Shopping at Costco is not the same as shopping at other stores.
Most retailers don’t force people to buy a membership just to get in the door. But most stores also don’t offer the superior customer service Costco is known for.
Costco members get numerous perks, from discounts on bulk groceries to low-cost over-the-counter medications. And the store is known for its extremely flexible return policy.
With few exceptions, Costco members can bring back any item at any time for a full refund. This courtesy even extends to food products that don’t meet customers’ expectations.
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Even electronics have a 90-day return window, which far surpasses most retailers’ policies.
There’s a reason Costco puts so much emphasis on outstanding customer service: The warehouse club giant relies on membership fees for a huge chunk of its revenue.
And it needs to do everything possible to entice members to keep paying, especially with rival Sam Club’s (WMT) offering lower-cost memberships at both the basic and upgraded level.
Costco CFO highlights a big danger the company faces.
Image source: Ting Shen/Xinhua via Getty) (Xinhua/ via Getty Images
Costco needs to stay on its game: CFO
Costco, like many other retailers, is well aware that inflation has been wreaking havoc on consumers in recent years and that they are being choosier about their spending.
For some it’s not a choice.
Inflation cooled only slightly in February compared with the month before. And last month’s Consumer Price Index measured annual inflation at 2.8%, which is still well above the Federal Reserve’s 2% target.
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Not surprisingly, the Fed decided to pause its interest rate cuts at its mid-March meeting. The Fed lowered rates a few times in late 2024 but has since held rates steady.
Consumers need interest rates to come down for borrowing to become more affordable. Until that happens, they’re likely to shop more cautiously.
Costco has seen that consumers are being more careful across the board. During the company’s most recent earnings call, Chief Financial Officer Gary Millership said, “They are still showing that willingness to spend, but they’re being very choiceful where they’re spending their dollars. And we think that’s likely to continue.”
Millerchip also said Costco needs to stay vigilant if it wants to remain competitive in a tight retail market.
“We really tend to view ourselves as our own biggest competitor,” he said. “Every period, we have our budget meetings and we look at our prices, and our goal at every meeting is … where can we find ways to lower cost and lower prices for our members?”
Costco’s approach: stay a step ahead on pricing
Many retailers aim to undercut their competitors by lowering prices once they see other companies doing so. Costco, on the other hand, prefers to stay one step ahead.
“Generally, the price changes that we’re making are proactive versus reactive to others,” said Millerchip.
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As a matter of course, Costco will not put a given product on its shelves if it’s not happy with the price point. It’s for this reason that Costco warehouses typically carry only about 4,000 individual items for sale.
Big-box stores and traditional supermarkets, by contrast, might have tens of thousands of individual items, known as SKUs, because they’re operating a different business model. But Costco’s focus has always been quality, affordability and an outstanding member experience.
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At a time when consumers are being cautious in spending and cutting corners wherever possible, the stakes for Costco are high. The warehouse club giant will need to stay focused on consumer trends and keep a close eye on the impact of the Donald Trump administration’s tariff policies.
But Costco has long proven its commitment to offering members top value. It will endeavor to rise to the occasion by expanding inventory strategically while keeping a solid pulse on pricing.
Maurie Backman owns shares of Costco.
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