Costco phasing out tobacco sales in most stores

By Daphne Howland | March 15, 2016

Dive Brief:

• Wholesale retailer Costco has been phasing out tobacco sales at most of its stores for the last couple of years because the low margins and high hassle factor aren’t worth it, the company told The Street. 
• Costco would rather have the space for something else, a spokesperson said. Not all stores are phasing out tobacco products: 189 of its 488 sites continue to sell them, according to The Street.
• Many Costco shoppers, especially in low-tax states like Virginia, buy cigarettes in bulk to resell on the black market, a practice that has dragged the retailer into crime-fighting operations.

Dive Insight:

True to its low-key, no-frills approach, Costco isn’t publicizing its cessation of tobacco sales because "We don't do releases at Costco, they are a waste of money," according to a spokesperson. 

Selling tobacco is apparently a waste of money itself, at least in more than half of Costco stores. Unlike CVS Health, whichended its tobacco sales because tobacco didn't fit into its pursuit of a well-rounded health and beauty business, Costco says it’s making a basic business decision.

Target made the same move 20 years ago, also because tobacco sales represented a tiny percentage of its business, yet posed significant headaches considering that it's taxed differently in different states and scrutinized for sales to minors. No doubt the fact that California just increased the legal smoking age to 21 is also helping retailers make the decision to halt tobacco sales: Consumers are trending away from tobacco use, despite increased adoption of e-cigarettes or “vaping.” 

The winners—aside from the smokers who may be even more likely to quit (CVS claims that its halt to tobacco sales has spurred more Americans to kick the habit)—are the dollar stores, convenience stores, and drugstore retailers (besides CVS) that smokers must now frequent to get their tobacco fix.