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.
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