How Costco Wholesale Will Deal With Tariffs Uncertainty

January 2025 marks President-elect Donald Trump's inauguration for a second spell as President. His proposed tariffs on imports has had some speculate about over a potential increase in food and hospitality costs in the US, straining procurement efforts.

The proposed tariff by his administration could significantly affect consumer and business costs, as a suggested 25% tariff on imports from Canada and Mexico threatens to raise US grocery prices and create shortages of key products.

Talked about tariffs

Ever since Donald Trump won re-election, the topic of tariffs have been in the news cycle, with many wondering just what impact it will have on their daily lives, while providing uncertainty for businesses.

Procurement experts caution that these changes could result in an inflationary spiral, whilst critics argue that rising costs would disproportionately harm low-income households while also damaging US trade relationships..

Difficult to predict the exact impact

Costco Wholesale operates an international chain of membership warehouses designed to help small- to medium-sized businesses reduce costs in purchasing for resale and for everyday business use, while also allowing individuals to purchase for their personal needs.

Speaking on a Q1 earnings call, Gary Millerchip, Executive Vice President & CFO, Costco Wholesale, expressed that the business has a plan to help during this time of uncertainty, before the reality of the tariffs comes into effect.

When speaking on tariffs, Gary expressed how "there's a lot of uncertainty around the timing and scope of changes." This has made it difficult for people to predict the exact impact it will have with any sort of confidence.

Gary adds: "Tariffs raise costs so that's not something that we see as a positive in general."

"With that being said, I'll quote my predecessor, Richard (Galanti, former CFO). He'd say when it rains, it rains on everybody. And I think for us, we faced tariffs in the past, and we believe that our merchants and buyers are equipped, as anybody is, to sort of work through, navigate and manage that situation."

"We have a plan over time where we have done this in the past and typically, we'll look where we can to pull forward inventory buying, which actually we've done already because of some of the less predictability around shipping and how much time product spends on the water and also because of the risk strikes that we've seen in the past as well."

Working with vendors to mitigate the cost

Gary stressed in the call that Costco will try to work with its vendors to make sure it's looking for ways where Costco can mitigate the cost.

"We also consider alternative sourcing locations, where that's practical as well," Gary adds.

"I guess the final sort of string in our bow would be is if we didn't see the value in an individual SKU (Stock Keeping Unit), then we could always pivot to a different SKU item for the member if we felt the value just wasn't there, and it was more effective for us to move to a different item in the warehouse."

"I guess in context for us, the sort of the amount of business that's affected, about a quarter of our business is non-foods and then a subset of that is imported.

"So remember, it's a minority of our overall business and then it's a smaller part of that as well we actually import just for context."

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