Costco has never been a leader in much other than offering members low prices.
The company only innovates when it has to. During the Covid pandemic, for example, it took charge of its own shipping containers. That was a move made out of need, but it proved the company can be agile when possible.
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It has also done really well with Costco Logistics, a company it created because it did not like any of the other options it had for making larger deliveries.
“It’s about 20% to 25% of our total deliveries for Costco Logistics, but it is about 80% to 85% of our big and bulky,” CEO Ron Vachris said during Costco’s third-quarter earnings call.
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The warehouse club has let its managers make decisions for use to use that resource.
“We make our buyers make decisions of what to put through that network and what not to put through it. And so, they look for the best cost delivery source. And so, we know that big and bulky patio furniture, television, safe, those kind of things, all but the super specialty stuff we run through Costco Logistics. So, a big chunk of that business is going through the network of big and bulky,” he added.
Delivery, however, may not be the biggest opportunity Costco (COST) has.
The vast majority of Costco’s business has been in its warehouses.
Image source: Bloomberg/Getty Images
Costco has a huge opportunity
For years, Costco had a website, but did not even sell anything online. That has changed and the chain not only sells some of what it offers in its warehouses, but also deals from third-party sellers.
The warehouse club also has an app, and CFO Gary Millerchip thinks that the company has barely scratched the surface of the potential there.
He was asked about it during the call.
“And are there any members that haven’t used your digital yet in some way, shape or form, or is it still only half the people that really use it?” asked Greg Melich.
Millerchip was enthusiastic in his response.
“Yeah. It’s over half has downloaded the app for sure, but there’s still plenty of opportunity for growth in our mind. We still see it as an area where we’d expect to outpace our overall growth,” he added.
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It’s not just about getting members to use the app, but also making it better.
“And as we continue to improve the member experience with enhancements every quarter, Greg around, whether it’s the inventory available on the app or improving the search functionality, improving the way in which we communicate with members, as I talked about earlier on the call, we believe all of those things are going to drive more digital engagement,” he added.
Costco’s app may solve another problem
Millerchip believes that the Costco app may also have in-store uses as well.
“We think tied to even some of the comments that Ron was making about speed of checkout, where members use their digital wallet and have their payment card integrated within the wallet, it significantly increases the speed of checkout through the check lane in the warehouse as well,” he said.
The CFO also made it clear that the app might be useful in ways he’s not even considered yet.
“So, we still think there’s plenty of opportunity to keep driving higher penetration of digital engagement with our members and we think it’s got a runway to continue to grow in the future,” he added.
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Vachris made more comments on digital and the app later in the call.
“We found that digital really enhances the speed of checkout. And so, we are really working hard on the digital membership card usage as well. 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,” he said. “We’ve seen some very, very early results have been very positive and great adoption from our members seeing that as well.”
