Dive Brief:
- Costco is changing its product assortment “where appropriate” to mitigate the impact of tariffs, EVP and CFO Gary Millerchip told analysts during a Q4 earnings call.
- For instance, the retailer is leaning into its private label Kirkland Signature products and ramping up domestically sourced items, such as health and beauty, live goods, tires and mattresses.
- “We believe our expertise in buying and the flexibility afforded by our limited SKU can give us greater agility to navigate the current environment and minimize the impact of tariffs,” Millerchip said.
Dive Insight:
SKU management is a critical lever for Costco as it navigates a fluid tariff environment, Millerchip told analysts. He noted that Costco has the “flexibility to change items” it perceives as having lesser value due to the impact of tariffs.
Kirkland Signature products, in particular, continue to help the retailer deliver alternatives to some tariff-impacted goods, Millerchip said. In Q4, Costco launched more than 30 new Kirkland Signature items, such as grass-fed beef sticks, organic extra-firm tofu, apparel items and the “combo calzone,” which is the retailer’s latest addition to the food court menu.
According to Millerchip, having experienced buyers that manage a limited SKU count is also a benefit as they recognize the way individual products are costed and constructed.
Like many other retailers, Costco continues to push a multipronged approach to navigating tariffs. The retailer has opted to absorb some of the costs while also continuing to work closely with its suppliers to move its production to countries “where it makes sense” and consolidating buying efforts to lower the cost of goods, Millerchip said.
He added that in some instances, Costco has saved 30% to 40% on the cost of goods by consolidating to a small number of suppliers.
Being a global retailer, with 30% of its business being international, also offers the company a leg up. Millerchip told analysts that it gives Costco a path to work with its suppliers in offsetting some of the products purchased globally.
Looking ahead to the holidays, the retailer’s CFO said that its merchants are confident about its inventory position, despite the product mix varying from previous years.
“Overall, supply remains relatively stable, with no notable issues,” Millerchip said.
