The Hot Dog Stand Warehouse: How Costco Started in Seattle in 1983
Costco opened its first warehouse in Seattle in 1983 with a narrow product list and no advertising. The model has barely changed.
Costco is one of the largest retailers in the world, but its first location was a plain warehouse in Seattle with a hot dog stand out front. The ideas behind that first store still explain much of how the company works.
Learning from Price Club
The membership warehouse idea came from Sol Price, whose Price Club opened in 1976 in a converted airplane hangar on Morena Boulevard in San Diego, according to Costco's company history. Price Club first served only small businesses. Jim Sinegal, then an executive there in charge of merchandising, distribution and marketing, helped refine its approach.
Seven years later Sinegal co-founded Costco Wholesale with Jeff Brotman. They opened the first warehouse on 4th Avenue South in Seattle on September 15, 1983, HistoryLink reports.
The early model
The first Costco sold to small businesses such as restaurants and gas stations at 8 to 9 percent over wholesale, according to HistoryLink. It later opened to retail members. The warehouses carried only about 4,000 items, did not advertise and charged members a yearly fee of $25 to $35.
Costco says it became the first company to grow from zero to $3 billion in sales in less than six years.
Merger and a return to the name
In 1993 Costco and Price Club merged. The combined company, called PriceCostco, had 206 locations and $16 billion in annual sales. The company resumed the Costco name in 1997. By then, HistoryLink notes, warehouses had added food courts, pharmacies, optical departments and other services.
Today Costco reports more than 800 locations worldwide and total sales above $192 billion in recent years. It still carries about 4,000 products, compared with around 30,000 at most supermarkets.
Why a short product list works
Selling fewer items lets Costco buy each one in large volume, which drives down cost. It also makes stores simpler to run and helps members trust that each item was chosen for value. The membership fee gives the company steady income and a loyal customer base that returns to get its money's worth.
The founders also made a choice that is easy to overlook: no advertising. The logic is straightforward: money not spent on ads can go toward lower prices, and satisfied members tell others.
Not every business can skip advertising, but every business can ask which costs customers actually value.
That simple formula has held for more than four decades.
Lessons for small retailers
- Learn from the best in your field. Sinegal built on what he learned at Price Club.
- Fewer choices can mean better value. A tight selection simplifies buying and operations.
- Recurring revenue builds loyalty. Memberships give customers a reason to come back.
Montana now has Costco warehouses in several cities, and local retailers compete with them every day. Understanding the model is the first step to competing with it, often by offering what a warehouse cannot: service, specialty products and local knowledge. More business coverage is at the Montana Statesman.
