Costco Continues to Climb

Jul 28, 2003
George Anderson

By George Anderson

An article in the Puget Sound Business Journal (Seattle) opens with
an anecdote that defines the Costco consumer and the means to pleasing them.

As the story goes, a shopper in Costco sees a display of name brand designer
shirts that sell elsewhere for $60 priced at $37. The customer says, “I’ll take
four in white and one in blue.”

A Sam’s Club shopper seeing the very same display would say, “I don’t care
how good a shirt it is, I’m not spending that much.”

Costco has established its niche and expanded it in a soft economy precisely,
according to the publication, because of its “focus on delivering quality, name-branded
bargains to a still-spending, upscale customer base.”

Neil Cherry, retail partner, Bain & Co. said Costco’s success is due, in
large part, to it being a fun place to shop. “One-quarter of the merchandise
is being rotated every week, and people like the treasure-hunt mentality of
going to a club store. It’s going to a branded-goods garage sale with goods
you want to buy.”

Richard Galanti, chief financial officer, Costco believes economic conditions
over the past several years have worked to his company’s advantage. “Manufacturers
are more willing to sell to us directly. Just in Levi’s, we went from perhaps
$10 million or $20 million to $150 million (a year) in Levi’s, at a better price
to members. We’d like to sell Godiva chocolates and Sony TVs and Estee Lauder
and Paul Mitchell.”

Moderator’s Comment: Will an improving economy make
it more or less likely manufacturers will be willing to sell to Costco directly?

In some respects, Costco probably isn’t all that concerned.
Goods sold at Costco are expected to be of high quality. From all reports, the
company’s own Kirkland Signature brand has met and in many cases exceeded the
high expectations of the warehouse club’s discerning customers.

Anderson – Moderator

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