Crocs Snaps Back at Costco

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No shoes for you, Costco (Nasdaq: COST).

Crocs (Nasdaq: CROX) is fighting back, a day after Costco CFO Richard Galanti discussed the availability of the eclectic yet cozy footwear at the chain's warehouse clubs.

In discussing the sudden availability of branded apparel that typically doesn't trickle down to the discounter, Galanti singled out "things like name-brand jeans and name-brand women's apparel and Crocs and the like" that are usually only sold through full-price retailers.

"We try not to say," he responded later, when pressed by an analyst on whether there was now a direct vendor relationship between Costco and Crocs. "We don't discuss what's direct and not, recognizing some manufacturers would prefer us not to. I'm not suggesting we are or not with them. All I'm suggesting is there is more availability of stuff out there."

Given the notoriously high inventory levels at Crocs over the past two quarters, it was easy to assume the worst. Had older shoes gone stale, forcing Crocs to turn to Costco as a high-volume liquidator?

"We have not sold Crocs-branded products to Costco nor have we authorized any of our customers to sell our products to Costco," Crocs CEO Ron Snyder noted in a press release yesterday afternoon.

This doesn't mean that Costco's Galanti was lying or somehow pushing counterfeit Crocs footwear.

"We have discovered instances where we believe our products were being sold indirectly to Costco and we promptly terminated those relationships upon learning of that behavior," Snyder conceded.

Why does Costco have cooties? Well, if you're a company like Crocs -- delivering your wares to full-priced department stores, sporting-goods retailers, and namesake specialty stores -- the last thing you need is one renegade retailer underselling everyone else.

Food companies have no problem going through Costco, because the products are packaged in bulk sizes that aren't carried by conventional grocers. It's a different story when we're talking about stand-alone branded wear like Crocs or True Religion (Nasdaq: TRLG) denim -- things that need to maintain consistent pricing.

Even direct vendor relationships can be tested. iRobot (Nasdaq: IRBT) threatened to cut Sharper Image off two years ago when it began selling the Scooba floor scrubber for $100 below the suggested retail selling price.

Shop for electronics on Amazon.com (Nasdaq: AMZN), and you will often see items with prices that can only be revealed after you place them in your virtual shopping cart. Pricing integrity is the key driver with standout brands.

Even when the economy is tight and inventory levels are loose, brands -- and vendors -- need to be protected.

Right now, that goes for both the Crocs and Costco brands.