If you’re interested in retail, you should already know that Costco is a physical manifestation of near-perfect inventory management. This births a lot of questions, with the most important one being: where does Costco get their inventory.
Costco gets most of the inventory to restock its shelves directly from manufacturers to cut costs. They work directly with manufacturers, sharing data to help the manufacturers identify the items in demand and supply more of them in real-time.
This article will answer most of the questions you’ve had about Costco’s unique inventory supply chain. Also, you’ll learn how Costco managed to grow one of the largest retail chains in the US through an efficient supply chain.
Where Does Costco Get Their Inventory?
Since Costco sells at near-wholesale prices, you may be curious as to how they get the products they sell to customers. Regardless of any rumor that you might have heard, Costco gets their inventory directly from the manufacturers, explaining why they can easily cut costs.
However, this doesn’t paint the full picture of why prices are typically low at Costco. To be fair, most other retailers buy directly from manufacturers; how does Costco manage to keep its prices so low?
There are two primary reasons why goods sell at an incredibly lower price at Costco. The obvious one is because Costco members actually pay to shop. Since Costco already makes a lot of money on these membership payments, it doesn’t need to mark up its prices insanely like most other stores.
The second reason isn’t so traditional. For context, a Walmart SuperCenter has about 140,000 different products on sale at any given time, and your average supermarket has around 30,000. In Costco, only about 3,000 to 4,000 different products are usually in stock at a given time.
If you don’t understand how this helps Costco lower prices, I’ll give you an explanation. Since Costco is a very successful retailer, getting your product on Costco almost surely means it will fly off the shelves.
To keep it this way, Costco creates a sense of competition among manufacturers by only allowing stocking from a limited number of brands. Everyone will try to keep their prices as low as possible while maintaining top-of-the-line quality just to ensure their products appear on Costco.
And it doesn’t end there. When Costco gets most shipments at a lower price than most other retail stores, they don’t mark their prices up by much. Thanks to the membership payments, they can only mark up the price for a piece of furniture by 15% at most.
And have you wondered why you’ve never seen an ad for Costco? It’s because they don’t run ads. Skimping on advertising helps to keep operating costs low, allowing Costco to record profits even with slight markup on prices.
When Does Costco Restock its Products?
If you’re planning to shop for an item at Costco, going when they’ve just stocked the products will increase your chances of getting it in stock. To be certain, however, you should check if the product is currently in stock at Costco.
Costco restocks most of its inventory every day at 4:00 am. It is also the only major stocking that occurs every day. If you’re after an item that’s currently out of stock, your best bet is to revisit the store tomorrow, and not later today.
In the case of food and other essential items, however, Costco usually stocks them throughout the day. Even in this case, all subsequent restocks apart from the first one in the morning are always minor.
In special cases like Christmas and Easter when demand for everyday products goes through the roof, Costco adopts 24-hour restocking, enabling them to keep up with the insane demand.
When Does Costco Restock Products Online?
If you’ve shopped at Costco for a while, you should know that the website operates somewhat independently of their physical warehouses around. Even if an item is in stock at a store, it may be out of stock on the website and vice versa.
However, you have a better chance of getting a product restocked sooner if it goes out of stock online. Costco restocks products for its online inventory throughout the day, as opposed to the physical stores that only receive a major shipment every day.
If you’re shopping on the Costco website for an item that’s out of stock, you don’t need to wait until 4:00 am of the next day. Just keep the tab open and refresh the page periodically, and you may be lucky to see the product get restocked pretty soon.
What Inventory System Does Costco Use?
With many retail stores closing up due to the inability to keep up with customer demand in these trying times, Costco’s inventory management system must be remarkable to enable them to keep offering the lowest prices in an insanely challenging market.
Unlike some other retailers, Costco uses just-in-time inventory management to ensure they can almost always meet customer demands while ensuring that they don’t overstock.
With Costco’s excellent inventory management, it can turn its inventory around 12 times a year, which is nothing short of remarkable. The fact that Costco only stocks the products they need and nothing more helps them to keep this remarkable record.
Also, Costco adopts many practices to cut down the cost of its products, making them an easy choice over any other competitor. This has worked perfectly, even as one of these cost-cutting strategies is asking customers to pay to shop.
Costco also works with most manufacturers to get the needed inventory to restock the shelves in real-time, even if this will involve having to share usually private sales data with them.
Costco takes advantage of its enormous network of warehouses to stock up on items that will see a price increase. A real-life example of this is when they bought hundreds of truckloads of paper towels from Procter & Gamble because the manufacturer was marking up prices by 6%.
Using their inventory management system and cost-cutting practices, Costco can keep their prices lower than that of most competitors, while not buying anything that won’t sell out in the long run.
