Costco Wholesale Corp

Economic and market conditions · Economic recession and downturns

Any substantial slowing or sustained decline in these operations could materially adversely affect our business and financial results. Declines in financial performance of our U.S. operations, particularly in California, and our Canadian operations could arise from, among other things: slow growth or declines in comparable warehouse sales (comparable sales); negative trends in operating expenses, including increased labor, healthcare, and energy costs; changes or uncertainties in economic conditions in our markets, including higher levels of unemployment and depressed home values.

Economic and market conditions · Inflation and deflation pressures

Inflationary factors, such as increases in merchandise costs, may adversely affect our business, financial condition and results of operations. We may not be able to adjust prices to sufficiently offset the effect of cost increases without negatively impacting consumer demand. Prices of certain commodities, including gasoline and consumable goods used in manufacturing and our warehouse retail operations, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, inflationary pressures, labor costs, competition, market speculation, government regulations, taxes, and periodic delays in delivery.

Geopolitical and trade · Trade policies tariffs and sanctions

Trade-related actions in various countries have adversely affected the costs of some of our merchandise. The degree of our exposure is dependent on (among other things) the type of goods, rates imposed, and timing of the tariffs and policy changes. Higher tariffs could adversely impact our results.

Strategic execution · Strategic transformation and turnaround risks

We may be unsuccessful implementing our growth strategy, including expanding our business in existing markets and new markets, and integrating acquisitions, which could have an adverse impact on our business, financial condition and results of operations.

Customer and revenue · Changing customer preferences and behavior

We may not timely identify or effectively respond to consumer tastes and preferences, which could negatively affect our relationship with our members, the demand for our products and services, and our market share. Failure to identify timely or effectively respond to changing consumer tastes, preferences and spending patterns including those related to resource efficiency, environmental protection, human rights, and the transition to a low-carbon economy could negatively affect our relationship with our members.

Market position and competition · Competitive pressure and market share loss

We face strong competition from other retailers and warehouse club operators, which could adversely affect our business, financial condition and results of operations. The retail business is highly competitive. We compete for members, employees, sites, products and services, and in other important respects with a wide range of local, regional and national wholesalers and retailers, both in the United States and in foreign countries, including other warehouse-club operators, supermarkets, supercenters, online retailers, gasoline stations, pharmacies, hard discounters, department and specialty stores.

Market position and competition · Disruptive competitors and new market entrants

The evolution of retailing in online and mobile channels has improved the ability of customers to comparison shop, which has enhanced competition. Additionally, the emergence of AI tools may change consumer shopping habits and increase the competition we face. AI may also present inaccurate pricing or product data, or fail to capture the full value of our membership offering, impacting member purchasing decisions.

Industry regulation · Regulatory compliance and changes

Local land use and other regulations restricting the construction and operation of our warehouses and depots, as well as local community actions opposed to the location of our warehouses or depots at specific sites and the adoption of local laws restricting our operations and environmental regulations, may impact our ability to find suitable locations and increase the cost of sites and of constructing, leasing and operating warehouses and depots.

Legal and litigation · Product liability and warranty claims

We might sell products that cause illness or injury to our members, harm to our reputation, and expose us to litigation. If our merchandise, including food and prepared food products for human consumption, drugs, children's products, pet products, and durable goods, do not meet or are perceived not to meet applicable safety or labeling standards or our members' expectations, we could experience lost sales, increased costs, litigation, or reputational harm.

Reputation and brand · Brand damage and negative publicity

Damage to our brands, reputation, or culture may negatively impact comparable sales, diminish member trust, and reduce renewal rates and, accordingly, net sales and membership fee revenue, negatively impacting our results of operations.

Core operations · Operational disruption and business continuity

Disruptions in merchandise distribution or processing, packaging, manufacturing, and other facilities could adversely affect sales and member satisfaction. We depend on the orderly operation of the merchandise receiving and distribution process, primarily through our depots. Although we believe that our operations are efficient, disruptions due to extreme weather, pandemics or other catastrophic events, labor issues, work stoppage, or other shipping problems may result in delays in the production and delivery of merchandise.

Human capital and workforce · Talent acquisition and retention

Inability to attract, train and retain qualified employees could adversely impact our business, financial condition and results of operations. Our success depends on the continued contributions of our employees, including members of our senior management and other key operations, IT, merchandising, and administrative personnel. We must attract, train, and retain a large and growing number of qualified employees, while controlling related labor costs, preserving our culture, and maintaining our core values.

Supply chain and procurement · Supplier operation and dependance

Suppliers may be unable to timely provide us with quality merchandise at competitive prices or may fail to adhere to our high standards, resulting in adverse effects on our business, merchandise inventories, sales, and profits. We depend heavily on our ability to purchase quality merchandise in sufficient quantities at competitive prices. As the quantities we require continue to grow, we have no assurances of continued supply, appropriate pricing or access to new products, and any supplier has the ability to change the terms upon which they sell to us or discontinue selling to us.

Supply chain and procurement · Supplier financial distress and capability

Our suppliers (and those they depend upon for materials and services) are subject to risks, including labor disputes, union organizing activities, human rights violations, animal welfare violations, financial liquidity, climate change, natural disasters, extreme weather conditions, environmental degradation, public health emergencies, supply constraints, and general economic and political conditions and other risks similar to those we face that could limit their ability to timely provide us with acceptable merchandise.

Supply chain and procurement · Raw material availability and cost volatility

Member demands may lead to out-of-stock positions causing a loss of sales and profits. Because of our efforts to adhere to high-quality standards for which available supply may be limited, particularly for certain food items, the large volumes we demand may not be consistently available.

Cybersecurity and data protection · Data privacy and protection regulations

Data we collect, store, and process is subject to a variety of U.S. and international laws and regulations (such as the European Union General Data Protection Regulation, California Consumer Privacy Act, Health Insurance Portability and Accountability Act, and China's Personal Information Protection Act), evolving rules concerning AI, and other privacy and cybersecurity laws.

Cybersecurity and data protection · Third party data security and vendors

We rely upon IT systems and networks, some of which are managed by or belong to third parties, including suppliers, partners, vendors, and service providers. Our IT systems and networks, or those managed by third parties such as cloud providers or suppliers that otherwise host or have access to confidential information, periodically have vulnerabilities, which may go unnoticed for a period of time.

Digital transformation and innovation · Artificial intelligence and automation

We must also effectively monitor competitive technology trends, including the evolution of artificial intelligence (AI). Any failure to effectively incorporate these technologies could adversely affect our ability to compete. Additionally, the autonomous nature of AI presents unique challenges, particularly regarding third-party systems which may operate in ways that are difficult to monitor. There is a risk that these autonomous systems could bypass internal controls, lack adequate third-party governance, or result in unauthorized access to data, data leakage, and non-compliance with applicable data privacy laws.

Digital transformation and innovation · Digital transformation and modernization

If we do not successfully develop and maintain a relevant and comprehensive digital experience for our members, our results of operations could be adversely impacted. We must keep pace with changing member expectations and new developments by our competitors. Our members are increasingly using mobile phones, tablets, computers, and other devices to shop and otherwise interact with us.

Market and investment · Market volatility and economic cycles

General economic factors, domestically and internationally, may adversely affect our business, financial condition, and results of operations. Higher energy and gasoline costs, inflation, levels of unemployment, healthcare costs, consumer debt levels, foreign-currency exchange rates, unsettled financial markets, weaknesses in housing and real estate markets, reduced consumer confidence, changes and uncertainties related to government fiscal, monetary, and tax policies including changes in interest rates, tax rates, duties, tariffs, or other restrictions could adversely affect demand for our products and services.