Costco Taps Premium Beauty Growth

An informal survey of consumers reveal beauty is part of their planned purchases when hitting the massive club stores. Mentioned most frequently were Olay products, Neutrogena, and Kirkland house brand skincare and wipes.

But many also mentioned (and were surprised and delighted to find) prestige logos including RoC, Kate Somerville, Perricone, and even SK-11.

Online Costco also offers La Mer, Clé de Peau, and other premium names. Members can access prices online; nonmembers cannot.

Interviews with retail experts, brands, distributors, and shoppers reveal Costco is a savvy beauty marketer. Strict rules are in place to validate that products are fresh (must be produced within 16 months) and not counterfeit—a contrast to nagging problems of online merchants like Amazon.

The retailer puts out a wish list of brands it wants to see on its shelves. Costco wants name brands, although its Kirkland Signature brand is a top performer. Indie brands have been huge producers at specialty and mass, but Costco primarily seeks items with proven track records. There are exceptions such as bioClarity, an indie plant-based skincare brand sold on Costco’s website.

With the beauty business changing as department stores close, there are also more opportunities for Costco to score premium brands.

Costco also cherry-picks only the best SKUs and wants brands to be open to selling online. Anecdotes emerged that Levi’s refused to open the online gates and Costco walked away from a reported $100 million business.

The perks for brands willing to meet Costco’s stringent checklist is tremendous: foot traffic producing big sales and prompt payments said to be unheard of in the industry. There are no chargebacks or returns, which are endemic to mass-market retailing, unless goods are damaged.

“They pay like clockwork. They are great partners,” says one company who has worked for Costco.

Beauty has undergone a metamorphosis over the years. In the beginning, the club dabbled in premium names, such as Borghese and Elizabeth Arden, that caught the attention of shoppers. At that time Elizabeth Arden’s Visible Difference was the buzziest in beauty and Costco offered a two-pack that sold hundreds of thousands of units, sources say.

Hatch Beauty helped clear a path into the business with celebrity hairstylist Orlando Pita (still sold today) and a program called Beauty’s Most Wanted that bowed out in 2013.

A few years later, Costco added lines like SK-II and jumped onto the demand for Asian beauty with a special section. Recently, the company has been working hard to nurture direct programs. Those familiar with the assortment say names such as Perricone MD, StriVectin, Boscia, and Surratt are direct. Boscia co-founder Lan Belinsky told Glossy that Costco was “too tantalizing” to ignore.

Discover Night, a brand that is defined as textiles that interact with skin and hair for beauty and wellness benefits, has been direct with Costco since 2018. Discover Night’s pillowcases and skincare items are a perfect fit for the consumer Costco wants to attract—educated consumers who like the treasure-hunt nature of the clubs. They have a high interest in anti-aging and skincare and do their homework.

“Our partnership with Costco has been and continues to be an important part of our business,” said Kalle Simpson, founder and CEO of Discover Night. “We enjoy working strategically with Costco to provide top quality at a sharp price point. Costco has a great pulse on what their customer is interested in; allowing us to provide unique beauty offerings that surprise and delight.” 

While direct is the direction at Costco, it is not the only path for brands.

The retailer has a separate arm that procures merchandise (National Distributors). There are also vendors of record who are authorized brokers. The process involves making offers on products complete with pricing to see if the deal is accepted. Costco’s team goes to great lengths to confirm validity of products after a sample is provided. The retailer does not planogram beauty and does not have auto-reorders, sources say.

Currently, there is not an emphasis on makeup, rather skincare and fragrances at holidays.

A third party is desired by some brands who can then distance themselves should there be any flack about the brand being sold at wholesale club prices. The system, however, still guarantees consumers will find the real deal in stores.

Last year, Costco introduced Costco Next, a joint venture with retail Platform LiveChannel that could open doors for beauty brands, including emerging lines. Under the program, members have access to buy direct an expanded assortment of brands at value pricing. Beauty brands participating include Sumbody and Zaaina.