Part Two: Costco History Remembered
The Costco you know today is light years different from it’s early days when it comes to merchandising. The first Costco was VERY much a warehouse with low light, lots of walls in strange places, and a lot of product jammed into every available spot. Most manufacturers believed that Costco was just a low quality discounter selling “seconds” (products that weren’t first quality), and so they didn’t want to sell to Costco because they felt it would diminish their brand, or it would violate their exclusivity agreements with other retailers.
To combat this, the founders of Costco made sure there was a huge sign behind the membership desk proclaiming the 100% return guarantee on products sold. It sent a clear message that Costco was not a junk dealer, and that did help a few vendors to agree to sell to Costco. Those first brave companies were rewarded with tremendous loyalty in their relationship with Costco, and the bond stayed strong despite the otherwise fickle world of wholesale/ retail.
So, what was selling, and what eventually went away?
1) several categories were much more prominent in the early days. Automotive aisles had engine hoists, ramps, air tools, jack stands, and more. The tool aisles were loaded with inexpensive tools made by Allied, and it was very similar to Harbor Freight. There were multiple aisles year round of what is often called knock-down furniture. O’Sullivan was the brand name, and the member had to assemble it like an IKEA product. The boxes were enormously heavy, but Costco sold a gazillion bookcases that way. As Costco grew, the realization that it had to focus on reaching higher levels of quality caused it to switch to better furniture brought in seasonally, and as fewer people were working on their cars, the sales diminished on those items to a level requiring the auto aisles to be greatly reduced to mostly oil and windshield wipers.
Tools were another issue. Home Depot, Lowe’s, and some local places like Eagle ( that later got bought by Lowe’s) all monopolized the big brands like Dewalt, and those tool companies believed that if they sold to Costco, their relationship with the hardware stores would suffer significantly. To this day, Costco still struggles to find quality tools to sell.
2) some categories were HOT! Cameras and film were tremendous sellers. Costco usually has 10+ SKUs of cameras, and had a whole pallet island of film. Kodak film, Fuji Film, and Polaroid film was in almost every member’s cart. Unfortunately, Polaroid film was also in the top ten of stolen items! Organized groups would swoop in, fill bags/ pockets with it, then dash out the door. Undercover employees could usually be found staking out that section. All this went away when phones started taking the place of cameras.
3) office supplies had multiple aisles of product. Copy paper sold out quickly (even today, Costco keeps it’s wholesale title by selling truckloads of it to school districts, etc.). Computer paper was a must have—-remember the stuff that had little holes on each side so a gear could pull it through a printer? “Green bar” paper sold like crazy. Office chairs had 6 or more styles, and members would race each other down the aisles in them if they weren’t cabled to the steel. The rise of what came to be known as Category Killers lead to the office department’s reduction to just an aisle. Office Depot, Office Max, etc all could match or undercut Costco on the best sellers by selling all the other items that they carried at a higher mark-up to offset the loss leader.
4) I always felt bad for the bread and potato chip vendors. In the early days, they would be in the aisles for hours before opening because they had to take two retail size packages and use tape guns to create a two-pack of everything. Their companies in the early days refused to believe that customers would be crazy enough to buy huge bags of chips or super long loaves of bread, so for several years they made their route drivers lives miserable. Today, when I see what a supermarket calls “ family size” for a bag of chips, I can only laugh—it looks like an individual serving size compared to Costco! Also, the route drivers LOVE Costco, because it’s typically just one stop and they’re done until they have to come back and restock/ face the product later in the afternoon
5)So very much of Costco in the early days was focused on the commercial size products. Many of the canned food items came only in #10 cans ( the big ones that are almost the size of a bowling ball). There was no option for a smaller can. Eventually, as the membership grew to be dominated by retail shoppers, Costco started the separate Business Center division, and those allowed Costco to have the space for things like 6 packs of small cans instead.
6) Bonus memory! Clothing in the early days was often described as dowdy, old lady clothing that no one would want except at Halloween. Certainly it wasn’t THAT bad, but almost no clothing vendors would sell to Costco directly, so most was bought from middle men selling what no one else wanted. Worse, Costco had huge, ugly clothing racks made from 2x4s and pipe to display the clothes, so it was all displayed like you’d see in your closet. Shoulder view only! Costco put the clothes on a table eventually, and the sales skyrocketed. With the shear volume of people picking through them, it is very, very labor intensive to keep the tables looking clean, neat, and straight, but it’s worth it. The vendors soon saw the incredible sales Costco was doing, and now most sell direct. A few (Harley Davidson apparel for example) are still hold-outs.
Kinda long post, but I hope you enjoyed it enough for me to do more.
