Supply Crunch Drives Costco to Reintroduce Buying Limits on Items Like Toilet Paper

Supply chain problems are pushing Costco to reintroduce purchase limits on key household items like bottled water and toilet paper, according to the company’s chief executive, who cited factors like port delays, driver shortages, and general “COVID disruption.”

Richard Galanti, Chief Financial Executive of Costco, told participants on an earnings call on Sept. 23 that the company was facing supply chain issues and inflationary pressures.

Factors pressuring supply chains and contributing to inflation, according to Galanti, include “port delays, container shortages, COVID disruptions, shortages on various components, raw materials, and ingredients; labor cost pressures, and trucker and driver shortages—truck and driver services.”

While Costco has responded to the supply chain crunch by ramping up purchases and ordering early with Christmas items like toys, the company is also bringing back buying limits on some products, Galanti said. These include toilet paper, bottled water, paper towels, and high-demand cleaning products, though he did not specify how many items customers would be able to purchase.

Seeking to ease some of the supply pressures, Galanti said Costco has chartered three ocean vessels and leased thousands of shipping containers for use on those ships for the next year to ramp up shipments between Asia and the United States.

On inflation, Galanti spoke of various factors pressuring prices.

“Inflationary factors abound, higher labor costs, higher freight cost, higher transportation demand, along with container shortages and port delays, increased demand in certain product categories,” he said.

Higher costs of plastics and resins have led to many items in Costco’s offering—such as trash bags, plastic cups, and pet products—to go up by between 5 to 11 percent, he said.

He estimated that the overall price inflation of products Costco is selling to be in the 3.5 percent to 4.5 percent range. This is an increase from the 1 percent to 1.5 percent range he estimated in March and the 2.5 percent to 3.5 percent range he projected in May.

Galanti said Costco would bear some of those costs, but some would be passed on to consumers.

“With inflation, to the extent that there are permanent inflationary items, like freight costs, or even somewhat permanent for the next year, we can’t hold on to all those, some of that has to be passed on and it is being passed on,” he said.

Galanti also touched on the semiconductor shortage that has bedeviled the automaking industry, among others. He said the chip crunch had also impacted items in Costco’s product offering, including computers, tablets, video games, and major appliances. 

By Tom Ozimek

 

Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s ever heard is from Roy Peter Clark: ‘Hit your target’ and ‘leave the best for last.’

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