Costco, Price Co. Say They'll Merge

In a dramatic announcement expected to intensify competition in the membership-warehouse industry, Kirkland-based Costco Wholesale said today it would merge with a chief rival, Price Co. of San Diego.

The two will form a company worth about $4 billion on Wall Street, with annual sales of $16 billion, 196 stores and more than 28,000 employees. If the merger had been in effect in 1992, the company would have ranked second in the Northwest in sales, behind only Boeing's $30 billion.

For the 14 million members of the two wholesale buying clubs, the merger will mean that the companies' buying clout will increase and stores will be able to sell merchandise at highly competitive prices.

Both companies' stocks jumped at the opening today. In late trading, Price soared $6.75 a share to $39, and Costco gained $1.75 a share to $18.75.

Price's founder, Sol Price, is considered the father of discount-warehouse retailing. He started the discount Fed-Mart chain in 1954. Today, Price has 94 stores and Costco 102, including 13 in Washington.

The two companies had been battling for second place behind the industry leader, Wal-Mart's Sam's Club, which has more than 250 stores. But Sam's Club's total annual sales would be less than Costco and Price combined.

Price and Costco both operate in California and New Jersey but otherwise have little overlap. Robert Price, Price chairman, said at this point he does not expect any stores to close.

He said the individual stores would continue to be called either Costco or Price Club.

The merger is expected to be completed by year's end. The new company will be called Price/Costco and will maintain headquarters in both Kirkland and San Diego.

Robert Price will be chairman of the new company. Jeff Brotman, Costco founder and chairman, will be vice chairman and will be in charge of acquiring real estate.

Jim Sinegal, Costco president and chief executive, will be president and chief executive of the new company.

Consolidation in the industry has been predicted as more and more new stores have taken sales away from existing stores.

The warehouse-membership club concept took off in the late 1980s as value-conscious shoppers found it increasingly attractive to buy items in bulk.

But as the industry grew, competition intensified. By 1992, four clubs - Price, Costco, Sam's and Pace, a division of K mart - accounted for 91 percent of the nation's membership-warehouse stores.

Now, with slowdowns in sales growth and less potential to open new stores, those who want to survive will have to be well capitalized, said Jeff Atkin, a retail analyst and principal with Kunath Karren Rinne & Atkin in Seattle. Joining forces gives both Price and Costco the additional financing they need to combat Sam's and its well-financed parent, Wal-Mart.

In the past year, both Price and Costco reported steep declines in sales for stores open more than a year.

The two companies said management-information systems and accounts payable and receivable for U.S. club operations will be consolidated in San Diego. A large part of the U.S. buying and merchandising activities will be based in Kirkland.

Costco employs 18,100 people nationwide; Price Co. employs 10,200.

-------------------------- COMPARING COSTCO AND PRICE --------------------------

COSTCO WHOLESALE CLUB

-- Headquarters: Kirkland, Wash.

-- Number of stores: 102 in 15 states and Western Canada

-- Members: 6 million

-- Fiscal 1992 revenues: $5.242 billion

-- Fiscal 1992 profits: $74.49 million

THE PRICE CO.

-- Headquarters: San Diego, Calif.

-- Number of stores: 94 in 8 states.

-- Members: 8 million

-- Fiscal 1992 revenues: $7.5 billion

-- Fiscal 1992 profits: $135 million