Dive Brief:
- Costco is reinstating purchase limits on products like toilet paper, bottled water and paper towels due to a host of supply chain challenges, Chief Financial Officer Richard Galanti said during the club retailer’s fourth-quarter earnings call on Thursday.
- Galanti said a host of factors are contributing to delays in the replenishment of key products, including port delays, trucker shortages, labor cost pressures and shortages of certain raw ingredients. Despite supply pressures, Costco reported better-than-anticipated Q4 results, with net sales up 17.5% and U.S. comparable-store sales up 14.9%.
- Costco has discontinued its curbside pickup test, which began early this year at three New Mexico stores, after the service "didn't really see a lot of traction," Galanti said.
Dive Insight:
Reinstating product limits on fast-selling items brings Costco back to the early days of the pandemic. But while those restrictions were driven primarily by panic-buying and product shortages, this time around it’s supply chain slowdowns that are prompting the company to slap quotas on key items once again.
“A year ago there was a shortage of merchandise. Now they've got plenty of merchandise but there's two- or three-week delays on getting it delivered because there's a limit on short-term changes to trucking and delivery needs to suppliers,” Galanti said during Thursday’s earnings call.
Those challenges are familiar to many grocers that are also battling delayed shipments and out-of-stocks. Galanti said Costco is taking various actions, including ordering higher volumes of goods earlier than it normally does, in order to offset those delays. It’s also taking the novel step of chartering three container ships to transport goods between Asia and the U.S. and Canada, Galanti said. Each vessel carries between 800 and 1,000 containers and will make approximately 10 trips over the course of next year.
Supply pressures haven’t stemmed the flow of customers into Costco, with shopping frequency up 8.8% in the U.S. and basket size up 5.6%. That helped drive better-than-expected topline results for Costco as it continues to benefit from stock-up shopping behaviors and consumers’ growing comfort with in-store shopping.
As store traffic has increased, e-commerce sales have moderated, increasing just 11.2% during Q4. Galanti said consumers are buying more bulky items like refrigerators and furniture through its online channels. The cancellation of its curbside test, meanwhile, indicates the limits to same-day service for the company. Although pickup sales across the retail industry have shot up during the pandemic, many Costco shoppers prefer to head inside when they make a trip to the store. Crowded parking lots and oversized goods also make the service operationally complex for the company.
Additional changes are coming on the digital front for Costco. The company’s app, which has been downloaded 10 million times, but has lately lagged behind apps from club competitors, according to one report, is getting updated next month to include a new landing page, product information and other features, Galanti said. Costco will also roll out digital payments through its branded credit card next month.
