Costco Asks Suppliers for Price Concessions

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Costco Asks Suppliers for Price Concessions

By Jacqueline Barba - 03/28/2018

In response to price pressure from e-commerce giant Amazon, Costco is asking its suppliers to lower their prices in categories ranging from televisions to personal care items.

“The warehouse club chain wants vendors to shoulder a greater part of the cost of limited-time promotions,” according to a Bloomberg report sourcing Costco’s analysts call earlier this month.

Although Costco and Amazon both already demand the lowest prices from manufacturers, analysts have expressed concern that the warehouse club must continue to lower its prices in order to compete with Amazon long term. For now, the warehouse club chain is reporting better-than-expected quarterly earnings in terms of same-store sales, revenue, member renewal rate and online sales while many other retailers struggle to stay afloat.

“Costco is betting that prodding suppliers to reduce already low prices could make a difference. It’s an area where the company has an upper hand most competitors’ lack: Costco’s limited inventory has the effect of making its shelf space more valuable to suppliers,” according to Bloomberg.

“[Trying new things with our vendors is] a lot easier to do when you’ve got 3,800 items out there, versus 50,000 in a supermarket," Galanti said on the aforementioned earnings call.

As convenience increasingly rises in importance over brand loyalty, manufacturers such as Procter & Gamble, Nestle and Samsung are losing market share, Bloomberg noted. Costco is using this as leverage to press suppliers for lower prices.

As part of its strategy to compete on price, the chain also is expanding its own Kirkland Signature private label with products including fragrances, apparel and a Nutella-like hazelnut spread that’s “flying off the shelves,” chief financial officer Richard Galanti told analysts on the call.

After reporting weak online earnings largely due to its early reluctance to embrace e-commerce, Costco started making e-commerce moves such as implementing a competitive delivery program last year, CostcoGrocery and delivery via Instacart, and arming associates with tablets to facilitate online orders at some stores.