Labels: [Sourced] checked against a source listed at the end. [General] standard industry knowledge. [Our view] opinion, labelled as such. [Illustrative] made-up numbers to teach an idea.
1. The story: Costco and the discipline of saying no
Costco began operations in 1983 in Seattle, and merged in 1993 with The Price Company, which had pioneered the membership warehouse concept in 1976. [Sourced: Costco 10-K, fiscal 2003] Its filings still describe the idea: low prices on a limited selection of national-brand and private-label products in a wide range of categories produce high sales volumes and rapid inventory turnover. Costco says it limits most items to fast-selling models, sizes and colors, and carries fewer than 4,000 active SKUs per warehouse in its core business, compared with 9,000 to 10,000 SKUs online. [Sourced: Costco 10-K, fiscal year ended Aug 31, 2025] Its store brand, Kirkland Signature, took a couple of decades to get right, according to CNN, and was $58 billion in sales, around a quarter of revenue, in the year CNN reported on. [Sourced: CNN Business, Feb 5 2022; figures as of that article]
Lesson: choosing and sourcing are the same decision. Fewer items, bought in volume, with your own label, changes cost, power and the whole supply chain. [Our view]
2. The one idea
Buying decides what goes on the shelf; sourcing decides who makes it, where, and at what landed cost. [General]
3. The kitchen-table version
You can buy lemonade at the store, or buy lemons and make it. Store lemonade costs more and takes no effort; making it costs less and takes work. A retailer's version: buy a known brand, or have a factory make one under the store's name.
4. The buyer's job [General]
Choose assortment, negotiate price and terms, set cost-of-goods targets, manage vendor performance, and plan margin with the merchant team (Modules 6, 17A).
Negotiation is not only price. In grocery, suppliers also pay allowances for shelf placement; the FTC studied slotting allowances in a 2003 staff report to Congress based on case studies of five product categories. [Sourced: FTC 2003] Other terms: payment days (Module 14), minimum orders, returns rights, delivery windows (Module 8).
5. National brand vs private label
In 2025, US store-brand sales hit a record $282.8 billion, up 3.3% in dollars against 1.2% for national brands. [Sourced: PLMA, Jan 20, 2026; PLMA is a trade group for store brands]
Worked example [Illustrative, computed by script]. Our bottle sells for $12 with cost $5: gross margin = 58.3%. A store-brand version costs $3.80 and sells for $9.99: margin = 62.0%, in dollars $6.19 vs $7. The retailer earns a higher percentage but fewer dollars per unit, so it needs more volume or the shopper's trust. [Our view: judge by dollars and volume, not percentage alone]
6. Landed cost: the real price
Landed cost = product price + freight + duty + other handling.
Worked example [Illustrative]. Overseas factory quote $3.20 each (FOB, meaning delivered to the ship). Freight $0.45, duty at an assumed 7.5% of FOB = $0.24, other costs $0.10. Landed cost = $3.99. A domestic quote of $4.10 looks more expensive but arrives faster, ties up less cash, and needs smaller orders (Modules 9A, 14). The right answer depends on more than $0.11. [Our view]
7. Sourcing risk [General]
Single-supplier dependence, long lead times, quality, ethics and compliance, currency. Spreading orders across two suppliers costs some price but protects against disruption.
8. Where AI fits
- Reading supplier quotes, contracts and compliance papers. [General]
- Forecasting landed cost and lead-time risk. [General]
- Negotiation and quoting agents on both sides (Module 21). [Our view]
9. Exercise
Take any item you buy. List three alternative sources and guess landed cost for each. Which would you choose, and why?
10. Quiz
- Difference between buying and sourcing? What to sell vs who makes it and at what cost.
- What does landed cost include? Product, freight, duty, handling.
- Why can a higher margin percentage earn less money? Lower price, fewer dollars per unit.
- What did the FTC study in 2003? Slotting allowances in grocery.
Sources
- CNN Kirkland: https://www.cnn.com/2022/02/05/business/costco-kirkland-signature
- Costco 10-K FY2025: https://www.sec.gov/Archives/edgar/data/909832/000090983225000101/cost-20250831.htm ; FY2003: https://www.sec.gov/Archives/edgar/data/909832/000119312503085292/d10k.htm
- PLMA: https://www.plma.com/article/us-private-label-industry-reached-2828-billion-sales-2025
- FTC slotting report: https://www.ftc.gov/reports/use-slotting-allowances-retail-grocery-industry