Costco members understand that they’re trading certain frills like fancy floor displays, grocery bags, and in-store directories for lower prices.
In recent years, however, Costco has been investing in technology to improve the in-store shopping experience. Those changes have been careful investments that speed up uncomfortable processes such as checkout and verifying membership.
“In digital, we are making meaningful strides to deliver a more seamless and convenient experience for our members across the warehouse and online. As a result of our investments in technology, the commitment from our employees to use this technology to deliver a great member experience, we are seeing a significant improvement in the speed of checkout,” CEO Ron Vachris said during the chain’s third-quarter earnings call.
Those changes have been widely covered, but many Costco members don’t know that the chain has also been making a major non-technology investment to improve their shopping experience.
Costco makes store access easier
About a year ago, on July 1, Costco expanded its shopping hours, giving Executive members an exclusive one-hour early entry at 9 a.m. Additionally, the chain officially extended its Saturday closing time to 7 p.m. for all shoppers.
Many people saw that move as adding a perk for the chain’s Executive Members, who pay $130 a year, instead of $65 for a Gold Star membership, in order to get 2% cash back on most purchases up to $1,250 per year.
That was certainly part of Costco’s logic, but the chain had an ulterior motive for expanding its hours. It was one of a series of moves designed to make it easier for members to visit its warehouse clubs.
“I do think there is a lot of work that we have done over recent quarters to create more opportunity for members to visit more frequently, whether it was the extended hours for our gas stations… The extended operating hours in our warehouses that we launched just under a year ago,” CFO Gary Millerchip shared during the earnings call.
Making warehouses easier to access can increase shopping frequency. This is a key metric for Costco because members who visit more often typically spend more.
The chain, he noted, has also been investing in its parking lots.
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Costco quietly expands its parking lots
As a long-time Costco member, I know the pain of not being able to find a parking space. It was a common issue on weekends at the Costco we frequented in Conn., which shared its parking lot with multiple other high-volume retailers.
Parking lots, for many retailers, and not just Costco, have been an overlooked part of the store design process.
“What happens is, they are often laid out by architects or site engineers who don’t really know about traffic control,” Gordon Meth, a civil engineer and parking design expert, told the Los Angeles Times.
In Costco’s case, it has sometimes been a question of simply not having enough parking spaces, and the chain is taking steps to address that.
Related: History of Costco: Company timeline and facts
Vachris said that the chain has been focused on “acquisitions of adjacent properties to our warehouses expanding parking lots.”
The chain also plans to move certain warehouses to address the parking issue.
“So far this year, we have also completed 2 relocations with 1 more planned in Q4 as we continue to relocate select high volume warehouses to larger locations with more parking and expanded gas stations to provide a better member experience and drive more volumes in these warehouses,” he added.
Costco has to address its own success
The membership-based club has a formula for when it looks to open a new warehouse to help take some of the burden off an existing location.
“Costco is currently facing a unique real estate crisis: their stores are simply making too much money. Once a specific warehouse hits $300 million to $400 million in annual volume, the parking lot completely maxes out and shoppers actively stay away on weekends,” RTMNexus CEO Dominick Miserandino told TheStreet.
That triggers the chain to look for expansion opportunities.
“To fix this, Costco is executing a strategy of ‘strategic cannibalization’ — building brand-new ‘relief stores’ just a few miles away from their most overburdened locations,” he added.
Expanding parking lots, adding hours, and improving checkout speeds can all act as pressure releases for busy stores.
Kenneth Schuckman operates Schuckman Realty, a full-service commercial real estate services firm serving New York City, Long Island, and the surrounding tri-state area and New Jersey. He shared some insights on how Costco picks new locations.
“The idea is simple: build new warehouses near overburdened locations to redistribute customer volume and improve the shopping experience. These in-fill locations allow customers to spend less time battling for parking spaces or waiting in long lines, which in turn encourages more frequent visits and higher spending,” he shared on his website.
Related: Costco drops gas prices slower than Walmart and Kroger
