I´ve received a lot of questions from my Q an A on Getting into Costco posted a few months back. Costco headquarters is right in my backyard, I´ve worked with them for a variety of years and seen many a great product and service partnership turn up goods on the store floor room. So I´m going to replay that here and augment the info with a few more insights.
Background– Costco makes the majority of its money from the member fees, not margin on products. So a value proposition touting the value of all the "revenue to be made´ typically falls on deaf ears. Costco´s value proposition is to deliver inexpensive goods to the consumer. They only stray from this in one area of the store, which are specialty goods.
What to sell? Costco LOVES to try out new, expensive items, since this is the only place they make a lot of margin. For example, this usually between the walk-in area and the check out area (or jewelry counter), where glass art and African trinkets have are seasonal fixtures during the summer months and are replaced by hand-made sweaters and sliver platters during the holiday season.
Be prepared to guarantee a roll-out if you are successful. I cannot emphasize this enough. All products are "piloted", or tested, at a local Costco, typically the corporate headquarters in my back yard, Issaquah Washington. Headquarters will require validation that you can source and supply volume for the entirety of the stores in the United States if the pilot is successful. What does this mean? Going from 200 products to over 7,000 in less than two weeks if Costco decides on a national roll-out. Costco loves to "move and improve" merchandise and often works through the night to get out new products.
How to partner? Trying to get out that new widget and want Costco to partner with you? Forget it. This is pure business development-in the sales focused sort of a way. Costco will try a product before it buys it for all its stores, but it´s not going to create a unique product even with a proven entity. Instead, they like to have exclusive distribution agreements for its stores. For that matter, Sams Club takes the same approach.
How to pitch? And what happens next?
Cold call the main line, ask for the product manager for testing new products. Be specific about the category of your products, and be prepared to answer a number of questions regarding the viability of your product.
1.Expect a 2-3 week turn around cycle. Don´t give up, call once or twice a week at most. These men and women are really busy-so be persistent and patient.
2.Show up in Issaquah. If you go to Wal-Mart, you hit the Bentonville AK store, but if you are going for Costco then you come to Issaquah, about 25 minutes from the Seattle airport.
3.Put the product in the Issaquah store, staff it over the weekend. Testing typically happens from Friday through the weekend, but not always.
4.Numbers will be provided and then the next step will be determined.
One of the questions I get the most about Costco is from small software companies that are trying to get into the IT department. Depressing news on this front. The IT group is very tightly controlled, and nearly impossible to get through unless you know the CTO or any one of the service providers (consulting shops) that already service the firm.