Costco makes key moves to protect prices from tariffs

If there's one thing Costco tries really hard to do, it's offering its members great value.

Costco knows that there are plenty of places consumers can shop without having to hand over a membership fee. So Costco is committed to keeping members happy. And there are different tactics the company uses to achieve that goal.

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One is to keep its inventory exciting and fresh.

There's a reason shopping at Costco is often likened to going on a treasure hunt. When you roam those aisles, you just never know what you're going to find.

Costco also has one of the most reasonable and generous return policies in retail. With very limited exceptions, members can return any item whenever they want for a hassle-free refund.

And of course Costco is known for its ultra-low prices on everything from groceries to household essentials to electronics.

It's these low prices that help consumers justify the cost of a membership. What they pay to walk in the door, they make back in the form of savings during the year.

Costco's CEO shares very good news on tariffs.

Image source: Burbank/Orlando Sentinel/Tribune News Service via Getty Images

Retailers are worried about tariffs

Costco isn't the only retailer known for its competitive prices. Rivals like Walmart also have that reputation.

But as the threat of tariffs looms, many consumers are wondering if retailers will be able to maintain their low prices.

Not long ago, Walmart CEO Doug McMillon sounded a major warning on tariffs, stating that the company may have no choice but to raise prices in response to tariffs.

Companies like Walmart and Costco are better suited to minimize the blow of tariffs because of their giant footprints. But consumers may need to brace for higher prices, since Walmart recently made it clear that no retailer is immune to the impact tariffs could have.

Costco, too, is aware that tariffs could have an impact on prices.

During the company's most recent earnings call, CEO Ron Vachris said, “The impacts of tariffs and the outlook for the economy in general remain unknown.”

But Vachris also had some encouraging words on the matter.

Costco CEO shares positive message on tariffs

Costco, like its competitors, will need to work hard to minimize the impact of tariffs on consumers. But Vachris recently reassured investors that the company is well-prepared to manage tariffs.

“We're remaining agile as a situation with tariffs evolves, while also supporting the commitments we've made with our long-term suppliers,” Vachris said. “As an example of this, during the third quarter, we rerouted many goods sourced from countries with large tariff exposure to our non-U.S. markets.”

Vachris also said the company was able to fill warehouse club shelves with some of its summer items sooner than initially planned to get ahead of tariff-related increases.

Because Costco limits the inventory it sells, it has the flexibility to make changes and negotiate with suppliers as needed. That puts Costco in a prime position to minimize the impact of tariffs on members.

“We are confident in the ability of our operators and merchants to rise to the challenges and continue to offer great service and find consistent values for our members,” Vachris insisted.

Another strategy Costco can use to work around tariffs is to fall back on its Kirkland Signature brand.

Costco can make changes to how it sources Kirkland products, or introduce new Kirkland items, if the national brand becomes too expensive.

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As Vachris told investors, “We continue to move more Kirkland Signature product sourcing into the countries or regions where the items are sold, and this has helped bring us to lower cost and mitigate some of the potential impacts of tariffs.”

Maurie Backman owns shares of Costco.