Costco deals with major customer issue differently to Walmart & Target

COSTCO warehouse has been dealing with major huge supply chain issues that have caused shortages and overstock problems for the store – but it could mean more customer holiday deals.

Consumption patterns have changed a lot since the global pandemic leaving retailers unsure of what and how many products to have in stock.

Covid-related shipping delays and supply issues also meant that certain seasonal items, such as Christmas trees, were delivered long after last year’s holiday.

Retail stores across the US have been affected, like Walmart and Target, both stuck with a surplus of televisions at the end of the summer, clogging up their shops and warehouses.

The overstock takes up room for products buyers are projected to buy this holiday season, so both stores have been selling off the surplus products at significant discounts.

Costco admitted to having similar inventory problems but has a different solution for members and shareholders.

Seasonal products that came into Costco’s warehouse late were held for the next season instead of being sold at marked-down prices, making them cost less for customers differently

Costco Chief Financial Officer Richard Galanti admitted there was a “decent chunk in there that I would call deep freeze from last year.”

There’s cost associated with those items sitting for around nine months, taking up space for other better-selling products.

But Galanti said purchasing a lot of stock last year will actually benefit the store and its customers.

Inflation has soared over the past two years, sending the costs of goods through the roof.

The annual inflation rate for the US was at 8.3%, between August 2021 and 2022, following a 7% increase in 2021.

That means that items purchased last year would be, on average, more than 8% cheaper.

Galanti used the example of Christmas trees, worth between $150 and $400, which “came in after Christmas.”

“The good news is that they don’t really change in style. And they’re now — and if you go to Costco, you’re going to see it on the floor,” he said.

“If you add in the cost of holding them and a little cost of interest, I think they’re still a little cheaper than the ones we added to the inventory this year.”

The items the retailer stocked before this year were purchased at a cheaper price for Costco than the newly added inventory.

“In all, despite current inflation levels, we believe we continue to remain competitive versus others and able to raise prices as cost increases,” Galanti said.

The CFO said the retail store’s overall inventory increased by 26 percent ,partially from Costco warehouses “building up inventory, particularly on big and bulky and fulfillment.”

“The last part is ethe arly holiday. We did consciously bring in some stuff,” he said.

“So in a perverse way, that one didn’t hurt us that much other than we don’t like to have extra inventory.”

The steep increase in inventory percentage comes from supply chain issues Costco is already having and the company adjusting its orders considering potential problems.

“There are some seasonal things that came in late,” Galanti said.

He also said that the warehouse club has additional insight into its supply chain and knows how long expected delays are, which is why it brought some products in early.

“Part of it wdid not knowwhat was happening with [the] supply chain and how many weeks of delay at each item was.”

Compared to other “bigger retailers,” Galanti said Costco’s inventory is “more specific.”

Even if Costco does get too much of something like “air conditioners or a bunch of furniture,” which he mentioned had some delays coming in, the warehouse “may have to hold on to it,” he said.

“But it’s not a whole variety of different things.”

Galanti said the inventory issue caused the store to have “some additional markdowns.”

“Nothing huge, no big, outsized numbers relative to what we would normally expect. So, a little bit increase, but nothing material.”