Costco Playing Hardball with Apple Over iPad Snub?

October 19th, 2010 · 15 Comments

Rumors are going around about how Costco will be responding to Apple’s snub by not allowing them to sell the iPad.  As you probably all know, the iPad is the latest cool, must-have gadget from Apple.  It looks cool, it’s useful, and it’s what lots of people want for Christmas, their birthday, or just because.  In recent weeks Apple has released the iPad to major retailers in North America to sell, with a big exception: Costco.

Not coming to a Costco near you.

Not coming to a Costco near you.

Even though Costco is the number three retailer in the US, and number seven world-wide, Apple has decided to not allow them to sell the iPad, in favor of retailers like Walmart, Sam’s Club, Best Buy, and Target.  And this is despite the fact that Costco currently sells the other big seller for Apple, the iPod; they also sell the iPhone in certain areas.  So, as you can guess, Costco is less than pleased with Apple’s snub.  And the rumor going round from iLounge, is that Costco has decided to stop selling Apple products.  They will sell through their current stock, and once it’s exhausted there won’t be more coming.  And don’t go looking for the iPod on Costco.com anymore, because they’ve already removed it from there.  The only Apple product left at Costco.com is iTunes gift cards.

So, the question is, at least for me: why would Apple do this?  Is it not better to sell your gadgets at the widest array of retail stores?  My speculation would be that this had more to do with strong arm tactics from Walmart, something for which they are widely known.  I mean, if you’re being snobby (as many are saying) about where you are selling your items, I don’t think you’d choose Walmart and Sam’s Club, as neither is known for their selling of high-end or exclusive products, unlike Costco.  My other thought would be that Apple was irritated that Costco sold the iPod for too little and made the Apple stores look grossly over-priced in comparison.  But all of that is just speculation on my part.

This is reminiscent of the situation with Coke and Costco in 2009, when Costco decided to stop selling Coca-Cola until they got the same pricing as other retailers.  In that event, Coke eventually came to an agreement with Costco.  Hopefully, Apple will come around too, but that might not be enough if they don’t get the iPad into Costco before the holiday selling season.

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15 Responses so far ↓

  1. 1 realist // 2013.06.17 at 11:19 pm

    LOL Costco is dking fine and I went to Costco and people were lined up for Samsung… Costco is way bigger Market than Sams Clubs and Samsung sells way more than Apple.

  2. 2 brian // 2011.03.11 at 1:54 am

    I heard about Costco dropping Apple last fall and is bigger than just the iPad. I believe that Costco was looking to have a full line of Apple products including computers, iphones and the new ipad. Sinegal himself met with Steve Jobs and was not able to convince Jobs to open up to Costco as Apple was apparently concerned with the low margin that Costco sells at and that may undermine other Apple retailers. It is quite hypocritical of Apple to do business with Sam’s and not Costco as they are an extrememly similar business model. Perhaps Apple will come around. Costco has a reputation of making manufacturers do that. Originally with Bose, then Sony then everyone else, Costco would buy their product through diverters, then warranty the merchandise themselves. Those of you who are long term Costco members may remember the signs posted, “This Sony item is not purchased by or warrantied through Sony USA but is warrantied by Costco”. Eventually the manufacturers bowed to the pressure and began dealing Directly with Costco. Who knows, there might be a few “Apples” on the shelves at Costco sometime soon.

  3. 3 Costco and Apple Officially Part Company | Addicted To Costco! // 2010.12.10 at 6:46 am

    […] confirmed that Costco is phasing out Apple products from their warehouses.  As you may recall, I posted about this rumor a while ago.  At that time, the rumor was that Costco was going to discontinue selling Apple […]

  4. 4 Randy Singer // 2010.11.17 at 12:24 am

    Interestingly, people are reporting that today they have received e-mails from Sam’s Club saying that many Sam’s Club locations will be carrying the iPad.

  5. 5 OutriggerHawaii // 2010.11.04 at 2:18 pm

    Costco offered free LIFETIME assistance through their Concierge Service if you bought an iPod from them. Besides the lower price that is what made it so attractive to purchase Apple products from Costco. And of course, their famous return policy. The truth is that Microsoft has so improved the Zune that it is now in many ways superior to the iPod line. Can you imagine the impact if Costco replaced all those Apple kiosks at their warehouse entrances with Zune kiosks? Microsoft could buy market share by selling them at cost, and hoping to make up the difference with music downloads.

  6. 6 CostcoFan // 2010.10.27 at 6:25 am

    You are best of buying apple products at the Apple store. Costco’s tech/electronic offerings are not that great anyway and there usually no one to be found to answer questions about any of their products.

  7. 7 #1 Costconian // 2010.10.21 at 12:47 pm

    I am so-o-o-o-o sad to hear this.

    I know that we were looking for an iTouch recently and they have “sold out” at our store. My large family is very much a techie family and they love their i-thingies!

    Hopefully time will show that this isn’t the best of moves…..

    I have a membership at Sams as well (for items not able to be purchased at Costco) for more years than Costco….but have never preferred their return policy even tho they claim it is like Costco’s – nor their overall customer care. So……we will not support this move and purchase there!
    Arghhhhhhhhhh!

  8. 8 Randy Singer // 2010.10.21 at 4:01 am

    Apple isn’t known for playing favorites. They also aren’t known for bowing unnecessarily to pressure. And they aren’t known for capricious business decision.

    I think that the biggest clue in the article above is:
    “My other thought would be that Apple was irritated that Costco sold the iPod for too little…”

    Apple IS known for coming down hard on partners and resellers who violate agreements.

    One of the biggest things that Apple almost maniacally enforces is keeping retail prices fairly uniform. In the trade this is known as “protecting the market.” Protecting the market for a popular product really endears a manufacturer to retailers. If one retailer starts selling products for a lot lower than all of the competition, all of the competition has to start selling the same product for less to compete, and they all make less money. This doesn’t simply hurt all the retailers, it hurts the manufacturer, because suddenly every retailer everywhere has less incentive to carry the manufacturer’s goods as they are making less money on them.

    A number of years ago Sony was selling their popular car stereo products to any retailer who wanted to carry them. You could even find them at your corner drugstore. This led to lots of discounting as the market was glutted. The result? For a while NO ONE wanted to carry Sony car stereos. There was no money to be made selling them and retailers were now wary of carrying Sony’s products because Sony had managed the market so poorly. It took Sony years to build their car stereo division’s reputation back up after this. Today, having learned from their mistakes, you will only find Sony’s best car stereo equipment in select specialty stores, and they have an entirely different line that they sell to a select number of cut-rate stores like WalMart.

    Manufacturers aren’t allowed, by law, to tell retailers what they can charge for an item. To get around this manufacturers do two things. First, they make retailers sign what are knows as MAP agreements. (Minimum Advertised Price agreements.) The thinking is that if a retailer can’t advertise a big discount, they won’t attract a lot of customers in to purchase the product at a discount, so there is not a lot of point to discounting the product at all. If you have the same number of customers for an item one way or another, you might as well keep the price high and make more profit. The thing is, MAP agreements might not work with a retailer with a lot of word of mouth advertising, and foot traffic, like CostCo.

    The second thing that manufacturers do to keep retail prices up (legally) is cut off any retailer that discounts too heavily. Remember that discounting ruins things for all other retailers. Often other retailers tell a manufacturer “we won’t carry your products unless you cut off that company over there that discounts heavily and ruins it for all of us.” So it isn’t unreasonable to presume that Walmart told Apple that, as the world’s number one retailer that they wouldn’t carry the iPad unless Apple cut off CostCo because they would sell the iPad too cheaply. The thing is that it is probably likely that Target, BestBuy, Verizon, and every other retailer also told Apple the same thing. It wouldn’t be a stretch to guess that Apple made a decision to cut off CostCo in order to secure a lot more retail locations total.

    In the end, it isn’t logical to conclude that Apple cut off its nose to spite its face. More likely CostCo wasn’t willing to play the game like every other retailer and Apple came down on them. Apple is well known for making this sort of business decision and that is one of the big reasons that they have become such a successful company.

    You may tend to want to be angry at Apple for this, thinking that you would have liked to have been able to purchase Apple’s products from CostCo at a deep discount. But, if you check out what sort of products tend to be deeply discounted, they tend not to be popular, quality products. Products that are commonly available at deep discounts tend not to survive. They are replaced by other products, usually from other manufacturers, that can be sold cheaper. In time that sort of cycle leads to products that are garbage. Apple doesn’t sell products based on having the lowest price. They sell based on quality and user satisfaction. Apple is a smart enough company to follow the course that will keep them around for the long term.

    Personally I’m not too upset by this. I think that I’d rather purchase my Apple products from an Apple Store anyway. I don’t need to get everything I buy from any one store.

    ___________________________________________

    Randy B. Singer
    ___________________________________________

  9. 9 Clue // 2010.10.20 at 11:41 pm

    Apple needs Costco a lot more than Costco needs Apple. This is just Steve Jobs being his usual azzhat self.

    All of which is which I told my darling spousling that while I appreciate the thought, he is NOT to buy me an iPad for Christmas this year as previously planned. We’ve also agree that none of our money will be spent on on any other Apple product.

    We’re over Apple and the arrogant Mr. Jobs. Costco and Mr. Sinegal have our loyalty, along most of our gifting budget this holiday season!

  10. 10 Kimberly // 2010.10.19 at 3:11 pm

    @Laura, thanks for the tip. I fixed the iLounge link.

    @Colleen, I honestly have no idea I was just guessing. I know that Walmart/Sam’s Club has a real hate for Costco and they have used their weight to try to get other manufacturers to not sell things to Costco. But it could be anything really. There’s some reason, I’m sure, because Apple doesn’t seem arbitrary or like they are winging their marketing at all, so there’s some cause.

    With regards to the picture, I’ve updated it now. The previous one was from a pre-release review article from a technology site.

  11. 11 Colleen // 2010.10.19 at 2:28 pm

    Oops, I forgot to mention – that’s not an iPad in the picture accompanying the post. Looks like something someone might have made up in Photoshop to guess what an Apple tablet would look like before the iPad came out.

  12. 12 Colleen // 2010.10.19 at 2:24 pm

    Walmart offers iPods for a lower price than Apple does, too. Target is always offering rebate gift cards with iPod purchase. You don’t save particularly much buying an iPod from Costco anyway – about as much as you’d pay in sales tax in many states. Besides, if Apple wasn’t happy with how Costco priced iPods, Costco probably wouldn’t have any iPods to sell.

    I also think that Walmart would have blocked Target from getting the iPad as well if they were trying to manipulate distribution, considering Target is their chief competitor in the big-box arena. Besides, how likely is it for control-obsessed Apple to kowtow to Walmart? They’ve sold millions of iPads already without Walmart distribution, so it’s not like they’d be hurting this Christmas without either Walmart or Costco.

    There must be another reason. Placement in store (Best Buys practically have mini-Apple Stores set up for display)? Kickbacks (like Apple used to get from AT&T for the first non-subsidized iPhone)? Market saturation (in the area I grew up in, there are several Walmarts, a Sam’s Club, a Best Buy, a Target, many Verizon and AT&T stores, but not one Costco [or Apple Store] within an hour’s drive)? Or they might be rolling it out slowly.

  13. 13 Laura // 2010.10.19 at 1:59 pm

    Fascinating. I don’t have an iAnything, but if I did I’d have bought it through Costco.
    Psst, your iLounge link has an extra http.

  14. 14 Kimberly // 2010.10.19 at 11:36 am

    Yes, I’m positive that Apple gave it thought & it isn’t just an oversight. They’re either punishing them for under pricing the iPod or they’re giving into Walmart’s demand to not sell to Costco.

  15. 15 Justin // 2010.10.19 at 11:31 am

    Apple is very aware of everything they do, so they would have seriously put some thought into why they snubbed costco.

    Frankly, I think Apple is the new Sony, overpriced and proprietary and they think they know better about what you want and wouldn’t buy an iPad anyway!

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