Ask the Expert Getting into Costco Wholesale

Entrepreneur Question:

I have a great product for Costco. I've had one meeting but it hasn't resulted in anything. What did I miss?

Sarah:

Good question. Without knowing the specifics, it’s hard for me to answer that question. Sometimes its all about the product line that is being offered, Costco’s specific policies and plain ‘ol timing. But, since Costco headquarters is right in my back yard, I’ve worked with them for a variety of years and seen many a great product and service partnership turn up goods on the store floor room. So I’m going to share 5 insights I’ve gleaned from first hand experience:

1. Costco makes the majority of its money from the member fees, not margin on products. So a value proposition touting the value of all the ‘revenue to be made’ typically falls on deaf ears. Costco’s value proposition is to deliver inexpensive goods to the consumer. They only stray from this in one area of the store: see below.

2. Costco LOVES to try out new, expensive items, since this is the only place they make a lot of margin. For example, this usually between the walk-in area and the check out area (or jewelry counter), where glass art and African trinkets have are seasonal fixtures during the summer months and are replaced by hand-made sweaters and sliver platters during the holiday season. But beware: Costco’s first order of business it to find your supplier and source it themselves and I have many a story verify this happens all the time.

3. For specific products such as books, Costco only takes books that make it onto a bestseller list (New York Times preferably. This has dismayed a variety of self-published authors, and those of us not yet on the NYTimes list!)

4. Specific services such as the moving services company who pitched a brother-in-law who also happened to be a Costco executive and had his offering rejected at the first meeting (much to the relative’s dismay). Why? The service required a high amount of personal management or hand-holding by either Costco or the moving company. Costco shies away from any product or service that requires a lot of maintenance or human involvement to be successful. It simply doesn’t have the margins to manage this type of risk.

5. Be prepared to guarantee a roll-out if you are successful. I cannot emphasize this enough. All products are “piloted”, or tested, at a local Costco, typically the corporate headquarters in my back yard, Issaquah Washington. Headquarters will require validation that you can source and supply volume for the entirety of the stores in the United States if the pilot is successful. What does this mean? Going from 200 products to over 7,000 in less than two weeks if Costco decides on a national roll-out. Costco loves to “move and improve” merchandise and often works through the night to get out new products.



Ask the Expert Getting into Costco Wholesale - To learn more about this author, visit Sarah Gerdes's Website.

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