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6 Things You Didn't Know But Always Wondered About Costco

Len is the publisher of online magazines and an internationally published author, photographer, and videographer. He is a Costco expert.

Making a return at Costco? Find out where it goes

Making a return at Costco? Find out where it goes

1. What Does Costco Do With Returns?

If you are curious like me, you want to know what happens to all the items that are returned to Costco. After talking to my local store manager, I found out.

  • Food of any sort usually gets trashed, with the exception of canned or some fully sealed products. Of course, this is for your health and security. Costco is not always able to determine if a product has spoiled or been tampered with, including frozen food, fresh fruits and veggies, meat, and many other items, so they throw them out. Even many food items in sealed containers are disposed of.
  • Opened boxes are examined and they will ask if anything is wrong with the item or if is it defective. If it is defective, they mark it not suitable for sale and it will either go back to the manufacturer, it will be disposed of, or it will be purchased by another company (some will refurbish it and resell it and others will sell it as is). I asked how Costco prevented those damaged items from being returned to Costco again and was told they have a very strict vetting process to make sure that those companies they sell to are legitimate and that these items won't come back to the stores again.

Returns Without a Receipt?

Costco has a computer record of every item a member has purchased in their system. If a member returns an item without a receipt, the staff member will search for it in your account to verify you purchased it, the date of the purchase, and the price.

2. Who Takes the Loss on Returns?

Who takes the loss on a returned item? Well, usually the vendor will.

A small percentage of items are returned and this is taken into account when they price the items. Some vendors ask Costco to simply let them know how many of each item was returned or discarded and simply give Costco the proper allowance. Others ask for the items to be returned to their facilities, but this is usually on larger or higher-priced items or electronics.

On Costco's direct imports, Costco simply takes the loss.

When you return a set of eight drinking glasses because one was broken, you can bet the other seven will show up at a flea market, on the internet, or in a store that purchases these from Costco at a very low cost.

Costco knows the numbers to the penny, and that includes the amount they need to make on every item and the returns expected on each item, so all of these numbers are calculated for their selling prices. If there are items that keep getting returned, you can bet Costco will pull them from the stores and return them to their vendors.

3. Costco Doesn't Practice Deceptive Marketing

Costco really wants their customers to save money, but they don't want to use the marketing ploys of other retailers that overprice their items 200% or more and then offer sales. These are not really sales—they are, in fact, deceptive marketing tactics and simply a way to fool the customer into thinking they are getting a deal.

Many retailers are guilty of this practice. You know who they are. Some of the worst offenders constantly run sales offering 10 to 30% off if you bring the lucky peel-off coupon or buy $50 and get $10 free (and the $10 coupon is only valid during a week they don't offer any other discounts). These stores also invent their own listed "retail" or "compare at" prices. It is not uncommon to find many items priced 30 to 100% higher than the manufacturer's suggested retail prices (MSRP). This, of course, is done to enable them to offer up to 30% or more on their so-called "sales."

Another technique by a well-known clothing chain is their "buy one (or two, or ten), get one free" sale, which means they have priced every item at double or more than the fair retail price only to push you into buying extra items at what would be the regular price at another store.

Do you really want to shop at a retailer that attempts to fool you with these tactics? I know I don't and have stopped shopping at these stores for just this reason. How can customers be so unaware of the value of products in this day and age when a simple internet search can show what any item might cost?

Be a smart shopper and know that when you buy at Costco, you will receive one of the best prices on that item. On most items, they only take a 10-15% markup over their costs and you can bet that with their purchasing power, their costs will be lower than most other retailers.

4. Costco Doesn't Always Have the Lowest Price

Yes, it is true, Costco doesn't always have the lowest price on everything they sell. There is a very good reason why Costco may not have the lowest price on a particular item or may not carry some products at all. Some manufacturers refuse to sell to big box stores for fear of disrupting their normal retail channels. Another reason is that some smaller manufacturers simply aren't big enough to fill Costco's needs.

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Costco probably has the "biggest pencil" and can write the largest orders, but it is not wise for some companies to ramp up for Costco and have 80% of their production go to Costco at low margins. For this reason, many importers will take orders, work on a tight margin, and design products just for Costco. They basically give Costco a license to use their designs and label.

Why Costco May Charge More Than Others

Some smaller chains receive special deals from manufacturers on regular, close-out, or discontinued merchandise. These stores pay less and then pass those savings on to their customers. Costco is so large that they may not be able to do this because the manufacturers don't have enough of that item to satisfy Costco's needs.

Another reason you may find a lower price is that some retailers will use an item as a "loss leader" or because they received a special deal from their suppliers.

Loss Leaders

Everyone who shops on Black Friday knows what a "loss leader" is (even if they've never heard the term before). It's when a store offers merchandise below its actual cost to lead shoppers into the store because they know that once they are there, they may purchase other items. Smart customers can take advantage of loss leaders by only buying those sale items.

How does Costco get luxury and designer goods and are they really a good deal?

How does Costco get luxury and designer goods and are they really a good deal?

5. How Does Costco Get Luxury or Designer Goods?

If Costco wants to carry an item it can't purchase directly through normal channels from the manufacturer, it may decide to purchase from a third-party seller. This practice is called buying grey market goods (also known as parallel market merchandise) and it has long been a common practice for many retailers.

Grey Market Goods: What Are They?

This is how it works: A company that meets the manufacturer's criteria to become a dealer purchases a product from the manufacturer. Some dealers, both here and overseas, will then offer their authorized merchandise to other retailers that don't qualify for a dealership. This often happens when the price of an item is significantly higher in one country than in another. This also occurs because of the monetary exchange rates between countries. It is common with electronic equipment, cameras, and luxury brand items like watches.

So Costco looks for a retailer or wholesaler abroad that has the products at a lower cost than available in the US. They will then import that item from the authorized retailer or wholesale dealer. Once the merchandise is in the US, Costco can sell it without any manufacturer's restrictions, often at lower prices than those offered at authorized retail stores.

For example, photographic equipment manufacturers have always offered grey goods. To fight this problem, the US distributors of the major camera companies refuse to repair grey goods. To offset this issue, some dealers (like Costco) offer their own equivalent warranty.

Costco buys grey goods from Omega (watches) and Waterford (crystal), among other luxury items. Costco believes that manufacturers should not control retail prices and that consumers should be able to buy from whomever they want and should not be required to pay higher prices. If a consumer is offered the same product at a significantly lower cost with the same or better warranty, then they should be able to make that decision.

So if Costco doesn't have the lowest price on a particular item, or if they don't carry every item, this could be one of the reasons.

Remember that for whatever you buy from them, Costco offers incredible satisfaction guarantees that no other retailer can offer.

6. Costco Doesn't Push Additional Insurance Plans

Unlike many other stores, Costco doesn't try to sell you an additional insurance or service policy for their products. All items you purchase at Costco include their Costco Satisfaction Guarantee.

Have you ever gone to the register at an appliance or electronics store and were asked if you would like to purchase their extended warranty? Go to Sears, Best Buy, or even the Apple store, buy their warranty, and expect to pay 10-15% or more on your purchase.

Satisfaction, Price, and Return Guarantees

Satisfaction, Price, and Return Guarantees are included on all items purchased at Costco. However, check the guarantees on some electronic, computer, or camera items, as they may vary from the regular Costco guarantees.

Answers to More Questions About Shopping at Costco

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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.


Jane Fox on August 21, 2019:

How do you find the stores that resell returned items?

Len Rapoport (author) from New Jersey on February 20, 2019:

Hard to say for sure. They might have a return policy with the vendor, or if not they have vetted buyers that will take their merchandise for resale. They make sure the vendors sell it so that it will never be returned to a Costco store. This goes for their damaged merchandise as well.

Reya on February 18, 2019:

For instance where do they return their beauty product, the one that were never sold?

Helen on January 21, 2019:

When cookware, dishes or kitchen appliances are returned, do those items get restocked? How does Costco determine that they haven’t been used?

Nina on May 06, 2018:

How does it import goods like olive oil etc

Gale Egoville on February 17, 2018:

I found a recliner at Costco and when I went back 2 days later all of them(3) were gone. I checked as instructed, 2 Costco stores with no luck. Is it possible to buy merchandise that has been sold or removed to make room for new items?

Thank you

Joallo on November 01, 2017:

Thanks for this info. Very interesting.

However, you are confusing the use of the words, "then" and "than." It's worth correcting.

Chad on September 08, 2017:

Revise your "then" with "than."

What happens with electronics on September 06, 2017:

Hi, where does all these hi-tech returns go after being returned to costco?

Len Rapoport (author) from New Jersey on August 10, 2017:

Food is thrown out...especially returns. They cannot resell them for safety and other reasons. Imagine someone returning food that they laced with poison...all stores that get opened food returned must throw it out. The health and liability would be enormous if there was a situation with returned food that was resold.

James on August 01, 2017:

What happens to unsold fruits and vegetables?

Sara on April 14, 2017:

Great article-but what about all the waste that is created by returning food items? Where does this go?

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