Best Practices to Increase Sales in Costco

Getting your product into Costco is a major accomplishment. The opportunity to showcase your product in such a well-known retail environment is a dream for many businesses. But now that you’ve made it in, what’s next?

This blog will guide you through the steps you need to take to ensure your product thrives in Costco.

Understanding Costco’s Key Metrics

To succeed in Costco, you need to understand the key metrics that the retailer uses to measure product performance. Let’s dive into these metrics and why they matter.

Sales Performance

Sales performance is the cornerstone of your product’s success. One crucial metric here is the sell-through rate, which measures the percentage of inventory sold over a specific period. A high sell-through rate indicates strong demand and can lead to increased orders.

Costco measures sales performance per pallet location on a per-unit and per-dollar basis. As a brand, you sign a commitment with Costco in which they specify how many clubs you can sell in, how many pallets per club, and what the expected sell-through is. The Costco buyer is then accountable for making each pallet space as profitable as possible because their performance is evaluated based on the sales of their department, considering both revenue and profit margins.

For example, a test trial, determined by a Costco buyer, usually involves around 20 clubs with one pallet space per club, equating to 20 pallets in total. If the target is $175 per day per pallet and a brand is selling pillows at $9.97 each, they must sell at least 18 pillows per club per day to meet the target ($9.97 x 18 = $179.46). If only 10 pillows are sold, the brand misses the target with sales of only $99.70 per club per day.

Return Rates

High return rates can signal problems with your product, such as defects, misleading packaging, or unmet customer expectations. To mitigate high return rates, focus on product quality and clear, honest packaging.

You typically negotiate an agreement with Costco on the acceptable return rate. If the agreed return rate is 10% but actual returns are 8.5%, Costco is satisfied. Conversely, if returns are 11.5%, the brand is charged for the additional 1.5%. Returns are either sent back to the brand or discarded, and the brand must decide how to handle them.

Inventory Turnover

The inventory turnover ratio is another critical metric. It indicates how often your inventory is sold and replaced over a period. Maintaining an optimal inventory level ensures that shelves are stocked but not overstocked, avoiding excess inventory.

Customer Feedback

Customer satisfaction can make or break your success. Costco buyers read all the reviews and will often ask the brand to help respond to questions and comments. Positive feedback can boost sales and build a loyal customer base.

“Once you achieve success with one buyer and have other products that might be a good fit for Costco, your buyer can often connect you with the right contact. We encourage our clients to leverage their success at Costco USA whenever possible, to expand that success to Costco Canada, Costco Mexico, and other locations.”

— Kristi Duvall
Vice President of Sales, The BoxMaker

Improving Sell-Through with Packaging Adjustments

Effective packaging is key to improving your product’s sell-through rate in Costco. Here are some strategies to enhance your product’s appeal on the shelves:

Keeping Designs Fresh with Digital Print

Utilize digital print technology to keep your packaging designs fresh and engaging. This flexibility allows for quick updates and seasonal variations, keeping your product attractive and relevant.

Enhance In-Store Presence with Pallet Displays

Pallet displays can significantly boost your product’s visibility and help it stand out. These displays draw attention to your product and can influence purchasing decisions right off the bat.

Leverage Seasonal Messages and Holiday Themes

Seasonal packaging and holiday themes can attract customers looking for timely products. Incorporate festive designs and limited time offers to create a sense of urgency. Additionally, retailers like Costco may allow additional floor space or more premium placement for seasonal products and displays.

Key Recommendations to Drive Sales in Costco

Here are key recommendations to drive sales in Costco:

• Invest in paid marketing and advertising: Invest in advertising and promotional deals across Costco’s marketing channels, such as their monthly flyers and e-commerce platform. This is an effective way to promote your product and reach a wider audience.
  
• Leverage your audience: If your product already has a fan following, post content to your most popular social media channels to let them know that they can now find your product in Costco.
• Maintain inventory levels: Ensure you have sufficient stock during busy periods to meet increased demand.
• Be specific to your target audience: The demand for each location varies due to the buying habits and interests of the shoppers in that region. Your ability to pinpoint the specific needs of an audience will give you an advantage.
• Provide value with a unique product: Having a unique product that people love is essential. They are looking for brands and products that sell well. If your brand has an item that sells well in Target or Walmart, Costco will likely want that product.
• Monitor competitor activities: Keep an eye on what the competition is doing that works. Take note on how they are using packaging to attract more attention.
• Work with an experienced packaging partner: Be sure to work with a high-quality packaging supplier and lean on their expertise. They will guide you through the Costco packaging design process and offer ideas and best practices you might have never considered before. They are also your go-to source for getting your products into Costco.

“Many brands are meticulous about achieving the perfect color. Imagine the frustration of waiting for your packaging to arrive from overseas, only to discover that your vibrant red looks more like Barbie pink. This issue occurs more frequently than you'd expect. That's why so many clients prefer working with The BoxMaker. Our precise color swatch tests and color management, G7-certified digital print, and exceptional quality controls deliver peace of mind that the final result will match expectations.”

—Dennis Stokes
Enterprise Sales Representative, The BoxMaker

Success Story: WetFly

The BoxMaker recently partnered with our client, WetFly, to create Costco-specific pallet displays for their Fly Fishing Combo Kit Boxes.

By leveraging our expert structural design team and state-of-the-art digital print capabilities, we designed displays with artwork tailored to different regions, showcasing Trout for the Northwest, Salmon for Alaska, and Bonefish for Hawaii. These displays were customized for various Costco locations to cater to the preferences of fly fishing enthusiasts in those areas. You can find these displays in Costco clubs today.

The BoxMaker: Your Go-To Costco Packaging Experts

Understanding how to optimize your packaging for the key metrics that Costco cares about like sell-through rate and returns is crucial for your product to succeed long-term in their clubs.

Our Packaging Advisors are seasoned Costco experts who have helped hundreds of brands meet and exceed their performance goals in this retail giant. If you want to get your products into the retailer and keep them there after the first season, contact us to get started.