Costco Founder's Chat With Bezos Over Coffee Helped Save Amazon

Amazon.com Inc. stands as a $2 trillion retail giant today, but its survival was in serious jeopardy back in 2001. After the dot-com bubble burst, Amazon's stock plummeted 90%, leading many critics to predict its demise.

However, founder Jeff Bezos reversed the company's fortunes with help from a surprising source: Costco Wholesale Corp. founder Jim Sinegal.

In 2001, Bezos met with Sinegal over coffee at a Starbucks inside a Barnes & Noble near Amazon's Bellevue, Washington offices, as detailed in the book "The Everything Store" by journalist Brad Stone.

Initially, Bezos sought to discuss sourcing products from Costco, but the conversation shifted to pricing strategies that would ultimately shape Amazon's future, reports CNBC.

Sinegal shared Costco's core principle: "value trumps everything." He explained how the retailer kept prices "dirt cheap" by cutting unnecessary costs and building strong supplier relationships. Costco's low prices, he said, reinforced the value of its annual membership, which accounted for much of its profitability.

"The membership fee is a one-time pain, but it's reinforced every time customers walk in and see forty-seven-inch televisions that are two hundred dollars less than anyplace else," Sinegal reportedly told Bezos, and as quoted by Stone.

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Inspired by this, Bezos quickly called a meeting at Amazon to address the company's "incoherent" pricing strategy. By that summer, Amazon began cutting prices on flagship products like books, music, and videos, offering discounts of up to 30%. Bezos famously declared, "There are two kinds of companies: Those that work to raise prices and those that work to lower them. We'll always be the second."

The strategy paid off. By the end of 2001, Amazon posted its first profitable quarter, a turnaround Bezos credited to lower prices and cost-cutting measures.

In 2005, Amazon launched its membership program, Prime, echoing Costco's model by offering discounted prices and free shipping to paying members. Bezos later described Prime as offering such good value that "you'd be irresponsible not to be a member."

Today, Amazon's approach to pricing and memberships, rooted in the lessons of that pivotal 2001 meeting, continues to underpin its global success.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.