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Costco Responds to Chinese Tariffs

Costco Responds to Chinese Tariffs

 ISSAQUAH, WA - The recently announced round of tariffs on Chinese trade has retailers concerned about the fallout, and even bulk retailer Costco is taking stock of the changes the tariffs might bring. Though it reported strong quarterly results, the company has implied price surges for consumers to compensate for the potentially increased price of goods.

Richard Galanti, Executive Vice President & Chief Financial Officer, Costco“At the end of the day, prices will go up on things. What’s interesting is that it’s hard to predict what the impact is,” said Richard Galanti, Chief Financial Officer to CNBC. “We want to be the last to raise them. And when prices are going down, we want to be the first to lower them. We’re not afraid to use some of those monies to again drive business.”

The Chinese trade war has escalated with President Trump planning to raise tariffs on $200 billion of Chinese imports from 10 percent to 25 percent, according to Reuters. While Galanti commented that the situation is “pretty fluid,” the retailer plans to accelerate shipments and negotiate with vendors before the tariffs go into effect to stave off price hikes a little longer, reports CNBC.

New tariffs on Chinese trade has forced Costco to look at other supplier sources in different countries

"As you might expect, it's all over the board in terms of every item and every vendor is different," Galanti commented in a corporate call. "In some cases, it's being passed on. In some cases, we're able to work to figure out how to move merchandise. And then the impact of when the price increase does go through, it has a different impact on how it affects sales. We think that we're in a good position in terms of our size and our ability and our relationships with our vendors and we'll keep you posted on how it goes. We work with vendors. There's been some switching, a small amount of switching to other countries of origin where we can, although we're not the only one in town trying to do that." 

Although Costco has seen increased sales and stock prices in the past few months, with total revenue now up 7.4 percent to $34.74 billion, it is still lagging behind competitors in the e-commerce sector like Walmart and Amazon.  

As Costco prepares itself for the Chinese tariff hike, the most recently announced increase of Mexican tariffs could throw an even larger wrench in the works for the retailer.

What will be the ultimate impact for Costco on this double round of tariff increases? And what does this mean for consumers? Only time and AndNowUKnow will tell.