Costco is a unique retailer in many regards. Its membership-based model automatically limits its customer base to a certain degree, but Costco can use that to its advantage.
Unlike traditional retailers, Costco pockets loads of revenue each year in the form of membership fees. Because of this, the company can focus on offering top value without stressing over margins on each individual product it sells.
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At the same time, Costco has certain standards it holds to when sourcing products. For one thing, each product it sells has to be high in quality. Secondly, Costco won’t sell a product if it’s not happy with the price point.
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Costco has long competed with itself to offer exceptionally low prices, and its inventory reflects that.
While a traditional supermarket could easily stock 30,000 or more SKUs (stock-keeping units), Costco typically carries around 4,000. This means that customers can’t necessarily bank on Costco for all of their shopping needs. What they can bank on, though, is competitive prices on the items they buy.
Costco’s treasure hunt is a big draw
Costco aims to offer customers not just great value but a unique shopping experience. The Costco treasure hunt is a big part of that.
Anyone who’s ever been to Costco understands how easy it is to go in looking for milk and eggs only to come out with a loaded cart and a much larger bill than expected. That’s because Costco does a great job of sourcing unique items and changing up its inventory regularly.
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In fact, the treasure hunt is a core part of Costco’s member retention strategy. Members enjoy finding exciting new buys, and Costco enjoys the added revenue. It’s a win-win for everyone.
However, because Costco is selective in the items it sells, the store’s inventory doesn’t always refresh constantly. Rather, Costco updates its inventory when it makes sense, and the price is right.
Tariffs could compromise Costco’s treasure hunt
Tariff policies have already had a huge impact on Americans. The stock market plunged in their wake as expected, and recession fears have surged.
Retailers have been sounding alarms about tariffs for months. A number of major retail chains have told investors to gear up for a slowdown in sales and revenue as these policies take shape.
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Costco is well aware of the impacts tariffs might have on its inventory. During the company’s most recent earnings call, President and CEO Ron Vachris was asked if there would be a more aggressive effort to find goods from countries less impacted by tariffs once those policies took hold.
Vachris had a reassuring reply.
“With our flexibility of the treasure hunt, there’s not many items that we can’t find something to replace or something else to bring in,” he said. “I feel like our people are very well equipped to deal with anything coming our way with our reduced SKU model.”
Vachris explained that Costco has great partnerships with suppliers and can pivot as needed to keep its inventory fresh. But he did warn, “I can’t really tell you what the outcome will be.” And the reality is that tariff policies could, in the coming months, limit Costco’s ability to keep its inventory fresh and introduce new products.
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There are also price increases to worry about. Costco is a retailer that does everything it can to keep prices low. But after tariffs, the company might only have so much wiggle room.
It’s too soon to know how tariff policies will impact Costco and its ability to source new goods. But members shouldn’t be surprised to see a decline in fresh products as the warehouse club giant grapples with its new reality.Â
Maurie Backman owns shares of Costco.
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