Costco pivots on discretionary items as it trims holiday assortment

The product mix is going to look a little different at Costco this year, CFO Gary Millerchip told shareholders on Thursday. Though the membership store turned in a strong quarter, with net sales rising 8% year over year, customers “remain very choiceful in their spending on discretionary items,” he said.

In response to this behavior, Costco evaluated all discretionary items and decided to trim its holiday offerings, keeping only “what they felt they needed to be in Christmas trees,” CEO Ron Vachris said.

“We really thinned down that whole category,” he added.

The upside is that Costco now has shelf space for items it usually wouldn’t carry around the holidays, but are still selling well. The store brought in more backyard sheds and saunas, for example, and overall is carrying more furniture in its warehouses than it usually would have headed into the holidays.

The situation illustrates how sometimes inventory planning is a zero-sum consideration—and one category’s loss is another’s gain. TJX Companies, for instance, recently said that if supply chain issues raised costs, it planned to remove some categories and prioritize others to maintain margins. In addition, toy sellers this year are carefully weighing which products they order, out of fear they won’t have enough of the most in-demand items.

“I feel really good about the way the buyers have pivoted on discretionary items and said, ‘Okay, how can we still be relevant in the time of year, but with some new categories that we had not done before due to space limitations?’” Vachris said.