Suit: Costco Pulling Bait-and-Switch with Michael Kors Bags


Wouldn’t it be nice to pick up a Michael Kors (NYSE:KORS) bag as a Mother’s Day present, and pay only $99?

According to a lawsuit filed filed in Manhattan court on Friday, Costco (NASDAQ:COST) was offering customers this very deal in an email sent in advance of the day celebrating American motherhood. Unfortunately, Michael Kors staff could not find any of the designers bags in Costco stores and is suing the warehouse club retailer for pulling a bait-and-switch routine. It is the second such claim against Costco so far this year.

Reuters reports Michael Kors Holding Company filed the complaint against Costco, alleging the designer’s handbags — which run from $295 to $1,195 in Michael Kors stores — were being used as bait to get shoppers inside Costco stores. The suit aims to prohibit Costco from advertising Michael Kors products and recover profits, plus damages, for the retail wholesaler’s offenses.

“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,” the complaint reads. For Costco, it marks the second such suit to come up this year.

Tiffany & Co. (NYSE: TIF) sued Costco in February for marketing diamond engagement rings using the jeweler’s high-profile brand name. According to The New York Times, the suit read, ”Tiffany has never sold nor would it ever sell its fine jewelry through an off-price warehouse retailer like Costco.” Costco quickly relented and stopped marketing rings using the name “Tiffany” in promotional materials and in-store sales pitches. The judge presiding over the case asked Costco to settle with the jeweler.

Michael Kors might find it difficult to nail down an exact price when assessing the damages caused by Costco’s alleged bait-and-switch routine. Shoppers hoping for a bargain designer bag would surely find affordable options once inside a Costco store, and would be loath to pay more than three times the price for the genuine article.

It is unlikely Costco shoppers would curtail their buying at the wholesale store while Michael Kors shoppers can feel satisfied the designer is protecting the integrity of the luxury brand.

Investing Insights: Is Costco Still A Hot Stock?