Boulevard warehouse, that stores in Chula Vista and Santee and Colton and in Phoenix and Mesa, Arizona are doing well, and that one in Tucson is to open in June. They describe the tires piled to the steel beams of the warehouse, the blinking digital displays on the electronic equipment, the steel shelves, the shopping carts that look like railroad flatcars, the stock prices that go up, split, go up again (though lately they’ve been dipping).
So how come Sol Price won’t talk? “He’s been in the papers so much lately, and he got such a bum rap on that Weingart thing,” Mandell Weiss explains. “It’s just like an actor or somebody else when it comes to exposure — a certain amount is good. Too much isn’t.”
Now that Price’s courtroom ordeals seem to be over, you’d think he could relax a bit. He insists that his son Robert and a “group of very bright young men” are running the show at Price Club. “My dad is not involved in the day-to-day stuff,” reports Robert Price, “but believe me, he knows the sales totals by location day by day.”
Mandell Weiss says Price even went away to Europe last year for a four-week vacation, but that Price really isn’t winding down his business activity. “A man like that? Who can’t stand still? He’s still the spearhead,” Weiss says. “I asked him the other day how extensive the Price Club would get. As far as FedMart did? And he said, ‘I’m going to go as far as the boys want to take it.’”