Why Is Costco Extinguishing Cigarettes?

The reason the warehouse club is quietly phasing out tobacco sales

ISSAQUAH, Wash. -- Warehouse club Costco Wholesale Corp. is quietly phasing out tobacco SKUs this year, said a report by TheStreet.com. The company began reducing the presence of cigarettes in some of its U.S. locations about three or four years ago, according to a Costco spokesperson, but had not widely publicized its plans. Costco cigarettes tobacco

It dropped a hint of its actions on a call with analysts about its most recent earnings, when it said sales of tobacco products fell by a "low double-digit" percentage as Costco "continues to eliminate tobacco SKUs from various locations."

Executives have made it a special focus to pull tobacco products from Costco's business center warehouses (which sell products tailored to local businesses), reducing the potential of large customers such as local convenience stores to have items delivered.

"Tobacco is a very low-margin business, tends to have higher theft and is labor intensive in some cases (due to local municipality regulations); further, we felt we could better use the space to merchandise other items," a company spokesperson told the financial website.

However, Costco doesn't believe tobacco will be pulled from all its warehouses "anytime soon." Of 488 U.S. Costco locations, 189 still sell tobacco, said the report.

Costco estimates that tobacco sales as a percentage of its total business is about a low single-digit percentage.

It follows CVS, which stopped selling cigarettes and other tobacco products in September 2014.



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