Costco warehouses operate essentially as warehouses, but the chain has slowly been evolving the member experience.
The warehouse club wants to make sure only members enter its clubs so, in some locations, it has added scanners for when you enter. Members simply hold their card up to the scanner and are then admitted.
“The scanners were a very big win for us,” CEO Ron Vachris said during Costco's second-quarter earnings call.
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The scanners, however, are not quite so great for members, which I have been, but am not now. They slow down the process of getting in, but Costco sees other benefits.
Using the scanners gives Costco (COST) data it previously did not have access to.
“Scanning at the front door was very, very helpful for our operations, really kept our people informed on what traffic looks like and they can adjust opening up registers and closing registers, and we saw some great improvements in productivity from that as well,” he added.
Now, Costco has been testing more technology to help get customers in and out of its stores faster. That's a key goal because, in some locations parking has become a challenge which creates a frustrating experience for members.
Costco sees checkout speed as a key priority
While Costco has traditionally been a low-tech company, Vachris expects that to change. That doesn't mean being on the cutting edge.
It's more a question of the warehouse club finding the best ways to add proven technology to its locations.
Vachris shared the more was to come.
“That was just the foray into the whole technology thing,” he said of the member card scanners.
He also acknowledged that Costco had plans to add self-checkout technology.
That was in response to a question from Analyst Edward Kelly.
“But then when you think about checkout and exit, and obviously, it's a high-class problem but it's very busy,” Kelly asked.
Vachris admitted to the problem.
“So, we see many things going with self-checkout, how we can improve that. And so, that is indeed one of our biggest areas of focus for technology in our warehouses is how we can get members through quickly and turn parking spaces and do those types of things is a big push for us,” he said,
The CEO did not limit Costco's options to self-checkout. He left the door open for other technologies.
“The speed of the checkout is one of our primary focuses right now,” he added.
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That was something he followed up on during the chain's third-quarter earnings call.
“We've also engaged in some ‘Scan & Go done by Costco' kind of tests that we're doing out there that have been extremely successful of moving people through the lines and expediting the transactions. We've seen some very, very early results have been very positive and great adoption from our members seeing that as well,” he added.
Costco seems to embrace technology
Costco has also embraced technology to make it easier for members to know what's in stock (and at what price) in their local club.
“We continue to make progress with our technology road map. The new warehouse tool in our app, which allows members to view local warehouse item availability and prices had over 43 million visits,” he said.
Costco has also used new technology to personalize its mult-vendor mailers (MVM).
“On personalization, for the first time in Q2, we sent out multiple versions of our digital MVM, differentiating the message for members based on their previous shopping behavior,” Vachris shared.
These, however, are just the early innings for Costco's technology efforts.
“We still have a lot of work to do in this area and are excited about the potential to improve the member experience through more relevant targeted messages and experiences,” he said.
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The CEO noted that the company faced a tough comp because during the yeat-ago quarter, it had sold gold bullion online to great success.
“While strength in bullion was a meaningful tailwind to e-commerce sales, home furnishings, small electrics, hardware, and sporting goods were a few of the other departments that grew double digits year over year,” he added.
Costco has taken a perfect approach for Costco
Prab, Founder of the Param Tatva Foundation believes Costco has been smart to limit its technology adoption.
In an age where retail giants are racing to adopt the latest tech trends, from artificial intelligence to virtual reality, Costco Wholesale Corporation has taken a distinct approach. Rather than diving into complex, trendy software, the company has leaned into its tried-and-true technology to drive profitability and maintain operational efficiency,” they posted on LinkedIn.
Costco has essentially taken no risks and has used technology proven elsewhere.
“While many in the industry rush to embrace modern apps and digital platforms, Costco’s commitment to simpler, established technology has proven to be a strategic advantage,” they added.
