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, 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 Ralph Lauren’s 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.
What’s more, many shoppers say the brand-name apparel products they’re finding at the value-conscious retailer are of a different quality than what they’ve found at department and authorized outlet stores. In some cases, the goods are made of leftover fabric or are from a factory order that didn’t turn out quite right. While some brands may write down the loss, others “get caught in a position where they can’t afford to,” Cohen explains. “They may have an abundance of fabric, or fabric may have come in that didn’t meet their standards. They can’t sell it openly on the off-price market, so they sell it to the warehouse stores.” Kyle James, a father of three in Redding, CA, and the founder of coupons website Rather-Be-Shopping.com, says that the Levi’s-, Adidas-, and Calvin Klein-branded products he bought at Costco over the years “don't hold up nearly as well when I buy them from the warehouse club.” A pair of Calvin Klein khakis faded dramatically after just a few washes; the button fell off a pair of Levi’s jeans almost immediately (the first time that has happened in more than two decades of buying Levi’s, he notes); and a size-large pair of Adidas sweatpants shrunk a full size after their first wash and dry. He still continues to buy Adidas sweatpants at Costco, but now buys up a size. But Levi’s? Now he buys from "the department store only.”
“I would say the quality and definitely the selection is different,” Catherine Brock, the St. Louis, Missouri-based founder of The Budget Fashionista, adds. In years past, she has scored a host of designer jeans, as well as Ugg boots and pieces from Patagonia, at Costco locations in California and the Midwest. “Now, maybe what you’ll find is a random cardigan from Calvin Klein, or more mass-produced, cheaper stuff [from these brands]." If you do decide to shop for apparel at Costco, be thorough. Take the time to evaluate the quality of the garment, instead of purely trusting to the product label. “I wouldn’t say make a special trip to Costco just to look for clothes,” Brock advises. “But if you already have a Costco membership and are going to the store, sure, take a look around and see if there’s something you like.” The designer eyewear selection, she says, is particularly good. As for the rest of the goods? Well, maybe it's time to leave them on the shelves, where they belong.