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Private label grocery goods are playing a key role as Costco adjusts its product assortment to mitigate the impact of tariffs.
SKU management is a critical lever for Costco as it navigates a fluid tariff environment, CFO Gary Millerchip said on the company’s fourth-quarter earnings call in September, noting that Costco has the “flexibility to change items” it perceives as having lesser value due to the impact of tariffs. For instance, the retailer is leaning into its private label Kirkland Signature products and ramping up domestically sourced items, such as health and beauty, live goods, tires and mattresses.
“We believe our expertise in buying and the flexibility afforded by our limited SKU can give us greater agility to navigate the current environment and minimize the impact of tariffs,” Millerchip told analysts.
Kirkland Signature products, in particular, continue to help the retailer deliver alternatives to some tariff-impacted goods, Millerchip said. In Q4, Costco launched more than 30 new Kirkland Signature items, such as grass-fed beef sticks and organic extra-firm tofu, and made the “combo calzone” the retailer’s latest addition to the food court menu.
Kirkland Signature sales penetration has continued to increase, CEO Ron Vachris said on the call, noting that the private brand brings “high-quality value to our members while offsetting potentially inflationary impacts from tariffs.” The company is looking for opportunities to move more product sourcing for the brand “into the countries and regions where the items are sold” to help lower costs and reduce emissions, Vachris said.
Like many other retailers, Costco continues to push a multipronged approach to navigating tariffs. The retailer has opted to absorb some of the costs while also continuing to work closely with its suppliers to move its production to countries “where it makes sense” and consolidating buying efforts to lower the cost of goods, Millerchip said. According to Millerchip, having experienced buyers who manage a limited SKU count is also a benefit, as they understand how individual products are costed and constructed.
Millerchip added that in some instances, Costco has saved 30% to 40% on the cost of goods by consolidating to a small number of suppliers. Being a global retailer gives Costco a path to work with its suppliers in offsetting some of the products purchased globally, Millerchip said.
Looking ahead to the holidays, the retailer’s CFO said that its merchants are confident about its inventory position, despite the product mix varying from previous years.
“Overall, supply remains relatively stable, with no notable issues,” Millerchip said.
Catherine Douglas Moran contributed reporting.