Discount Stores in County Proliferate: a Profile of Fedco

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."

Jick also says Fedco can stock the same brands day after day, unlike other discount stores that change brands frequently. He says most Fedco stores carry about 100,000 items.

Fedco now has nine regular stores and three furniture and appliance centers, including the just-opened furniture and appliance store next to the regular store at 3030 Harbor Blvd. The new store features about 30,000 square feet of name-brand merchandise, including Lane and Hooker furniture and Toyo lamps.

On most days, shoppers are lining up to the Fedco entrance well before the doors open at 10 a.m. By 10:30, the huge parking lots are nearly full and the store aisles busy with customers loading large carts with shampoo, clothes, shoes, books, groceries and auto supplies. Some shoppers stick to one item, filling their carts with huge boxes of detergent or diapers. Others do the week's grocery shopping, with stops at the pharmacy or the garden shop.

Fedco looks much like other discount stores, except that a garden center, optical counter, grocery area, produce bins and a snack shop all share the space. A customer can buy a gas grill, pick up eyeglasses, order a prescription, browse the book racks, do the grocery shopping and dine in the snack shop, all in one building. Then they can cross the parking lot and pick out some furniture.

With its luncheonette-type snack area and its garden shop, Fedco resembles a K mart. Jick says, however, that Fedco is more "upscale" than K mart. He compares Fedco to Sears.

While Fedco does have the quantity and variety of Sears, it doesn't have as polished a look. Another difference between Fedco and Sears is that Fedco carries name brands, while Sears carries primarily its own label, Kenmore.

Next Friday: A look at the increasingly competitive field of warehouse clubs in the county, where Price Clubs used to reign unchallenged.

Next Friday: A look at the increasingly competitive field of warehouse clubs in the county, where Price Clubs used to reign unchallenged.

WHO CAN JOIN FEDCO?

California residents can join Fedco if they meet any one of the following requirements:

Active or retired federal, state or local government employees.

Members of approved credit unions.

Active, retired or active-reserve members of the military.

Employees of hospitals, schools or colleges.

Full-time students over age 18.

Recipients of Social Security or disability payments.

Employees of firms that do their primary business with federal, state or local governments.

Employees of banks, savings and loan associations and insurance companies.

Employees of nonprofit corporations.

Employees of companies regulated by the Public Utilities Commission.

Other California residents also may be eligible for membership. For more information, call Fedco at (714) 979-2660.

COMPARING PRICES AT SEARS, FEDCO

Although Fedco considers itself unique, it is most similar to Sears, according to Philip Jick, vice president. Last week, the Shopping column compared prices on a small selection of merchandise at the Fedco at 3030 Harbor Blvd. in Costa Mesa and at Sears, 3333 Bristol St., Costa Mesa. The comparison is not definitive as, in most merchandise, Sears sells its own brands, whereas Fedco sells national brands. When possible, identical brands were compared. In general, both stores carry national brands of toiletries.

SEARS FEDCO Item: brand, quantity, price brand, quantity, price Assorted fruit trees Armstrong apple Armstrong peach (same size, $8.99 $6.94 about 4 feet) Soap Dial 4-pack $2.59 Dial 4-pack $1.63 Gas grill Sears Best Kenmore Weber Genesis II 44,000 BTUs 45,000 BTUs liquid propane grill liquid propane grill on sale $299.99 $386.87 regular price: $349.99 Bandages Johnson & Johnson Johnson & Johnson Band-Aids sheer Band-Aids sheer 30 count $1.39 on sale 30 count $1.69 regular price: $2.39 Alkaline batteries Diehard 2-pack $2.39 Duracell 2-pack $1.87 (D-cell) Toothpaste Colgate 7-oz. tube Colgate 7-oz. tube $2.11 $1.47 Diapers Ultra Pampers Plus Ultra Pampers Plus 48 count medium size 48 count medium size $9.99 $9.98 Spray deodorant Sure 4 oz. $2.47 Sure 4 oz. $2.14 Oil of Olay 4 oz. on sale $4.49 4 oz. $5.37 regular price $5.75

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