The worst hoarding from the beginning of the pandemic appears to be back.
Costco announced that restrictions on certain goods were back, due to supply shortages.
“We are putting some limitations on key items like bath tissues, roll towels, Kirkland Signature water, high demand cleaning-related skews related to the uptick in the delta-related demand,” said Costco chief financial officer Richard Galanti during a fourth-quarter earnings call, according to Fox Business.
This is coming on the heels of an earlier announcement that certain orders relating to household items may be delayed. Product shortages of toilet paper, paper towels, and water at a variety of stores had begun to surface, prompting supply companies like Proctor & Gamble to try to come up with ways to increase production to meet the unexpectedly high demand.
A perfect storm has hit Costco’s supply system, with the lack of workers and Covid related restrictions hitting at every step of the process from basic resources to the final product that hits shelves. Costco and its various suppliers alike are paying between two and six times the normal rate for containers and shipping, 4 percent to 8 percent more for paper goods like pulp, 5 percent to 11 percent more for plastics and resins such as trash bags and plastic plates, 3 to 10 percent more for various clothing products.
All of this has seen higher prices passed on to consumers. Aluminum merchandise such as foil, soda cans, and similar products have seen significant price increases in the single-digit range, while meat has exploded with double-digit price increases as feed, labor, and transportation expenses skyrocket. Oil, coffee, and nuts are also at the highest levels in years. The overall price inflation has now been estimated to be about 3.5 percent to 4.5 percent, higher than previous estimates, which interferes with Costco’s business model of providing cheap products en masse.
“Despite all these issues, we continue to work to mitigate cost increases in a variety of different ways and hold down and or mitigate our price increases passed onto the members,” Galanti said.
Costco has begun placing orders early to try to circumvent some of these issues. It has also chartered an additional three cargo ships for the upcoming year that will transport goods between the U.S., Canada, and Asia. These ships are supercarriers that can hold 800 to 1,000 containers at a time, and the goal is to get at least ten deliveries over 2022 to offset the shortages in products that are driving up the prices.
In spite of all this, Costco has done better than expected in its fourth quarter. Demand for jewelry, pharmacy, sporting goods, and home furnishings has all been higher than expected. The company reported a profit of $1.67 billion, up from $1.39 billion a year ago. This translates to $3.76 per share, compared to $3.13 a year ago. Total revenue was $62.67 billion, an increase from $53.38 billion a year ago.
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