Costco has been known to sell watches with serial numbers removed. This can be a problem in two ways. First of all, it is illegal to even possess a watch with serial numbers that have been removed in some states. For example, in California, it is a violation of Penal Code section 537(e).
537e. (a) Any person who knowingly buys, sells, receives, disposes of, conceals, or has in his or her possession any personal property from which the manufacturer's serial number, identification number, electronic serial number, or any other distinguishing number or identification mark has been removed, defaced, covered, altered, or destroyed, is guilty of a public offense, punishable as follows:
(1) If the value of the property does not exceed four hundred
dollars ($400), by imprisonment in a county jail not exceeding six
months.
(2) If the value of the property exceeds four hundred dollars
($400), by imprisonment in a county jail not exceeding one year.
For purposes of this subdivision, "personal property" includes,
but is not limited to, the following:
(8) Any clock, watch, watch case, or watch movement.
Secondly, the watch will never be serviced by an authorized repair facility in this condition.
From what I understand, Costco will simply swap out a watch that is defective. Due to their volume purchases, they probably just eat the returned watches. However, you will be at their mercy. You cannot take a watch with ground off serial numbers to an authorized dealer for repair. The reason that serial numbers are ground off in the first place is to protect dealers. Dealers often buy too many watches and need to sell off their excess inventory. They don't want to lose their dealership by selling to gray market sources. Since serial numbers are recorded by watch manufacturers, the dealers have the numbers ground off so the watches cannot be traced back to them. What many dealers do not realize is that this turns the watches into illegal contraband in many states that have serial number alteration laws.