Dive Brief:
- Container shortages at points of origin and West Coast ports in the U.S. are delaying Costco inventory replenishment by two to four days, Chief Financial Officer Richard Galanti said on a Thursday earnings call.
- "We are managing through it and expect relief not until March or so of 2021," Galanti said.
- To contend with container imbalances and other delivery snags in the over-taxed last-mile ecosystem, Costco is adjusting the expected delivery times shared with online customers and has been reminding consumers to shop early this holiday season, Galanti said. E-commerce sales rose 86% YoY in the quarter ending Nov. 22. Galanti said the figure would be 100% if it were to include same-day, third-party players like Instacart.
Dive Insight:
Above-normal consumer spending, following a period of retailer hesitancy in the spring and summer, has brought a crush of imports to U.S. shores in recent months, leading to delays getting cargo inland from West Coast ports and a global imbalance of containers.
U.S. restocking of goods coming from Asia has led ocean carriers to be tens of thousands of containers short at Asian ports, with some encouraging use of 20-foot containers rather than the 40-foot size. Such bottlenecks have been so detrimental to freight movement the Federal Maritime Commission is looking into the root causes of congestion at the Port of New York and New Jersey, the Port of Long Beach and the Port of Los Angeles.
For Costco, these dynamics mean further struggles to keep warehouse shelves stocked. The retailer has a famously streamlined supply chain, offering big discounts and quantities, but few alternatives within merchandise categories. Keeping inventories full enough to meet outsized demand was an issue for Costco in the first quarter due to supplier shutdowns and shortages.
"In some cases, it’s a little easier in a sense that we have fewer suppliers to deal with or fewer items to deal with. Arguably, in other cases, given our huge volumes, that creates its own challenges sometimes," Galanti said.
Many of these supplier issues are now resolved, but another surge in demand, paired with freight issues, is hindering Costco from exploding comparative sales thresholds to the max Galanti thinks it can.
"Even higher increases in demand of some products are still creating some supply issues. There are instances of 50%, 100% or even more sales increases of an item and if we can procure more, we’ve had even higher sales," Galanti said.
Food supply issues are in the past for the most part, he said, but exercise equipment, appliances, electronics, housewares, nitrile gloves, paper products and cleaning suppliers remain a challenge to keep in stock.
Galanti somewhat downplayed the impact of the container delays, but expressed that the trend is the source of some frustration.
"Two days for us is not a lot, but when you are moving inventory fast, you want to have it," the CFO said.
