Costco Typifies Companies 'of Scale' With Good Tariff Mitigation Plans in Place, CFO Says

There continues to be “a lot of moving parts” to the Section 301 tariffs on Chinese imports, Costco Chief Financial Officer Richard Galanti said on a fiscal Q1 call on Dec. 12. With the “current news” that the U.S. and China are close to a “Phase One” trade deal, “we will have to wait and see,” he said. U.S. and Chinese negotiators confirmed agreement Dec. 13 on the Phase One deal (see 1912130035) that includes rolling back the List 4A tariffs by half to 7.5 percent and suspending the List 4B duties that were to take effect Dec. 15. The Trump administration said it’s keeping the 25 percent tariffs in place on the first three tranches of goods.

Companies “of scale,” including Costco, “have had a relatively good mitigation plan” in place during the four rounds of tariffs imposed since mid-2018, Galanti said. It’s “easier” to mitigate “a 10 percent tariff than a 25 percent,” he said. “Like others, we have moved a few things where we can and sourced it out of other countries.”

Costco’s China imports are “just a few percentage points lower than a year ago,” Galanti said. “Nobody can do a lot of that” alternative sourcing, “nor can we,” he said. In some cases where tariffs have raised pricing “and we have passed on all or some of it, we haven't seen an impact to the unit sales,” he said. “On others, we have, and we never know until it happens.” Costco has “done as good as anybody in terms of being able to mitigate the impact,” he said.