The Costco name tends to be synonymous with many things – giant-sized bottles of ketchup, massive shopping carts, cheap food court hot dogs, and an ever-expanding array of member benefits. But the name also tends to exude success.
Costco is one of the most respected names in the retail industry. And that’s because it does a number of things exceptionally well.
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Costco’s member-first philosophy, for example, is something competing retailers could benefit from emulating.
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Costco goes above and beyond for members, whether by keeping prices low or maintaining a more-than-reasonable return policy that essentially lets people bring back any item at any item for any reason with few exceptions.
Costco also has a winning approach to inventory.
Most major retailers carry tens of thousands of SKUs (stock-keeping units), but Costco purposely limits its rotation to about 4,000. This allows it to maintain better control over price negotiations and offer members the maximum amount of value.
Costco does one thing that gives it an edge over other retailers.
Image source: Brooks Kraft LLC/Corbis via Getty Images
Costco’s Kirkland brand is a roaring success
Another reason Costco has grown into such a powerhouse is its Kirkland Signature brand.
Named after Costco’s former headquarters in Kirkland, Washington, Kirkland Signature has helped fuel much of Costco’s financial success through the years.
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Kirkland products account for one-third of Costco’s annual revenue. And the Kirkland name has evolved to signify not just lower prices but quality.
In fact, Costco has a specific strategy for pricing Kirkland products. During 2024’s Q3 earnings call, CFO Gary Millerchip said, “We evaluate the potential for new high-quality Kirkland Signature items with a goal of providing at least 20% value versus what we would sell the national brand item as.”
Other retailers could take a lesson from Costco’s Kirkland brand
Costco has done a few things right with its Kirkland brand aside from pricing it competitively. First, Costco has made sure to emphasize quality.
Store brands often have a reputation for being cheap alternatives to brand names. Kirkland has the reputation of being both more affordable and equal in quality, if not superior.
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Costco has also done well with its store brand by partnering with major companies to produce Kirkland products. For years, some of Kirkland’s most popular coffee products came from none other than Starbucks.
Costco’s other Kirkland win has been sticking to the same brand name across its product channels.
Some might call that risky, since having multiple private labels allows retailers to tailor names to specific categories. And in that scenario, a bad experience with one brand may not automatically turn consumers off from another.
But Costco is so confident in its Kirkland brand that it’s not concerned about that. Costco would rather build trust in its signature brand by focusing on quality in every product it sells.
“If they don’t trust the brand in the golf ball, they don’t trust the mixed nuts,” said Claudine Adamo, Costco’s EVP and COO of merchandising.
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A number of industry experts agree that Costco’s approach to its Kirkland brand is a true game-changer.
Gary Sankary, a 50-year veteran of the retail industry with big names like Target on his resume, is a fan of Costco’s single-brand strategy.
“Costco is leveraging the fact that their entire store and organization are a single brand,” he said. “Watching big boxes cycle through the process of introducing and retiring their owned brand labels every few years to convince customers that new is better, at the same time, is confusing and, in many cases, dilutes their brand.”
Robert Amster has successfully served the retail and distribution industries as both a consultant and executive for over 45 years. He feels that Costco’s emphasis on quality is what makes it – and the Kirkland brand – a true winner.
“The Kirkland brand quality is not by any means diluted just because it is private label,” he said. “In fact, in many cases I have experienced, the Kirkland brand product is as good or better than nationally advertised brands.”
Maurie Backman owns shares of Costco.
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