As the holiday season approaches in the United States, there is positive news for Warehouse Club members.
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Sure, it's fun to wander around the store to eat and see what's new, but ultimately you have to pay an entry fee to get the low prices. The chain is well aware of this and its management is focused on offering discounts to its customers. And, in cases where the increase is unavoidable, the buying departments of the chains are very aggressive in understanding why the prices are increased.
In his remarks on the company's fourth quarter earnings call, chief financial officer Richard Galanti explained how the chain handles price increases and price cuts relative to its suppliers.
Remind buyers at budget meetings when prices go up, Craig and Ron remind us, make sure you understand why they're going up. What is the cost of raw materials? What are the shipping costs? And when these things happen, you call and say, 'Are we going to cut this?' So I think partly because of our limited selection – our limited number of SKUs and the large volume, I think our buyers are very familiar with most of the prices for these items. I think it's a good thing for us.
When things are good for Costco, they are good for the members of the chain. Galanti expressed optimism about prices and the relationship between the direction the economy is taking.
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Costco saw "the light at the end of the tunnel".
Costco is not immune to inflation or supply chain issues. But Galanti sees signs that the problem is improving.
But again, at the end of the day, we'll see – I think there's a silver lining at the end of the tunnel. Certainly, the cost of holdings has gone down. The container shortage has improved. Port delays have improved…
Warehouse Club saw positive financial news from the strong dollar.
"And because commodity prices are falling and the FX is mostly helping you and working against you. When we report foreign company earnings in US dollars and the currency is down 10%, that's 10% less than earnings reported. But at the same time, because we use the US dollar in different ways, not just in the US, but in different ways. It would be a bit helpful to buy goods and products from other places. Switch to? Sure, but at least we can see things are starting to move in the right direction.
There's good news for Costco members.
Last year, Costco (and other retailers) had to scale back promotional activities due to uncertain supplies and shortages in key locations. If you don't know when the new stock will arrive, you can't really expect it.
Galanti said he has seen a change this year. "
"There was more promotion. I remember a year or two ago, again, because of the lack of electronics, we saw: we and the industry saw a lot less promotional activity from manufacturers through TV retailers. It's not necessary. It's done…and we're starting to see promotional activity again," he said.
The CFO explains how this affected Warehouse Club.
One of our favorite things is our multi-vendor messaging service. We manufacture existing and other promotional items, online and in person. And that must have changed somehow due to a stock shortage or allocation. Usually, in this type of MMM, there are many high-end items such as promotional items such as televisions and large quantities such as paper goods and the like. Even paper products,” he added.
