Costco adds big-name brands, shoppers won’t believe what’s new

Costco endlessly mixes up its merchandise mix, offering everything from big-name retailers to its well-regarded Kirkland Signature house brand.

Part of the joy of the brand is its treasure hunt model, where members never know exactly what to expect. I might visit my local warehouse needing toothbrushes, some coffee, and maybe dress socks, then leave with a canoe or a giant teddy bear.

Costco Founder Jim Sinegal explained the magic of the chain’s model.

“We have created a Treasure Hunt atmosphere. When customers come in, they may find at one time we have a Coach handbag, and they come back, and we don’t have the Coach handbag, but perhaps we have some Levi’s we are selling at a hot price,” he told Masters Invest.

It’s all about making members feel the need to not miss out.

“We try to create a sense of urgency, that if you see the product, you’d better buy it because chances are it won’t be there next time. We purposely run out of merchandise to create that sense of urgency in our customers,” he added.

Now, current Costco CEO Ron Vachris has shared some new big-name retail partnerships that the warehouse club will use to drive sales.

Costco adds big-name partners

The treasure hunt model powers the Costco brand.

“Costco’s ‘treasure hunt’ shopping experience has become one of the most iconic and influential pieces of modern retail psychology. Customers walk through the warehouse expecting not only value but surprise. This element of discovery — the possibility of finding an unexpected deal, an unusually high-quality brand, or a limited-time item — is a cornerstone of Costco’s business strategy,” shared Mojo Sales and Strategy.

The warehouse club, way back in Sinegal’s days, knew how to drive human behaviour.

“It is not accidental. It is engineered psychology, and when understood correctly, it becomes a powerful tool for vendors who want to thrive inside Costco’s ecosystem,” Mojo Sales and Strategy added.

The treasure-hunt concept is built on the behavioral principle that people are motivated by variability.

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Costco has continued to add to that variability by surprising members by adding new items from big brands.

“We added a number of new national brand partnerships across a range of non-food categories in Q1, including Gap and Ulta gift cards, Vera Bradley apparel, and Upper Deck trading cards,” shared CFO Gary Millerchip during the chain’s first-quarter earnings call.

Costco also uses Kirkland Signature to build the treasure hunt

Millerchip made it clear that while Costco likes to delight members with surprising big-name brand partners, it also leverages its Kirkland Signature brand to add new items.

“Newness has been driving growth in this category as well with on-trend items such as Dubai Chocolate performing very well. Kirkland Signature continues to grow at a faster pace than overall sales with KS items typically offering 15% to 20% value compared to the national brand alternative with equal or better quality,” he shared.

Costco has steadily added Kirkland Signature items to its lineup, while also mixing things up at its food court.

“In Q1, we launched approximately 45 new KS items, including dry facial daily clean towels, caramelized blueberry croissants and various apparel items in addition to our latest food court offering, the caramel brownie sundae,” Millerchip added.

Those items perform well.

“Kirkland Signature continues to grow at a faster pace than overall sales, with KS items typically offering 15 to 20% value compared to the national brand alternative with equal or better quality,” Millerchip added.

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Costco also works to keep prices down

While Costco likes to keep members interested by adding new items, its core focus is on making sure prices are low for members. That also means lowering prices when possible.

“As always, our goal is to be the first to lower prices where we see opportunities to do so. A few examples of lower prices this quarter include KS Chicken Pot Pie from $4.29 to $3.99 per pound; KS Bacon from $18.99 to $16.99 per packet; KS Whipped Cream 3-pack from $10.49 to $8.99; and KS Walnuts 3-pound pack from $14.49 to $12.99,” according to the CFO.

Costco raised its membership fees in Sept. 2024 by $5 for a Gold Membership, now $65 and by $10 for its Executive Membership, now $130. The chain, however, has not put that added revenue in its proverbial pocket.

“Costco appears to be reinvesting part of last year’s membership fee increase into sharper pricing for members while allowing the remainder to flow through to the bottom line, a win-win for both members and shareholders,” CFRA Research Analyst Arun Sundaram told Investing.com.

More Retail:

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• Lululemon struggles to reverse concerning customer behavior
• T-Mobile launches free offer for customers after major loss

Morningstar Equity Analyst Noah Rohr thinks that Costco has used price well to drive memberships and sales.

“I think Costco’s pricing is fair and, in most instances, its low-price value proposition is superior to that of its peers,” he told RetailDive.

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Costco’s name-brand & Kirkland strategy

• Kirkland Signature was created to offer quality comparable to name brands at lower prices. Costco positions the private label to be “as good as or better than leading national brands” while often selling for about 20% less, reinforcing value for members, according to Tasting Table.
• Many Kirkland products are actually made by well-known name-brand manufacturers. This means Costco can deliver premium quality under the Kirkland label while avoiding higher marketing costs that typical branded products carry, reported Mashed.
• The Kirkland brand accounts for a huge share of Costco’s sales and profits. It has grown into a major revenue driver, generating tens of billions annually, and boosts Costco’s negotiating power with suppliers.
• Costco leverages supplier relationships to benefit members and partners. Many national manufacturers partner with Costco to produce Kirkland products, creating a symbiotic relationship where suppliers benefit from large-volume orders and Costco gains quality products at lower costs, reported AInvest.
• Costco selectively adjusts its assortment to emphasize Kirkland, where it adds value. Recent changes reflect more Kirkland products in categories like health & beauty and mattresses, partly to offset external cost pressures and enhance value perception, according to TheStreet.
• The strategy helps Costco maintain competitive pricing on name-brand items, too. By limiting SKU variety and buying in massive volumes, Costco negotiates lower prices on both Kirkland and national brands, effectively passing savings to members, shared Grocery Goodies.

Costco reiterated the importance of its house brand in its annual report.

“We sell many products under our Kirkland Signature brand. Maintaining consistent product quality, competitive pricing, and availability of these products is essential to developing and maintaining member loyalty. These products also generally carry higher margins than national brand products and represent a growing portion of our overall sales,” it shared.

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