Costco, FedEx, Nike Among Companies Expecting Higher Inflation Ahead of Holidays

June 28, 2019 Stockton / CA / USA - Branded Costco Wholesale trucks driving on the freeway.
Sundry Photography / Getty Images

Holiday shoppers who fear a Winter Wonderland of higher prices didn’t get much jolly news last week, as officials from Costco, Nike, FedEx and other major brands warned that continued supply chain problems could lead to even higher inflation as the holidays approach.

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In a Thursday conference call with analysts, Costco Chief Financial Officer Richard Galanti said freight costs are “permanent inflationary items,” CNBC reported. Those increases — combined with higher labor costs, rising demand for transportation, higher commodity prices and shortages of everything from computer chips to chemicals — could put even more pressure on prices that have already been rising for months.

Galanti expects inflation to run between 3.5% and 4.5% overall for Costco, with some products seeing even higher inflation. Costs for paper products have risen 4% to 8%, Galanti said, while shortages of plastic and pet products have driven their costs up between 5% and 11%.

For consumers, those higher costs will likely mean higher prices.

“Some of that has to be passed on, and it is being passed on,” Galanti said. “We’re pragmatic about it.”

Similar concerns have been raised by a number of other high-profile companies, including Nike, FedEx, UPS and General Mills.

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Among the primary drivers of recent inflation are supply chain problems in global manufacturing centers. As previously reported by GOBankingRates, countries such as Vietnam, Malaysia and Indonesia have all suffered a slowdown in production due to the COVID-19 pandemic.

The timing, of course, could hardly be worse, as prices are rising just ahead of the holiday shopping season. This means companies have to make some tough decisions about which products to carry, and how to price them.

“Getting closer to the holidays, we have been working with retailers and what we see is, No. 1, they’ve got to be flexible with their supply chain,” Keith Jelinek, managing director of the global retail practice at consulting firm Berkeley Research Group, told CNBC.

Among other things, he has seen cost increases in apparel, inbound shipping and ground transportation. Those costs all affect operating profits at retailers.

“Retailers right now are really challenged with, ‘How much can I pass onto the consumer vs. can I get other efficiencies out of my operations in order to hit my total margin’,” Jelinek said.

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In Nike’s earnings call last week, CFO Matthew Friend mentioned upcoming price increases. FedEx announced that it will raise shipping rates 5.9% for domestic services and 7.9% for other services as it deals with both labor shortages and a “challenging operating environment.”

Meanwhile, UPS CEO Carol Tome told CNBC’s “Closing Bell” that “in certain parts of the country we’ve had to make some market-rate adjustments to react to the demands of the market…I’m afraid this is going to last for a while.”

About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.

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