'It's a perfect storm': Costco limits purchases of toilet rolls, cleaning products and water as supply chain crunch and inflationary pressures hit America
Costco announced on Thursday it was reinstating limits on purchases of key staples like toilet paper, paper towels and bottled water, spurred by a dire combination of supply chain problems, labor shortages and inflationary pressures.
The move comes as Americans are getting ready to loosens their purse strings and hit the stores ahead of the fall and winter holidays.
Shoppers at Costco and other major retailers should prepare for delivery delays and higher prices on a wide array of items ranging from common household goods, such as bathroom tissues and cleaning supplies, to computers, tablets and video games.
A resurgence in COVID-19 cases had led to hording of household essentials last year during lockdowns, forcing the members-only chain to put limits on purchases of some household goods.
While there was a shortage of cleaning supplies even last year, transportation issues this year are causing delays in deliveries to stores despite suppliers having plenty of stock, Costco Chief Financial Officer Richard Galanti said in an earnings call.
'A year ago there was a shortage of merchandise,' Galanti said. 'Now they’ve got plenty of merchandise but there’s two- or three-week delays on getting it delivered because there’s a limit on short-term changes to trucking and delivery needs of the suppliers, so it really is all over the board.'
Costco announced on Thursday it was bringing back limits on purchases of items like toilet paper, paper towels and bottled water
A combination of supply chain problems, inflationary pressures and labor shortages is forcing the members-only retailer to take measures to mitigate the situation. Pictured: shoppers buy toilet paper at a California Costco in November 2020
The pandemic-driven port congestion and labor shortages have forced retail chains including Costco to spend more on transportation and labor, digging into their margins.
Galanti said the bulk retail chain is placing orders early to restock merchandise. The company also has chartered three ships for 2022 that will transport containers laden with goods between Asia, the US and Canada. Each vessel is capable of carrying 800 to 1,000 containers at a time.
Costco is not alone: the global furniture giant Ikea has purchased its own shipping containers to move merchandise. And like Costco, Walmart has also chartered ships to keep its stores well stocked ahead of the holidays.
Speaking at a conference earlier this month, Walmart CEO Doug McMillon said that supply chain problems and inventory shortages are as severe as he can remember in his 30 years in the business.
In a bid to strengthen it's supply chain, the mega-retailer is looking to hire an additional 20,000 workers to fill full-time and part-time positions in 250 Walmart and Sam's Club stores across the US, reported Fox Business.
Walmart is still facing skyrocketing labor and shipping costs amid supply chain backlogs.
Costco said it was paying six times for containers and shipping due to price increase on items shipped overseas; up to 8 per cent more for paper goods; as much as 11 per cent for plastic and resin products, including trash bacs and cups, and 3 to 10 per cent more for apparel, reported Fox Business.
Prices also have gone up other popular products, including aluminum foil, soda, meat, oil and coffee.
Due to a severe worldwide computer chip shortage, Galanti warned that customers should expect delays and shortages on appliances and electronics, including computers, tablets and video games.
Galanti estimated that Costco's price inflation for its products is now in the 3.5-4.5 per cent range, which represents an increase from last quarter's estimate of 2.5-3.5 per cent.
Pandemic-driven port congestion and labor shortages have forced retail chains including Costco to spend more on transportation. Cargo ships are pictured on September 13 waiting to dock at traffic-clogged Los Angeles ports
The west coast ports serve as the entry point for a third of imports to the US, and are the main import point for goods coming from China
Supply chain woes have been further exacerbated by a massive backlog of 62 ships waiting to dock at the ports of Los Angeles and Long Beach, which handle 40 per cent of all containers arriving in the US.
The west coast ports have faced traffic since August, when a then record-breaking 44 container ships were stuck off the coast due to similar disruptions.
The backup at the country's busiest port complex was brought on by a combination of it being peak shipping period due to the upcoming holiday season and a pandemic-induced buying boom, coupled with a labor shortage that has overwhelmed the port workforce, port officials say.
The traffic-jam at the ports, which serves as the main entry point for goods coming from China, has even directly impacted the prices for artificial Christmas trees.
Balsam Hill, an artificial tree company based in California, is selling its four-and-a-half-foot tall Grand Canyon Cedar Tree for $499 this year. That is $199 more than the same tree cost in 2020 - a two-thirds increase in price in just 12 months.
To help reduce delays for ships, the southern California ports are working with the Biden administration and the transportation department, Long Beach mayor Robert Garcia announced on Twitter.
The traffic-jam at the ports has directly impacted the prices for artificial Christmas trees
Balsam Hill, an artificial tree company based in California, is selling its four-and-a-half-foot tall Grand Canyon Cedar Tree for $499 this year, up from $300 last year
The port of Long Beach is testing out a 24/7 pilot program that would expand the hours for cargo pickup to a time when there is less traffic in the region, allowing for speedier deliveries.
Meanwhile, shares in Costco, which beat market expectations for quarterly revenue on strong demand for fresh foods, snacks, household items and jewelry, were up about 1 per cent after the closing bell on Thursday.
People returning to social events and outdoor activities following the rollout of vaccines has boosted demand for sporting goods and jewelry at Costco stores and helped offset some of the slowdown in sales of groceries following last year's lockdown-induced panic buying.
Costco's total revenue rose to $62.68 billion in the fourth quarter from $53.38 billion a year earlier. Analysts on average had expected revenue of $61.30 billion, according to IBES data from Refinitiv.
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