Is Costco Playing Bait-And-Switch With Tiffany, Michael Kors?

High-end fashion brand Michael Kors has sued Costco (NASDAQ:COST) in federal court, accusing the chain of playing bait-and-switch with its shoppers, where Costco showed a Michael Kors handbag (which sells for as much as $1,200) and said it could be obtained from Costco for as little as $99. The case takes on new meaning as it follows a February lawsuit from high-end jewelry manufacturer Tiffany's making very similar allegations.

The Kors lawsuit includes a copy of a Costco ad featuring pictures of Kors' high-end handbags next to copy saying "Designer Handbags starting at $99.99." To be fair, the copy didn't say that the offered handbags were Michael Kors products, but the pictures clearly showed the Michael Kors logo on some of the handbags. Neither Costco's physical stores nor Costco.com is—or has been--an authorized retailer of Michael Kors products, the lawsuit said. And inspections of both the Costco.com site physical stores revealed no Michael Kors being sold.

"This bait-and-switch scheme, which intentionally exploits the popularity and appeal of Michael Kors' luxury handbags to lure unsuspecting consumers away from bona fide Michael Kors retailers and into Costco stores, unjustly benefits Costco to the detriment of Michael Kors and its consumers and authorized retailers," the filing said.

In February, Tiffany's sued Costco, saying that it was selling rings labeled "Tiffany" that were not in fact made by Tiffany's. Costco said it was using the term generically as a style of jewelry.

In the Kors lawsuit, the manufacturer said that "Costco's aforementioned false advertising has been willful, wanton and malicious and done with intent to deceive." In general, the Costco position might be that it was doing something as innocuous as simply having someone with a marketing agency choose a random grouping of attractive handbags, with the images intended to communicate "nice-looking handbags" rather than any particular handbag. Any stock image chosen, for example, would have to be of some specific handbag. If that was the case, the safer route would be choose images of the handbags it was actually selling.

But—and this is a critical but—innocuous and casual rarely play roles in these kinds of ad campaigns. Given that multiple pictures of Kors products were used, the accusation that Costco deliberately chose images of products that they knew they weren't offering comes across as credible. When the Tiffany's allegations are factored in, a picture emerges of an especially aggressive marketing group at Costco.

For more:
- See Reuters story

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