To many in the hot tub industry, "Costco" is a dirty word.
Due to its high volume, low margin business model, Costco (as well as other wholesale clubs) is able to offer spas at a lower price than dealers. Those bargain prices may be a boon for shoppers, but for portable spa dealers who try to compete, it's vexing.
"We're out here fighting, and then you've got somebody throwing something up there for $3,999 that just totally negates the value of what we're doing," says Jacque Stauffer, sales manager at Combined Pool & Spa (Sioux Falls, S.D.).
Complicating matters is an open secret: Several major manufacturers have supplied to Costco under different names, a connection that often frustrates independent dealers.
While the spa industry bears a lot of bitterness toward Costco, some dealers are opting to try an unconventional strategy: crossing enemy lines to run sales events within Costco.
Crazy, right? Perhaps not. Here, two dealers share the inside details on how these events work, what they get out of it and, more importantly, whether they'd do it again.
Tubs on Tour
Derek Baum, owner of Spa Express in Cotati, Calif., has a love/hate relationship with Costco. On one hand, he participated in sales events in the early 2000s and knew how good those sales could be. On the other, it never fails to sting when you lose a sale to a big box store.
"It's a pain in the butt when you get customers coming in here and they go, 'Well, I bought this one for $2,295 at Costco, and it's got great reviews,'" he says.
Competition in general is steep for Baum as Cotati is a hotbed for spa dealerships, several of which are on the same block as Spa Express. When his rep told him the brand was participating in a Costco roadshow, with local dealers stepping in to work the events and make sales, Baum was interested.
"Anything to give you an edge is good," he says.
The Costco roadshow program is essentially a "tour" in which participating manufacturers can set up shop within Costco stores across the country and run special events for a short period of time, usually five to 10 days. (If you glance at the Special Events page on the Costco website, you can take a look at the schedule by region; products include mattresses, blenders, grills, hot tubs and more.)
For the hot tub events, the manufacturer finds local dealers, like Baum and Stauffer, to work the show, which helps keep costs down for the manufacturer and, more importantly, gives dealers an opportunity to make sales and build relationships with customers.
While staunchly anti-big box, Stauffer softened on the Costco event idea largely because it presented a unique marketing opportunity.
"I think they told us 80,000 people go through in the timeframe we were there," she says. "And it was a market that we wouldn't normally capture. So we liked it from a marketing standpoint."
How it Works
The actual event process is somewhat similar to working a home show or fair: You move in, set up your tubs — Baum and Stauffer brought in tubs from their warehouses for display at Costco events — and sell to Costco shoppers during store hours.
But unlike home shows and fairs, you don't have to pay for your event space, a fee that could otherwise cost thousands. The caveat, however, is that you don't get to choose where you are positioned on the Costco floor. Depending on the management at your Costco, this can lead to interesting results.
"I've had some Costcos move the displays around — you'll be in one spot one day and then you come the next day and you're in a completely different spot behind the toilet paper," Baum says.
Interestingly, all sales are made through Costco's system, meaning you effectively work for Costco while you're there.
When the event concludes, Costco processes the orders. All tubs are shipped to the dealer, who then does the delivery/install. Stauffer says that final step in the process is the big payoff. It's the chance to get into the customer's backyard and make an impression; it's the opportunity to turn that new spa owner into a returning customer.
"When we deliver that hot tub, we're like, 'Hey, come to our spa school — we do spa schools every Saturday.' You educate them and you help them. And now they're your customer. They're no longer the Costco customer," she says. "They're coming in and they're buying your chemicals, they're buying your patio furniture, barbecue grills and all that because we got them into the store, and we never would have gotten them in if we weren't at Costco."
On a Tight Leash
While Costco events seemingly offer a lot of promise to small, independent retailers — especially as an inexpensive alternative to home shows — the arrangement naturally comes with strings. The biggest of all: Costco sets the pricing on everything you sell.
"You go in and they hand you the price tag to put on your product," Stauffer says. "You can't do anything other than that. It's their price tag and their barcode."
The prices are less than you'd expect, too. According to Stauffer, it's Costco policy that vendor products cost 10 percent less than any price you would advertise.
"It's hard to swallow," Stauffer says with a laugh. "We normally sell from a very different angle of, 'We're not a commodity, this is what we are and this is why we're worth this.' So doing it their way is a bit of a pill to swallow."
Costco also takes a cut of each sale, which Stauffer and Baum estimate at 4 percent. Participating vendors don't get paid until they've delivered and installed all units sold during the event.
"Once we deliver it, we turn in an invoice to them and then they pay us," Stauffer says.
Guest vendors are also prohibited from offering financing during their sales events. Stauffer's event, however, serendipitously occurred when Costco debuted its new credit card, which offers two percent back on Costco purchases. New enrollees, then, could self-finance a spa purchase with the credit card and get money back for doing so.
"If you were buying at Costco that day, it was definitely the best deal you were going to get all year," Stauffer says.
Eyes on the Price
At Combined Pool & Spa, Stauffer focuses on value and the health benefits her spas offer. It's a strategy that's worked, too — Combined Pool & Spa took home Caldera's Dealer of the Year award in January.
At Costco, however, you're pitching to a concentrated audience of price-focused shoppers, and as a result, you need to change your approach. And you may find yourself in some funny situations. For instance, some customers will push you to compete with Costco online — while you're selling in Costco!
"It's an opportunity to educate," Stauffer says, "when people are there saying, 'Well, you're selling this for $5,000, and [Costco has] one online for $2,999. Why wouldn't I just buy online?' It's your chance to say, 'Well, we'll still be here after the sale. After you buy that $2,999 hot tub, who's going to take care of it? Who's going to service it?'"
Despite the reduced prices found at a Costco event, Baum says many shoppers still experience a bit of sticker shock.
"It's a good deal, but you're still within the $5,500 to $10,000 price range, and it's not like something that's $2,999 that people are going to jump on and make an impulse decision," he says. "This is something they look at and go, 'Ok, let's go check the backyard, plant the seed,' and then they've got 10 days to return and finalize the sale."
Is It Worth It?
Analyzing return on investment is never a bad idea. But when thinking about her Costco event, Stauffer takes a holistic approach: It's simply good marketing.
"We sold quite a few tubs at Costco, we got a lot of new customers that we would never have seen and we got some exposure," she says. "It's kind of like doing a home show — people show up three weeks later and they're like, 'Hey, I saw you at Costco.' So we definitely took more of a marketing standpoint on it, with the goal of selling."
"We would definitely do it again," she adds.
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