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Costco (COST+0.92%) is prepared to adapt if President-elect Donald Trump’s proposed tariffs on imported goods are enacted, according to CEO Gary Millerchip.
“When it rains, it pours,” Millerchip told investors during the company’s earnings call on Dec. 12. And, he added, that’s certainly true when it comes to tariffs.
Looming uncertainty surrounding tariffs makes it difficult for any company to predict their full impact, especially in terms of timing and scope. Millerchip points out that this unpredictability is a double-edged sword. While tariffs inevitably raise costs, they also create significant challenges for future planning.
Trump’s proposed tariffs would impose a 10% to 20% tax on imports from most countries, with much higher duties – ranging from 60% to 100% – on goods imported from China.
However, Costco already has a strategy in place, one it’s used in the past to manage similar challenges. This includes pulling forward inventory purchases to stay ahead of shipping delays, potential strikes, and other disruptions that could slow down the supply chain.
The company is also working closely with its vendors to find ways to reduce costs, while considering alternative sourcing locations, Millerchip noted. These strategies can help Costco adapt to any changes in tariff conditions, while maintaining competitive pricing for its members.
Costco reported better-than-expected quarterly earnings on Dec. 12 that revealed its e-commerce business and membership fee hikes helped boost sales. Shoppers have been buying items items like furniture and sporting goods in bulk.
That being said, if tariffs make certain products too expensive or reduce their value, Costco has the option to pivot to different products. In other words, Millerchip made it clear that if an imported item becomes less competitive due to tariffs, Costco would replace it with a different product that offers better value to its members.
While about a quarter of Costco’s business comes from non-food items, only a portion of those are imported. So, while tariffs could affect some of their products, they represent a small part of the overall business.
“Tariffs raise costs, and that’s not something that we see as a positive,” Millerchip said.