Why Costco uses curiously large packaging for tiny products

• At Costco, little things often come in big packages.
• Though it might seem wasteful or excessive, the strategy serves several functions to keep costs low.

Within the super-sized world of a Costco wholesale warehouse, you're likely to find some tiny products displayed in jumbo packaging — like, surprisingly big.

Small, high-value items like gift cards, cosmetics, and more are dwarfed by clear plastic shells or brightly colored cardboard touting the value of the product.

While the extra material might strike some as excessive in a time of increasing eco-consciousness, packaging consultant Michael Carrier says it's actually a key piece of Costco's overall strategy to cut steps and waste from its supply chain and lower costs for shoppers.

Here's how it works:

Unlike most retailers that have to unpack boxes within boxes to stock their shelves, almost everything Costco sells — even half-ounce jars of eye cream — arrives to the store floor packed on a standard 40x48-inch pallet.

"That's what the whole process is designed to handle," Carrier said. "Variability drives cost up."

Once a pallet of merchandise is trundled out via forklift or lift-jack, its protective outer layer of cardboard or wrap is removed and the items are ready to sell with little to no additional handling required by employees.

Fitting stacks of products within the constraints of a pallet leads to some interesting optimization problems for brands to solve, which has led to another set of dimensions that are distinctly Costco.

"10 inches wide by 11 inches high," Carrier said. "If you walk through health and beauty, you will see a lot of [items] in that kind of envelope, so that is the very ideal Costco size."

With those dimensions, a supplier is able to pack a pallet with four "shelves" of its product that have four "faces" each, and stack those pallets two-high in a standard tractor trailer.

There are three key reasons a supplier would not send a tightly packed pallet of two-inch jars of a fancy cosmetic: it's less stable on display, it would contain too many units for Costco to sell quickly, and it would be too expensive to put one in every store.

"Having $20,000 in high-end face cream on the pallet on the floor isn't good business," Carrier said.

Big packaging lets suppliers ship a more manageable number of items to a Costco warehouse using the requisite pallet system.

Carrier's company, Berkley, even specializes in helping Costco suppliers break a single tightly-packed container of imported goods into as many as ten trucks loaded with dozens of presentable palletized displays.

Beyond the practical shipping considerations, the 10-inch cards have several additional advantages in the warehouse context, too: The extra marketing real estate helps tiny items stand out among other bulky offerings, while also reducing the risk of shoplifting that winds up leading to higher prices for customers.

And when it comes to sustainability, the company's packaging guidelines encourage suppliers to use recycled and recyclable materials, and to use the minimal amount of material possible without compromising product quality.

"When you really compare and think about the distribution, and all of the other packaging that you don't see for items that are sitting in Walmart and Target, it's actually a very efficient system," Carrier said.

Are you a current or former Costco employee? Get in touch with Dominick via email here.