Costco

Customers wait for the 2016 grand opening of Costco in the Southport West development at Interstate 80 and Giles Road in La Vista.

Kelly Davis has started doing something she once considered unthinkable: buying clothes at Costco.

The 31-year-old had long resisted the warehouse chain’s clothing aisle. She felt weird buying dresses and shirts at the same place that she bought groceries. Plus, she said, “It’s where my mom shops.”

But a pair of Jessica Simpson jeans — light blue, distressed, with holes, for $13 — did her in.

“Costco has really stepped up its game,” said Davis, who lives near Dallas. “The clothes are actually stylish. It’s not just old mom stuff anymore.”

Americans are increasingly picking up tops and trousers from a retailer better known for its no-frills warehouses and bulk everything. Apparel and footwear now generate more than $7 billion a year in sales for Costco; that’s more than Old Navy, Neiman Marcus or Ralph Lauren. Revenue in that category has climbed about 9 percent a year since 2015, outpacing sales growth for food and electronics, according to recent earnings calls.

Across the apparel industry, retailers are going to great lengths to reinvent their stores and websites to keep shoppers interested. But Costco has emerged as an unlikely success story. Its nearly 800 locations don’t have fitting rooms, mannequins or window displays. Instead, clothes are folded and piled high on tables. It carries such brands as Tommy Hilfiger, Eddie Bauer and Calvin Klein, as well as its own Kirkland Signature line.

“Costco has quietly become an apparel destination,” said Simeon Siegel, a retail analyst for Instinet. “It is clearly resonating with shoppers and winning over brands at the expense of department stores.”

Dozens of major retailers, including Sears, David’s Bridal and Gymboree, have filed for bankruptcy in the past two years. Others, like Macy’s and J.C. Penney, are closing hundreds of stores as they try to figure out how to win back shoppers who have moved online.

Costco, though, continues to do about 95 percent of its business in-store. Its 85 million members pay an annual fee, which starts at $60, to buy groceries, electronics, household items and clothing at near-wholesale prices.

“Costco does a good job of getting products customers want,” said Joe Feldman, a retail analyst for Telsey Advisory Group. “Lucky Brand jeans happen to be in the store this week, or North Face jackets. You see people coming back for the treasure hunt.”

Low prices don’t hurt, either. Costco is able to offer some of the best deals in the industry, analysts said, because it caps its profit margins at about 15 percent. North Face men’s jackets were recently selling for $69.97 on Costco.com (compared with $149.99 elsewhere on the Internet), while Adidas women’s slip-on sneakers were priced at $24.99 (versus $60 on Adidas.com).

The company also has massive bargaining power. Its $141 billion in annual revenue makes it the nation’s fourth-largest retailer, behind Walmart, Kroger and Amazon.

“I wouldn’t say Costco has an extensive range of fashion, but it is adding new colors and silhouettes,” said Wendy Liebmann, chief executive of the consultancy WSL Strategic Retail. “It has become a viable place for people to buy clothing.”

Costco stores, analysts said, have become an attractive destination for brands to offload unsold merchandise without tarnishing their reputations.

“If you’ve got a lot of inventory, dropping off a pallet at Costco and having it disappear by the end of the weekend isn’t the worst thing,” Siegel said. “It’s a way to move goods without hurting your brand.”

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