4. Growing the Kirkland brand
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Costco has built a business model that depends on offering customers the lowest prices possible. The retailer doesn’t need to advertise — news of its fantastic deals spreads simply through word of mouth.
“When I started, Sears, Roebuck was the Costco of the country, but they allowed someone else to come in under them,” Costco’s co-founder Jim Sinegal told The New York Times in 2005. “We don’t want to be one of the casualties. We don’t want to turn around and say, ‘We got so fancy we’ve raised our prices,’ and all of a sudden a new competitor comes in and beats our prices.”
Costco’s private-label brand, Kirkland, is a driving force behind the chain’s success, with sales exceeding $59 million in 2021.
The retailer has been building out its Kirkland selection in recent years, with offerings from golf balls to snack bars. Typically, Costco will release a new Kirkland product if it thinks that it would sell for at least 20% less than the name-brand version, without sacrificing on quality.
With customers’ obsession with Kirkland products, Costco could afford to bump the prices up slightly and still keep customers coming back for more. However, Costco has a strict rule that Kirkland Signature items can never be marked up by more than 15% over cost.
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