⚠ Tariffs Land on a Margin With No RoomModerate threat

A thin margin is efficient and it is also brittle. Every 10 basis points of gross margin is worth roughly $270 million to Costco at fiscal 2025 volumes, so a cost shock that a department store would shrug off arrives here as a meaningful share of profit.

Costco's own risk factors name the exposure directly: "trade-related actions in various countries have affected the costs of some of our merchandise," with the impact depending on "the type of goods, rates imposed, and timing of the tariffs and policy changes," and "Higher tariffs could adversely impact our results."¹ The company's counter-measures are the ones a buyer with 4,000 items has available and a buyer with fifty thousand does not: change the country of origin, change the supplier, change the item, or take the price increase and let the member see it.

The structural defence is that Costco's mix is heavily food. Foods and sundries were $109,564 million and fresh foods $37,988 million of fiscal 2025 net sales — $147,552 million of $269,912 million, or 55%² — and most of it is sourced regionally rather than imported. The exposure concentrates in non-foods, $71,190 million, which is where the general merchandise sits.

The thing that makes this a live risk rather than a permanent one is that Costco has less pricing headroom than any comparable retailer by construction. A company operating at 25% gross margin can absorb a tariff quietly for a year. A company at 11.12% either passes it on, which members notice immediately because low prices are the entire product, or absorbs it, which costs a visible share of a $5,060 million merchandise profit. There is no third option, and the absence of that third option is the price of the model.