You want to know why the tariffs haven't mattered to the American people, why they have been so isolated and so unimpactful?
Go listen to the Costco (COST) conference call and you will know why. This company, which, remember, is top of its class when it comes to everything from lowest prices to worker retention to high quality produce and a private label that's regarded as superior to most brands, just keeps delivering and it keeps delivering because the people who run it are amazing operators and, yet, just really good guys. Funny guys even.
If you don't know Costco, they are the country's second largest retailer by sales. They have about 100 million members. The dues keep their prices low.
But more important, the company carries far fewer units than a typical large box store: 3700 products versus, say 140,000 products for Walmart (WMT) . They can pick and choose. If they think that something's too expensive they scale it down.
At the same time they have such scale and so much creativity that its brilliant CFO, Richard Galanti, said,"inflation is almost a non-issue." This was typical tour de force Galanti: "At the end of the day we think we've done as good as anybody in terms of being able to mitigate the impact" of the tariffs, he said. "I think the fact that our margins, our core margins, generally speaking, even in departments like hardlines and softlines have been slightly up year-over-year. And certainly we haven't done that without first and foremost being the most competitive out there."
I also got the impression that any real boost in tariffs from China is simply met by management finding a Kirkland brand alternative from somewhere else in the globe - a private label offering that is cheaper and better than what the Chinese make. Scale's a beautiful thing.
But you know what? It might not even matter. The American consumer is so flush that the big purchases highlighted are amazingly discretionary: "Big items are strong, particularly electronics items," Galanti said. Full price offerings of Apple's (AAPL) accessories are selling well. And, "it's other big ticket high end game computers and game consoles, big screen TVs are huge recognizing the price and value of those things for consumers keep coming down which is great."
In other words, the consumer's spending well, while she's saving at Costco.
Nothing's perfect. They had a crucial website glitch that caused them to lose some sales.
It's easy to see that someone can knock their online offerings because they haven't grown like Walmart's or Target's (TGT) .
But what matters to me is that Costco's model works perfectly in a trade war.
Oh, and irony of ironies: you know where it works best? Shanghai.
Costco recently opened one there and it was mobbed. I will leave you with this priceless Galanti-ism: "The average Costco in the world has somewhere in the mid- to high-60,000 of member households. We had locations in other countries in Asia where we might be at 100,000, 120,000 after a few years, maybe even one or two years. This one is more than twice that."
You want a China problem with Costco? There are 25 million people in Shanghai. They have only one Costco. The issue: the lines must be too long, they need more Costcos and they need them now.