An article from our friends at CMG tipped us off to the fact that Zero Motorcycle has begun promoting its electric motorcycles through several Costco stores in Canada. Taking a page from Kawasaki’s playbook in working with Costco (which is itself a take on what automobile dealers have been doing with the warehouse brand for years), Zero currently has displays in six Canadian Costco warehouse stores, working as a part of the wholesaler’s Membership Benefits Program. Like the Kawasaki program, Costco isn’t actually selling Zero Motorcycles, but instead Costco members recieve a special value package if they purchase a Zero through the promotion.
If that raises your eyebrows, here is a quick primer on the Costco business model. Generally speaking, Costco keeps its company very efficient and lean by keeping very low inventories — I’ve heard it quoted that the company won’t carry more inventory than what it can sell in one to two weeks. Helping drive that turnover are the low prices that the company is known for, but instead of doing a high volume/low margin sales approach, Costco’s true bread & butter is its membership fees.
With the margin on goods equaling roughly the cost of keeping the lights on and the employees paid, profits are generated by the yearly membership package one has to have in order to shop at the wholesaler. Thus to help drive membership sales (and its bottom line), Costco created its Membership Benefits Program, which brings special deals to Costco members, like the one seen here with Zero Motorcycles. Unlike Brammo’s Best Buy conundrum, Costco is not actually a point-of-sale in this situation, and thus avoids a bevy of legal entanglements as well as poaching customers from local dealers. Instead, the program actually enhances sales for a local dealer.
With Costco’s high-traffic stores, a dealer can cast a larger sales net on a plethora of potential customers. All an interested Costco buyer has to do is go down to the dealer, flash his/her Costco card, and in the case with Zero, take a roughly $1000 package in after-sale goodies (this varies by model, see the flyer attached below). What’s really interesting for electric motorcycle companies is the potential to capture non-riding customers. This creates a solution that has all the strengths of Brammo’s Best Buy model where displays are in non-traditional marketplaces, but none of the drawbacks like dealer certification, dealership territory laws, educating sales staff, etc. Presumably Zero is giving up some of the profits on this deal, but overall it reads like a win/win/win for Zero, Costco, and more importantly for the customer.
Overall we’ve been very excited to see the motorcycle industry begin to embrace Costco’s Membership Benefits Program. It has clearly been working for automotive companies and dealers, and from what we’ve heard about Kawasaki’s experience in trying the program (they are taking it nationwide, by the way), it is a model that seems to carry-over well into two-wheelers. Hopefully more motorcycle manufacturers are taking note on this one.
As for right now, Zero is going to test the program in Canada through September of this year. If the sales results are there, the California company very well could pick up a larger Costco presence in Canada and in the United States. Stay tuned.
Source: Zero Motorcycles
I’m not sure why you think Costco makes their money on membership fees. They send me a rebate check for more than my membership fee every year. (2% cash back on all purchases) Even if most people go with the general membership for $50 that isn’t nearly enough to sell their goods at cost and rely on membership fees for profit.
Why are you getting 2% back on purchases?
We have an executive membership. The membership fee is $100 / year but you get 2% cash back purchases. You need to spend at least $2500 / year at Costco to break even compared to a standard membership ($50).