For all its size and power, Costco stands to take an economic hit from a worsening labor dispute.
Costco Wholesale (COST 0.10%) stock didn’t have one of its better trading sessions on Monday. Like its retail industry peers, it’s staring into the face of a potentially damaging labor action, specifically a looming strike by dockworkers at ports located on the East and Gulf Coasts. Cautious investors avoided the stock, which sagged marginally in price while the S&P 500 index increased to close 0.4% higher.
A few hours away from a strike
As of late afternoon Monday, the International Longshoremen’s Association had not reached agreement with its counterpart, the United States Maritime Alliance (a grouping of container carriers, port associations, and employers).
At that point it was looking increasingly likely that roughly 45,000 members of the dockworkers’ union employed in 36 ports would strike just after midnight on Tuesday.
This would have an immediate impact on the nation’s supply chain, on which a wide variety of businesses depend. The retail sector is directly in the line of fire, as it needs to keep its shelves stocked and its storage areas packed with inventory. That goes double for large-scale general retailers that sell products in many different categories — case in point, Costco.
Preparations made
Company management recently signaled confidence in its ability to withstand the deprivations of a strike. On its fiscal fourth-quarter earnings call late last week, CEO Ron Vachris said Costco had been taking a number of measures to prepare for this worst-case scenario. These include pre-shipping goods likely to be popular during the all-important holiday season.
While that’s somewhat reassuring, if a strike this widespread lasts for any significant duration, all retailers will surely have to cope with some degree of disruption to their business. Not only Costco shareholders, but investors in many businesses — not to mention this nation’s consumers — will be watching and hoping for a quick end to the labor dispute.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
