It was one of the biggest turning points in business history. And it all started over a cup of coffee…
Back in 2001, Amazon was still an up-and-coming online retailer — selling books online.
And founder/CEO Jeff Bezos was eager to fill out his website’s inventory.
So he invited Costco Wholesale co-founder/CEO Jim Sinegal out to Starbucks, which happened to be located in a Barnes and Noble bookstore (how about that for irony!)
Jim Sinegal co-founder of Costco Wholesale
Bezos wanted to use Costco as a wholesale supplier. There were still many companies that wouldn’t sell directly to Amazon.
The idea went nowhere.
But Sinegal kept talking, and Bezos continued listening.
Bezos quickly realized he was getting a master class from one of the greatest retailers of all time … that was about to change everything.
Sinegal shared Costco’s model with Bezos, and the rest is history…
Singeal told Bezos that it’s all about two words … customer loyalty.
To shop at Costco, you need to be a member. The reason people pay to become members is because of the overwhelming value they get.
A membership is currently $55 per year, which I have gladly paid since I became a member in 2011.
Me at Costco buying my summer wardrobe (I’m NOT a pants size 40×30)!
Sinegal called the once-a-year membership fee a “one-time pain.”
Anytime a customer walks into a Costco and sees a huge flat-screen television that is selling cheaper than anyplace else … the value concept is reinforced.
Costco’s approach is simple: value trumps everything.
Bezos absorbed what Sinegal had told him and was eager to apply it to his business.
Starting the very next week, Bezos changed Amazon’s pricing strategy.
Amazon preached low prices, but in some cases they weren’t that low.
Some of their competitors’ prices were lower.
A short time later, Amazon cut prices on books, music and videos by 20% to 30%.
And a few years later, in 2005, Amazon launched its own new membership program called “Prime.”
The price was $79 per year, and the major benefit was free shipping on your Amazon orders.
Over the years, Amazon has raised Prime membership to $139, and the value proposition has become stronger.
Today, Prime members receive perks including free delivery options and streaming, shopping and reading benefits.
They can also share Prime membership with other members of their family. That’s what I do.
And when I asked my team if they used it? Every single one of them did. Do you have an Amazon Prime, or Costco membership, or are you like me with both? Let me know here.
Amazon shareholders should send a BIG thank you note to Sinegal.
Look at what happened to Amazon’s stock price after that one decision over coffee:
Amazon is higher by 25,000% since April 1, 2001
That one meeting over coffee more than two decades ago laid the foundation for a membership service with over 200 million active subscribers.
It contributed to net sales of subscription services and earned Amazon $35 billion in 2022 alone.
That’s all it takes!
I call it the “billion-dollar move.”
You saw for yourself with Amazon.
Investing — or partnering with great CEOs — presents very real opportunities for life-changing gains.
And the next company to make the billion-dollar move? Well, I’m convinced I found it.
I even spoke to the CEO myself. Our conversation blew me away.
Not only did he invest $20 million of his own money into his company…
He’s made one bold decision that allows his company to generate up to 5X more money from its energy than others can get from theirs.
And the kicker?
It’s trading for less than $5 a share. Talk about a bargain!
Founder, Alpha Investor
Good News & Bad News
Buried in the news cycle this week was the new home sales report for May.
The numbers came in exceptionally strong, coming in at their highest levels since the Federal Reserve started its tightening cycle last year.
The Good News
New home sales soared by 12.2% to a seasonally adjusted annual rate of 763,000. The consensus among economists was 683,000.
So not only are sales improving, but they’re improving faster than anyone seems to have expected!
As usual, the devil is in the details.
Mortgage rates are still punishingly high, which reduces the pool of affordable houses. This is the single biggest reason that new home sales (as well as existing home sales) took a nosedive last year.
Well, the prices of new homes have had to adjust to this reality. The median new house price in May was $416,300, which is 7.6% lower than a year ago.
All of this is good news. Demand for homes is still strong, and the further prices retreat the more affordable new homes become.
Spending on homes also prompts spending on other big-ticket items like furniture and appliances. So the more activity we see in the housing the market, the better the news is for the broader economy.
The Bad News
Alas, now it’s time.
The Fed is watching this unfold. And a strong, robust housing market gives them a lot more wiggle room to continue draining liquidity out of the system.
Sure, they “paused” their rate hikes in June. But Chairman Powell has made it clear that more hikes are coming.
Strong data like this gives the Fed the breathing room to do it without worrying about blowing up the economy.
But here’s the thing. The higher they raise rates to fight inflation, the more likely it is do exactly that … blow up the economy.
Or more accurately, push us into recession.
In a way, the stocks I’m willing to hold through a recession shows my comfort level with the underlying business.
Strong, well-managed businesses make it through recessions just fine. In fact, they often use a difficult economy to grab market share from their weaker competitors.
This brings us back to Charles Mizrahi’s focus on world-class, rock-star CEOs. You can be far more comfortable holding a stock through an uncertain economy when you’re partnered with the very best.
And that CEO’s “Billion-Dollar Move,” as Charles explains in his latest research, can land you an incredible recession-proof investment.
Chief Editor, The Banyan Edge