How did Precor treadmills end up at Costco, let alone for those prices?

SNEWS® caught wind in the early fall that Precor treadmills had gotten onto the floor at several Costco stores in different parts of the country and started tracking the incident.

SNEWS® caught wind in the early fall that Precor treadmills had gotten onto the floor at several Costco stores in different parts of the country and started tracking the incident.

Precor, of course, doesn't sell to Costco. Never has, never will, spokesman Jim Zahniser said.

But that doesn't mean both Precor and non-Precor retailers aren't upset to find them there. They were telling SNEWS® they found it difficult to compete with a price that was in some cases less than half of the MSRP for the 2007 model of the 9.27 treadmill -- a price they couldn't begin to match: One source in the Southwest found units for as low as $999.97, which had supposedly been marked down from the original Costco price of $1,999.97. The units were spied at other locations for varied prices in between. Note the MSRP is $2,799, per Certainly, some retailers discount an MSRP by 10 percent to 15 percent, but keystone or close to it isn't uncommon in fitness, as it is in any other industry. That means that selling a treadmill for $1,000 or $1,200 wouldn't make much money at all for a retailer and in fact could be a loss.

What SNEWS® was told by Precor is that a buyer shopping for goods for Costco approached somebody "in the distributor network" with access to the treadmills and bought several truckloads of them. What we were told is that the seller didn't know they were going to Costco and may have been told they were going onto cruise ships or to some other location.

"We are not actively doing business with Costco," Zahniser said. "We don't have any plans to look for opportunities to sell through Costco, either directly, or through our dealers. Precor is fully committed to our dealer channel, and that's where we'll stay."

He said the company discovered what it calls "an isolated incident" -- one it doesn't condone or authorize.

"This certainly isn't our vision for the Precor customer experience, in which the dealer plays a key role," Zahniser said. "We're not pleased with the situation and have taken steps to make sure it won't happen again."

Although normally a company like Precor would invalidate a warranty on equipment that was not acquired through an approved channel, Zahniser said they are making an exception in this case so the customer doesn't feel victimized.

"As a policy, we don't extend our warranty to sales through unauthorized channels," he said. "In this case, we don't want to make the consumer a victim. We were very firm with the people who caused the situation, but we aren't going to punish the consumer. This is an aberration; we're going to make an exception to honor the warranty."

SNEWS® placed three calls over three days to various offices at Costco, including the president's, and did not receive a return call about how it attained the goods. However, at the time we wrote a story in 2003 about how Costco plays hardball to get what it wants to sell, whatever way it can, President Jim Sinegal told SNEWS® it sees nothing unethical about getting the best prices on the products its members want. (Click here to see a Nov. 14, 2003, SNEWS® story, "Costco plays unauthorized hardball sales with industry goods.")

"It says something about the pricing structure of these products if we can buy them from a third party, price them so we can make sufficient profit, and still save our members money," Sinegal told us for that story. He added that they get the goods and can sell them cheaper because "the markup structure is obscene. Wouldn't you call overpricing unethical?"

He also told us at that time that Costco's intent is not to hurt the market, harm specialty retailers or put anybody out of business. Still, we do know from past SNEWS® stories that Costco is known for using any means necessary when it wants to sell a particular product or brand -- even going to the extent of gaining the goods it wants through a middleman called a "jobber." A jobber is a third-party purchaser who acquires products in demand -- from headphones to home gyms -- then sells them to whomever will buy them -- from overseas distributors to the likes of Costco.

SNEWS® View: Several truckloads hold a lot of treadmills and we're not sure which retailer or dealer would have had that many lying around to pass on to a third-party rep who, perhaps unbeknownst to this person, was actually searching for product for Costco. We aren't going to point a finger at anybody at this point, but the incident is a bit suspicious. Either way, the treadmills are there, the prices are low, retailers aren't happy, and we'll lay money that a few consumers may not be so happy either if they bought one for double that price. It's an uncomfortable situation all the way around.



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