How bad will product shortages get this time?
Costco plans to bring back purchase limits on toilet paper and other basic merchandise, although it’s largely due to supply chain challenges and inflationary pressures, rather than the hoarding that took place in the early months of the pandemic.
The wholesale club reported U.S. same-store sales excluding gas inflation and currency effects increased 10.3 percent in the fourth quarter and 13.6 percent in the year ended August 29.
“The factors pressuring supply chains and inflation include port delays, container shortages, COVID-disruptions, shortages on various components, raw materials and ingredients, labor cost pressures and trucker and driver shortages,” Costco CFO Richard Galanti said last week on its quarterly call.
Various major brands are requesting longer lead times, partially due to hurdles finding drivers and trucks on short notice. Lead times on ingredients and packaging have been extended in some cases. “We’re putting some limitations on key items, like bath tissues, roll towels, Kirkland Signature water, high-demand cleaning-related SKUs related to the uptick in Delta-related demand,” Mr. Galanti said.
Major shortages in computer chips are also still “impacting many items” including tablets, video games and major appliances, and those problems “will likely extend into 2022.”
Asked about differences from 2020, Mr. Galanti stressed that the core problem is supply chain related, citing an example of one cleaning supply company’s logistic bottlenecks. He said, “A year ago there was a shortage of merchandise. Now, they’ve got plenty of merchandise, but there’s two to three-week delays on getting it delivered because there’s a limit on short-term changes to trucking and delivery needs of the supplier. So, it really is all over the board.”
To combat shortfalls, Costco is making bigger buys, bringing items in earlier, including toys, and has chartered three ocean vessels for the next year to transport containers between Asia and North America.
At the same time, the retailer is encountering inflationary pressure, caused by many of the same issues. Price increases include mid to high single-digits in fresh foods, led by high single to low double-digits hikes in meat. Mr. Galanti joked, “It’s a lot of fun right now.”
- Costco Wholesale Corporation Reports Fourth Quarter And Fiscal Year 2021 Operating Results – Costco
- Costco Wholesale (COST) Q4 2021 Earnings Call Transcript – The Motley Fool
- Costco brings back purchase limits on toilet paper, cleaning supplies and more – CNBC
- Costco placing purchase limits on toilet paper, other products due to COVID-related demand – USA Today
DISCUSSION QUESTIONS: How will the inventory challenges likely facing food and general merchandise sellers in the months ahead be different than those in the initial phase of the pandemic? What similar and unique solutions do you see?