US unease over the COVID-19 virus boiled over in a concrete way this past weekend as crowds poured into their local Costco clubs to stock up on toilet paper, disinfectant wipes, packaged foods, tissues, bottled water, and other household staples. The urge to prepare for a possible widespread viral outbreak in the US was not limited to Costco. Walmart, Kroger, Target, and other retailers also experienced shortages, especially on the West Coast. However, Costco was affected especially strongly with whole categories being picked clean hours after new shipments arrived. Even in Massachusetts, with only two confirmed cases of the disease, empty pallets dotted the club.
Empty Pallets at Costco in Everett, Mass.
This is likely only the beginning of how the coronavirus disease will significantly impact domestic US retail. For Costco, along with the rest of the nation, much is uncertain. Forecasts and predictions will shift and evolve weekly and even daily as the virus’s speed and reach come to light. Here are several possible scenarios for how the outbreak could affect Costco:
1. Panic buying lowers sales in the near term.
Wall Street might have looked favorably on Costco’s sales bump, but it’s possible the retailer achieved little net gain. That’s because, having just stocked up in a big way, shoppers may not need to visit Costco as frequently as they usually do in the near term as long as their supplies last.
2. The sales gain ends up being incremental to Costco at the expense of other retailers.
Some of Costco’s sales bump could be replacing sales at retailers that shoppers might otherwise visit for a fill-in or immediate-use trip. Preparing for an emergency can mean buying in bulk, so some people may buy at Costco for its bulk value instead of at competing retailers.
3. The virus sets a new normal for stocked goods for the foreseeable future.
Depending on how long the virus impacts the US, having an extended stock of emergency supplies could become the new status quo for many Costco member households. Costco’s sales may not fall in the near future to counterbalance today’s preparation. Instead, they may keep pace with ongoing emergency preparedness.
4. Costco has difficulty importing items from East Asia.
Regardless of COVID-19’s spread in the US, expect shipments from Costco suppliers in East Asian markets like China, South Korea, and Japan to continue declining as new infections appear and ports see reduced activity. This situation could negatively impact the international assortment mix of items at North American Costco locations.
5. Supply chain disruptions lead to shortages.
The most serious scenario is also the most variable. COVID-19’s effect on the domestic supply chain depends on how fast and how far the virus ultimately spreads. If it spreads slowly, businesses and health services will have time to adapt. A quicker spread could mean a US workforce too sick to operate at full capacity or the need for additional precautionary measures that hamper vendor and retail operations. At a macro level, the impact of a possible recession would negatively affect Costco just as it would most other businesses.
Whether it’s unpacking the impact of COVID-19 in China, diving into logistics concerns, or viewing the outbreak through the lens of recession risks, the Kantar team will continue to cover this important global event and its effect on retail.
Stay tuned, stay safe, and wash your hands thoroughly and frequently.