Should Costco Be Channeling Tariff Recoveries to Members?

Costco plans to pass on savings from tariff refunds to shoppers through lower prices if the warehouse retailer manages to land a windfall.

“As we’ve done in the past, when legal challenges have recovered charges passed on in some form to our members, our commitment will be to find the best way to return this value to our members through lower prices and better values,” CEO Ron Vachris said on a quarterly analyst call. “We’ll be transparent in how we plan to do this if and when we receive any refunds.”

Vachris cautioned that it’s “not yet clear what the process will be, what refunds, if any, will be received, and when this will happen.”

He added that Costco has absorbed some of the tariff impact. Vachris said, “Throughout the past year, we have taken action to reduce the impact of tariffs; in many cases, we did not pass the full cost on to our members.”

In its latest fiscal second quarter ended February 15, Costco lowered prices on eggs, cheese, coffee, and some paper products due to lower inflation for those goods. Vachris said, “At Costco, we always want to be the first to lower prices and the last to raise them.”

Costco and Other Retailers Mull What To Do if Tariff Refunds Materialize

A survey from KPMG of 300 U.S.-based c-suite and business leaders at organizations across sectors with annual revenues above $1 billion shared with Fortune’s CFO Daily and CFO Dive found only 18% would fully reverse price hikes resulting from Trump’s tariffs. Among the respondents, 34% would implement a partial rollback of price increases and 30% would use temporary promotional pricing.

If refunds arrive, the survey showed companies would most likely reinvest in supply chain diversification (14%), followed by working capital and inventory (13%), R&D/product innovation (12%), and capital expenditures (12%). Shareholder returns and customer credits/rebates ranked the lowest -- at 5% and 4%, respectively.

The KPMG survey was taken between Feb. 9 to 24 while the U.S. Supreme Court’s ruling that many of Trump’s tariffs -- those invoking the International Emergency Economic Powers Act (IEEPA) -- were unconstitutional arrived on Feb. 20.

Matt Priest, president and CEO the Footwear Distributors and Retailers of America (FDRA), told SGBonline that he suspects some companies may use potential refunds to lower pricing in price-sensitive channels -- but others may choose to make investments in new hires, technology, or facilities they’ve been putting off due to cost pressures from tariffs. He also noted there’s been “some dumbing down of product” to lower the FOB (freight on board) cost of imports, and that any tariff recovery could shift toward quality upgrades.

Priest said, “The companies will make their determination. Capitalism has a funny way of sorting all that out on behalf of the American consumer.”