Push a shopping cart along the concrete floors of your local Costco and you’ll be sure to find super-saver packages of cheddar cheese, toilet paper, and a lifetime supply of Advil. On occasion, you might also find price-reduced apparel from major clothing brands like Adidas, Calvin Klein, DKNY, Levi’s, Cheap Polo Ralph Lauren, and Tommy Hilfiger.
These companies spend tens, sometimes hundreds, of millions of dollars per year on advertising campaigns to elevate their brand image — and nearly as much fighting unauthorized sellers and counterfeiters to protect it. So why are they selling typically lower-quality wares at such a serious discount?
According to many of these labels, they aren’t. Though you can still find a three-pack of knee-high DKNY socks on Costco.com for $9.99, a spokesperson for the brand says it stopped selling goods there “years ago.” Similarly, a source familiar with replica Ralph Lauren sales plans said the company “does not have a direct selling relationship” with Costco, although its polo shirts and fragrances often show up on the store’s shelves. What, exactly, is going on? While Costco did not respond to multiple requests for comment, Marshall Cohen, chief industry analyst at The NPD Group, was able to shed some light.
According to Cohen, Costco often obtains its inventory in unexpected ways: picking up cancelled or excess orders from apparel factories, for example, or third-party sources that have somehow landed on a pile of stock. These are called “gray market goods” — products obtained through channels that are technically legal, but are unintended by the original manufacturer. “A lot of the time, what you’re seeing isn’t exactly what was intended to be the product that was produced by the brand,” Cohen explains. “They’ve moved enough hands that no one knows where they come from.”
Costco’s “inventive” product acquisition strategies have gotten it into trouble in the past. Earlier this year, the company was ordered to pay Tiffany & Co. $13.75 million in damages for selling Tiffany-branded engagement rings that — you guessed it — weren’t actually purchased from Tiffany. According to the legal filing, a woman sent a complaint to the jewelry company after seeing the pieces, some priced as much as $4,000, being sold at a Costco in Huntington Beach, CA. When the company went to investigate, it found a display case filled with gems and a store associate claiming that they were the real deal.
Despite that very-public snafu, it’s not to say you can’t find authentic designer-brand clothing at Costco. While the retailer does get some of its wares through unexpected avenues, some major apparel brands are selling directly to them — they’re just not fessing up to it.