Costco Political-legal Factors

Costco operates within 11 countries but there are 2 countries that contain 82% of their storefronts; Canada and the U.S.A. Canada has been able to maintain a good score in political stability over the last couple of decades which is good news for Costco because it means that there shouldn’t be any abrupt changes that could cause Costco to suffer. The United States on the other hand has suffered a great decrease in political stability since president Trump was inaugurated, according to Fortune website the U.S. was the 13th most worsened country in 2017 due to the unpredictability of Trump. This could lead to a possible economic downturn and cause Costco to either succeed greatly due to their inexpensive items or cause them to lose everything because people won’t have enough gain from purchasing a Costco membership and will see more benefit going to a store like Walmart where they have low prices without a necessary paid membership. Costco relies pretty heavily on importing goods and Trump is planning on imposing a tariff on imported goods that could be anywhere from 20%-30%.

This will have a huge impact on Costco because that means that they will have to increase their prices by at least 20-30% and by doing this it will create a smaller gap in their prices and the locally sourced goods that they are trying to outsell. Costco has already come out with a statement claiming that they have exposure to Trump’s plan and that they will have no choice but to impose these increased tariffs in the price for the consumers. If this “major border tax” is implemented Costco will have to replace some items with locally sourced goods and no matter what there will be price increases due to the higher expense of the locally sourced goods or the increased tariffs. Another solution could be to decrease the membership cost slightly to recuperate for the increased prices. If you take a look at Costco’s environmental impacts page on their website they make it clear that they are putting a full effort forward to source food from farmers that are clean and sustainable. One way that we can see this is in a recent article discussing a new farm Costco will be sourcing millions of pounds of chicken from in years to come. This article discusses how the farm will be using dry litter instead of wet manure to reduce their waste runoff to improve the waterway safety. Another interesting point was that they are requiring all growers to get a Nebraska Department of Environmental Quality Permit and create a plan for nutrient management even though neither of these are legally required. This is one way that Costco has proven that they will always go above and beyond to ensure that they are sourcing their goods from clean and ethical farms. Another way that Costco has recently displayed their belief in clean farming is their stand on insecticides. In a recent article it was stated that “Costco is asking suppliers to Phase out neonicotinoids”.

This is due to the harm they have on bee populations and Costco has made it clear that they will not allow this. For these reasons it is clear to me that Costco is not only looking to follow these new environmental policies but are looking to prove that they will put their best foot forward in protecting this environment and this is a selling point for many consumers. If the consumers know they are buying their goods from an ethical company they will feel much better about themselves and will feel that their food is coming from good quality farms. Costco has been involved in several lawsuits due to many reasons but this recent case could be very alarming to customers at Costco as it puts their physical health at risk. In June of 2018 one of Costco’s suppliers Caito Foods LLC recalled all fresh-cut watermelon, honeydew melon, and cantaloupe melon that was distributed throughout the Midwest and southwest regions of the United States. This is a cause for concern for Costco because they have had several items found to contain salmonella before. Due to the strength of Costco’s legal team and the liability laws Costco has been protected from the brute of this outbreak. Since Caito Foods was responsible for the outbreak the liability laws protected Costco.

This is important because if consumers were aware of this outbreak they would have reason to believe that Costco is at risk. It is important for them to be aware that Costco should be put at very low fault for this incident. Continuing to use Caito foods as a supplier puts Costco at risk for having another incident like this happen again. This is an important factor because it shows that although Costco seems to source a lot of their goods from clean places there are still some suppliers who should realistically be cut form their supply chain due to the high number of recalls that Caito has had to deal with in the previous years.With trump being elected as president there were corporate tax reforms namely a large cut to the general corporate tax dropping from 35% to 21%. This is a great opportunity for Costco to earn more revenue and created a large increase in their stock, just since the election Costco’s stock has already increased by 32% versus the 8% increase from 2015-2017. This has led to Costco increasing their wages for 130,000 of their employees. Costco was already well-known for their high respect for their employees but not many other corporations are being seen taking that profit and giving a percentage of it right back to their employees. This is going to make Costco a much more desirable place to work with a $14 minimum wage at Costco versus the national average minimum wage of $7.85. This again proves that Costco is an extremely ethical company and takes pride in treating their employees with dignity.