Having the opportunity to sell your products to Costco is an exciting proposition and could be a huge game changer for your business. With over 400 warehouses in the US alone catering to average 30,000 members per week it would not take long for the right item to make a HUGE impact on your bottom line. However; before you put a down payment on your dream vacation home, there are four key strategies which if avoided can make a major difference between who goes On Vacation and who has a Staycation.
Strategy #1: Believing Costco's #1 goal is making money off your item: If you are in sales, the phrase "you are going to make SO much money off this item" has escaped your mouth more than once. We have all been there at one time or another. You want so much to convey how viable of a product you are offering, you may get over zealous with the aforementioned phrase. Although there may be retail companies out there that are very interested in how much money they will make on any item, Costco is not necessarily one of them. Of course, everyone is in the game to make money, but even more important to Costco than money is Member Value. Offering their members Significant Value is the mantra that marches through every buyer's head! Memorize this! Not violating the member's trust with items that do not offer value is the foundation Costco is built on and it is what keeps their membership renewal rate over 85%.When items have value, they sell! Members spread the word and they sell even more! Eventually the word will reach a non-Costco customer who will then buy a membership to take advantage of the value, and so on and so on. Are you getting this?Value drives sales! When speaking to Costco, speak about the Value your product will offer, either in $'s off or more in the box. Buyers always appreciate when you know their business model!
Strategy #2: Believing Costco will change their business model for your item: It is no secret at this time of year the wholesale and retail business is crazy. One unique characteristic of Costco is they will accept product all year round as long as it fits into their business model. So, while most retailers are already finished with their merchandising plan for the rest of this year and are already working on next year's plan Costco is focused on finding the best products at the best value.
Costco has been successful over the years by sticking to what works and not compromising their formula. It would be a mistake to think they are going to alter their long standing and time tested business model for any one item.
When deciding whether your product is right for Costco, it is imperative to put your product into Costco's model to see if it will work and if you can live with the result. Preparation is the key here! If you do not know how to prepare for a meeting with Costco and how to see if your product works in their model, feel free to contact me via my website noted at the bottom of this article.
Outlined here are a couple of main features to their business model that will get you started. Brand - In general Costco looks for items with an established brand image, although there can be some limited exceptions to this rule. If your product is new to the market you may want to gain some distribution and brand awareness prior to taking it to Costco. Value - Costco must be the lowest price or offer the most value in the market, no exceptions! Costco members pay a premium to shop at Costco therefore Costco will not bend on offering value. As a rule they generally like to be a minimum of 20% below any advertised price. It will be important to look at your current distribution channels and evaluate how selling Costco may disrupt your current sales. Packaging - Costco has made their packaging and pallet displays an integral part of their overall value statement. The faster Costco can take a pallet display from the truck to the sales floor the more value they are able to offer their members by keeping their overhead low. Be prepared to understand and adhere to their packaging requirements. Note: Costco moves product around the sales floor daily and the more mobile your product, the easier they will be able move it without damaging the display.
If companies are lucky, they get one chance to sell their products to Costco, doesn't it make more sense to be prepared and know their business? You will go a lot farther faster if you are in the same boat rowing with Costco and not against them.
Strategy #3: "Thinking you should take your product to Costco first"I am old enough to remember shopping at Costco or even Price Club back at the beginning. The value available was tremendous, as is true today; however the brands carried were not as recognizable. Back then we had to take Costco's word they were as good as or better than what we were used to. This is not true in today's Costco as top brands are begging to get into one of the world's top retailers. The days are far gone when brands like Tumi, Sony, Panasonic and Calvin Klein would turn up their noses at the thought of selling to a club store. Today, not only are they selling Costco, but Costco is a large part of their overall business. Costco's business model has shifted from selling items at a value to selling top brands at a value. It is exactly this brand name value statement which is the cornerstone of Costco's business model and something they protect at all cost.
How is the above relevant to you and your pursuit to sell your product to Costco? Today Costco is looking for products with current distribution in mainstream retail. It is very rare today for Costco to be first to bring products to market in any category. Costco maintains their value statement by selling products or variations of products for less which are currently in other retailers. It is hard for Costco to show a value on a product that is not sold anywhere but Costco.
So the question shifts from "how to sell your products to Costco" to, how to gain distribution on your product in preparation for selling it to Costco. When taking your product to Costco you want to be able to answer the below questions:
1. Where is this product currently sold?
2. How long has it been on the market?
3. What is the average retail price point of this product?
4. Can your pricing structure and distribution model support a 20% discounted retail.
5. What is the sell through of your current retailers?
Strategy #4: Hoping Costco will drop their current product for your product. All too often when thinking about how to get product on the shelves of the best retailers in the country most manufactures think of better pricing, better cost and a better made product. Confident, they march off to their local retailer headquarters armed with these three elements and believing this alone will get them placement and remove their competition.
Before you make this mistake, a mistake made by many who came before you, please remember this: You must be able to provide more than a great product at a better price to unseat the incumbent vendor.
What could be more important to Costco than better pricing and a better product? Listed below are three main factors that will hold Costco back from making a vendor switch even in the face of better cost.
1. Shipping and Logistics: Your Company's ability to ship to all of Costco's depots on time and with consistency is of great importance to Costco. Their floor plans are ever changing and if your product is late it could lose placement. They will also look at your ability to flow product to your own warehouse for them to pull from. Costco will not do transfers from location to location, therefore it is important for them to be able to flow goods to certain locations in smaller quantities from your warehouse.
2. Defect rate: New members and membership retention are the two engines that keep Costco moving and they will protect these like angry pirates on a treasure ship. A key factor in Costco's image is the quality and durability of their products. Although your company will be paying for returns and defects Costco will not maintain an item with a large defect rate.
3. Depth of product line: Costco is interested in the vendors they partner with doing well. To this end they will work with current vendors on a multitude of products if they are available. This reduces their need to set up and train new vendors, obtain hard to get signatures and take chances on untested companies.
