New York—The Michael Kors brand has always been about jet setters: apparel and accessories that seem like the accoutrements of the good life. That approach, which has made Michael Kors Holdings Ltd. one of the fastest growing companies and a Wall Street favorite, doesn’t include shopping at Costco Wholesale Club, however.
It’s a fact that Michael Kors Holdings made abundantly clear when it filed last week a lawsuit against Costco accusing the wholesale club of false advertising and a “bait and switch” involving Michael Kors handbags.
The lawsuit stems from an email blast Costco sent out on April 16 that advertised designer handbags starting at $99.99 for Mother’s Day. One of the bags pictured in the email ad was a Michael Kors handbag. Problem is, Michael Kors maintains that Costco is not an authorized retailer of its merchandise and that the use of the Kors bag was to“lure unsuspecting consumers away from bona fide Michael Kors retailers and into Costco stores.”
The Old Bait & Switch?
“When a consumer ‘takes the bait’ and seeks to purchase Michael Kors handbags at a Costco store or on Costco’s website, no such handbags are available,” Michael Kors Holdings added. The $99 Costco retail is vastly different from most of Kors’ handbags, which range from about $128 to $1,395.
Although Costco could have purchased Michael Kors brand bags through a third party, like some off-price retailers do, Kors representatives checked out Costco’s website and 19 stores and found none carried any Kors bags.
Michael Kors Holdings is seeking a court order to stop Costco from advertising its products, attorneys fees, and to recoup profits plus punitive damages stemming from the alleged false ads.
Recouping costs and damages from Costco may prove more difficult, however, if Costco can show it legitimately sold Kors handbags at some point.
“Any extremely limited quantity of Michael Kors handbags sold by Costco were certainly not offered for sale ‘starting at $99,’” stated the Kors suit.
High-end brands and designers may be a natural for Costco, too, according to a recent report from Brian Nagel, retail analyst at Oppenheimer. Costco’s customer base have been less affected by the lagging economic recovery than most other retailers.
“They focus more on the upper-end consumer which has proven more resilient than consumers broadly over the past several quarters,” Nagel said.”I think the biggest differentiating factor for Costco is simply their merchandizing. The tend to skew high-end.”
Costco is fighting another legal battle with Tiffany & Co. which earlier this year charged that Costco was selling engagement rings—referred to as “Tiffany” rings—that didn’t come from Tiffany. Costco countersued a month later, claiming that “Tiffany” had become a generic term for a type of engagement ring setting.