Hey, Macy's and Nordstrom: Costco is on your heels

When it comes to clothing, Americans want nice threads for little money. As the big-box wholesaler steps up its fashion lines, it could start outstripping the competition.

By Jim Cramer Nov 1, 2013 10:32AM

A Costco Wholesale store in Illinois © Tim Boyle/Bloomberg via Getty ImagesIt's not that Americans don't want apparel. They just want to pay very little for it. That's one of the many things I learned from Craig Jelinek, the chief executive officer of Costco (COST), when I visited the company's Harlem store Thursday.

 

He said apparel has been the standout performer of late, and when you look around at his selection, you notice that Costco has taken the quality up a notch while really driving down the prices. For example, Costco is selling $1,000 Versace handbags for $500. The store just got in some killer Italian ties that look no different from the Ferragamos I wear, for 1/10 of what I pay for the name brand. The Kirkland signature dress shirts are so similar to what I buy at Saks (SKS) that you can't tell the difference, except they are 1/4 the price.

 

I have to believe that with 50 million members in the United States who are seeking to get their money's worth from their dues, Costco is taking a huge share from traditional retailers with these kinds of products. There's enough selection now -- much more than I have ever seen -- and enough famous brands, as well as the Kirkland private-label version, that I think Costco may actually be helping to reorder the apparel universe along with TJX (TJX) and Ross Stores (ROST).

 

Costco did confound me with its call that televisions are weaker. Could more people be going to Best Buy (BBY) this year now that it discounts so effectively? But Jelinek did say that tablet sales are very strong, so it isn't a revulsion to hardware.

 

And I don't want to draw much of a conclusion from Costco about PVH (PVH) and V.F. Corp (VFC). They've become big international companies that are more levered to overseas than to here.

 

But still, you can see Costco really giving Macy's (M) and Neiman's and  Nordstrom (JWN), not to mention Penney's (JCP), a real run for their money.

 

I think it's a game changer that simply isn't getting talked about enough, considering the power and reach this membership wholesaler has in this country.

 

Jim Cramer's headshot


Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long COST and TJX.

 




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86Comments
Nov 1, 2013 12:04PM
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Quote: "It's not that Americans don't want apparel." - end quote

.....but Jim, maybe your next sentence should be:

"but because they don't have much disposable income anymore, they're wearing what they already have in their closets and drawers"

When the middle class is strong again, we will replace our worn out threads. I'd much rather buy quality apparel than fashion apparel that won't last.....and make it Made in USA.

Nov 1, 2013 3:31PM
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And the Costco owner is paying workers benefits and a living wage!
Nov 1, 2013 12:23PM
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I have an old coat, insulate jacket and had a sweatshirt hoodie...Probably both bought at Penneys or Sears...They are over 35-40 years old.

They are worn, ripped up from briars and barbed wire fences..

 

I got a couple of new hooded sweatshirts over last Christmas or so...Miss Lilly threw my old hood away or put it  in cat shed..

The new hooded one lasted about 20 pulls on the zipper before it broke, no one fixes zippers..

I keep my old coat hid and warned her of consequences if it disappears.

They don't make decent clothes anymore unless you pay a fortune for them, then they are questionable at best..

Nov 1, 2013 10:37AM
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everyone knows now most products we see are made in china, or vietnam or india or some other child slave labor country. 

 

therefore we do not expect to pay crazy money for the same articles ~ handing cash to the latest overpaid CEO. 

 

the stores opened their floodgates to cheap labor.  now we want to see cheap retail prices as well. 

 

VERY cheap retail prices. 

 

we need SOMEthing for our sever reduction in american jobs.

Nov 1, 2013 12:07PM
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I have been a Bill Gross admirer for many many years and after reading his piece on income inequality yesterday I understand why even more.But like my mother always used to say "the road to hell is paved with good intentions".  If I could envision a better world we should have a National goal of correcting the evil unsavory inequality Mao described as the evil of capitalism. Profits for all Americans would be a noble higher order schema. We have work to do folks. We need a new politics for everyone to believe in.   jmho
Nov 1, 2013 1:42PM
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Costco's genius is their business model which charges a fee starting at $55 annually to shop there.  I've read that virtually 99% of their profit margin comes from that fee.  Without it, they wouldn't have survived a week.  That's not a business model that obviously Macy's or any other retailer can duplicate.  The consumer would not pay a membership fee to shop at Macys or JCP or even Nordstrom.  Costco is indeed a very unique retailer.
Nov 1, 2013 11:47AM
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LONDON, Nov 1 (Reuters) - Britain's Barclays has suspended several traders amid multiple investigations into possible manipulation of benchmark foreign exchange rates, a banking industry source said on Friday -- but the SEC has not the courage to investigate the obvious market manipulation on Wall Street.
Nov 1, 2013 10:47AM
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They increase profit margins for a reason buddy, they don't care if you and I have to pay a nickel or dime more....Or get big packaging with less net ounces in it...

 

Lumber has gotten smaller, metal has gotten thinner...Or replaced by tough plastic, until you get in a wreck...

Even Twinkie wrappers are 20% bigger then they need to be; A one pound box with 13 ozs. inside?

Nov 1, 2013 12:24PM
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ABS finally gives a hint to the type of business he owns.
Fat Cat up to his usual nonsense, adding absolutely nothing of value.
Nov 1, 2013 11:22AM
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Cramer is completely missing the boat.  Costco has had a great run for 4 years now, and it has very little to do with their apparel sales.  Most of Costco's great run can be attributed to a key decision they made in late 2009 - they started taking food stamps.  Look at how the stock performed before and after that point - pretty much tells you everything you need to know.
Nov 1, 2013 2:38PM
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I have no dog in the fight pertaining to Costco...Only been in one, with friend.

Don't shop there and don't own the stock...Although it is an excellent Company in my opinion.

 

Yes the textile industry has died a slow death since the 70s and 80s, along with clothiers..

BUT it was not only about Unions..

A great penetration by foreign products by discount stores and others, brought most of demise on.

Unions contributed, but if you think workers should work for 1.50-2.00 bucks an hour back in the 80s then maybe you could say you were right.

Then we could have the "sweat shops " here instead of India, Pakistan. Mexico, S.America and most of Asia or Pacific Rim.

Plus the quality of cloth had to really go down, I believe cotton had a lot of subsidies back then also in the U.S.

It was an Industry that couldn't adjust, much like the auto manufacturing...

 

Nov 1, 2013 12:01PM
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Problem with places like Costco wanting to get bigger in clothing or accessories along with driving prices down or wholesale prices...Is the Product has to "be made cheaper."

 

Lower thread counts in materials...

Less wool or cotton in apparel, more polyester or something similar.

Thinner leather or cheaper tanning..

Dyes that don't last or are not steadfast.

Cheaper made buttons and zippers, less thread or sewing holding them on.

 

When these big wholesalers got into more clothing, K-mart, WalMart, Target, etc..

The American textile industry  pretty much disappeared.

And much of clothing was offshored.

Nov 2, 2013 3:29PM
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WE, Americans, want products made in the USA!  Bring back the factories here and let's grow our middle class again for without it we become a country like Mexico.  We don't want products made in China or for that matter Vietnam, India or wherever else.  Let's make America #1 again!!!  We do it better here in the good ol' USA!
Nov 1, 2013 6:55PM
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I love Costco. It is great for my family of seven. I buy my kids and myself clothes there all time. They are a good quality and value. You can buy Levis for kids for $15 and at other stores they are $30 and up.
Nov 1, 2013 12:24PM
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Jim really likes Costco. It's a mystery to me why so many people somehow believe that the Costco shopping experience is unique. In my humble opinion, as a member, the values that Costco offers are few and far between unless you are a business able to use the un-reasonably large quantities that they sell. Their merchandising efforts are poor at best......ever changing and keeping the member confused about the location of their favorite products. This is to keep you shopping and searching the store longer. The real story here is.... "is it worth it" ???  For me not so much.....but I do own the stock.
Nov 1, 2013 5:24PM
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"It's not that Americans don't want apparel. They just want to pay very little for it".  Well, with ObamaScare and part-time jobs, what do you expect??  They're lucky they can pay for anything!
Nov 1, 2013 5:18PM
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americans want everything for nothing (or almost nothing) and that is the problem!
Nov 3, 2013 7:53AM
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Costco's prices are so good that 2-3 years ago I bought 2 pairs of nice jeans I couldn't fit into because I was sure I was going to lose the weight and the prices - something like $8.99 - were too good to pass up.  The diet I was on fail - as well as the next one.  Then a year ago my PCP challenged me, as a scientist, to make the next one work.  Somewhere during the summer those jeans finally fit perfectly!

I've lost 53 lbs over the past year by Calorie Counting, drinking more water, eating more soups and stews, no snacks until after dinner, and trying to eat more Mediterranean with more fish (only 20-22 Cal/oz. and $2.50-$4/lb at Wally World) and more veggies.

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