Costco Makes $7 Billion A Year Selling This One Unexpected Item

We won’t leave it a mystery: Costco rakes
in around $7 billion a year selling clothing. That’s shocking, since it’s not usually thought
of as a clothing store. How the chain managed to make such a retail
coup is impressive, and it’ll make you look at its clothing section in a whole new way. Costco boasts brands including Calvin Klein,
Tommy Hilfiger, Eddie Bauer, North Face, Lucky Brand, Ugg, Birkenstock, and Jessica Simpson,
among others. There’s a bit of a trade-off, though, because
the selection of styles, colors, sizes, and choices that is more limited than what you’d
find in a more traditional clothing store. You don’t always know what’s going to be in
stock. According to retail analyst Simeon Siegel,
Costco’s unpredictable and ever-changing stock of clothing is actually a huge boon for the
big-box chain. It creates the thrill of the treasure hunt,
because once it’s gone, it’s often gone for good. So while it might seem like having unpredictable
stock would be frustrating for customers, it actually gets them to come see what’s up
for grabs. Beyond that, it reduces the stress of looking
through rack after rack of clothes looking for just the right item. Retail analysts say there’s an increasing
number of shoppers who just want the store to present them with the best choices out
there, not all the possible choices. According to Racked, having too many options
can create the so-called “paradox of choice.” Taking away the stress and feeling of being
overwhelmed actually makes customers more likely to buy. How can Costco afford to sell designer labels
so cheaply and still make a profit? A Refinery29 investigation confirmed that
clothing brands didn’t actually partner with Costco to sell their goods. According to NPD Group analyst Marshall Cohen,
Costco gets its inventory in less traditional ways. The clothes are “gray market goods,” which
means Costco might get its clothing stock through a third party or even pick up overruns
from factories. Sometimes, it’s a case of labels just keeping
quiet about what they’re doing with the extra inventory they can’t move. It’s entirely possible that companies are
selling directly to Costco but aren’t saying so publicly. Retail analyst Simeon Siegel told The Washington
Post: “If you’ve got a lot of inventory, dropping
off a pallet at Costco and having it disappear by the end of the weekend isn’t the worst
thing. It’s a way to move goods without hurting your
brand.” Costco gets a deal, passes those low prices
on to their customers, and everyone’s happy. “Another great Sunday.” “And not too rough on the old pocketbook.” When Refinery29 looked into just how Costco
could sell so many designer labels, they came across something odd: A lot of people who
were saying the clothes at Costco just weren’t as high-quality as the same exact thing from
a more traditional clothing store. They shrunk, they faded, buttons fell off. How’s that possible? Refinery29 concluded that the items on Costco’s
shelves aren’t knockoffs, but lower-quality products from the factories, sold to Costco
at deep discounts. NPD Group analyst Marshal Cohen says it’s
entirely possible those good deals come because the apparel isn’t quite good enough for sale
in a traditional store, or it may have been made from leftover materials. He said: “They can’t sell it openly on the off-price
market, so they sell it to the warehouse stores.” Costco also carries its own Kirkland-branded
clothing, people seem to agree it’s a good buy. When Heddels tested plain white t-shirts to
figure out which was the best, Kirkland’s came out on top for comfort and long-lasting
softness. Customers on Red Flag Deals also recommended
Kirkland, calling the jeans “good, comfortable, and moderately durable,” the shirts “the best
value on the market,” and the socks “almost indestructible.” Even the forum members over at Badger & Blade,
who have profile photos that involve a lot of sailing, polo shirts, and wine, say that
the Kirkland clothing line is just about the perfect thing for everyday wear. “I like your pants.” “Thank you! They’re Costco!” According to CNBC, Costco was the eighth-largest
clothing retailer in the U.S. in 2017, behind only Walmart, Amazon, Target, Kohl’s, TJ Maxx,
Macy’s, and The Gap. The Washington Post says Costco’s total $141
billion in annual revenue gives it some serious bargaining power, and it’s not showing signs
of slowing down at all. Southern Living reports that the revenue Costco
brings in from clothing is growing faster than the revenue from food sales. As Costco has cashed in on the clothing market,
a ton of competitors have withered. Here’s just a partial list from CB Insights
of the clothing retailers that have filed for bankruptcy and closed, partially or entirely,
since 2015: Sears, Payless, Gymboree, David’s Bridal, Rockport, Nine West, Boston Stores,
True Religion, Rue21, Gander Mountain, American Apparel, Aeropostale, PacSun. Many brick-and-mortar store chains failed
to foresee the rise of online giants like Amazon and didn’t give people a reason to
keep coming to a physical store. Costco has found a way to cement a loyal fanbase
willing to come to them, picking up the customers left looking for a new go-to clothing retailer. Costco is definitely about buying in bulk
for serious savings, but it also tries to cultivate an air of luxury. “Do you have this in France?” “Not yet.” “Hm. I didn’t think so.” Those designer brands on their shelves actually
have a lot in common with other items that include $17,000 bottles of whiskey and the
$400,000 diamond ring CNBC reported the chain sold in May 2019. According to Marketplace, the stupidly expensive
diamond rings and moderately priced designer clothes aren’t entirely about sales. It’s about setting Costco apart from its competitors
and attracting a customer base with an average yearly income of around $100,000. By stocking these things, Costco attracts
a higher income bracket than, say, Walmart. High-end items also help boost Costco’s reputation
for carrying high-quality products, and it’s helped make Costco the trendy wholesaler. According to Style Democracy, there’s a corner
of the clothing industry where products are made cheaply and marketed as being the style
of the moment. It’s called “fast fashion,” and consumers
tend to get rid of these items pretty quickly. The manufacturing process uses a ton of water,
has a negative impact on the environment, and has been linked to workers being paid
low wages to work in poor conditions for countless hours. Fast Company did more digging, and found that
while some brands are making strides to become more sustainable, the vast majority were still
playing the game of trying to forecast what was going to be popular. Sometimes they miss, and the misses are the
goods that sometimes end up on Costco’s shelves, making Costco a convenient place for fast-fashion
companies to make a buck, even when they get it wrong. As consumers become more conscious of where
their clothes are coming from, it seems Costco’s brilliant business plan may have an expiration
date. Check out one of our newest videos right here! Plus, even more Mashed videos about retail
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