Costco generally lags behind its competitors when it comes to technology. That's largely because the chain does not invest in ideas that have not been fully proven.
Unlike rivals like Amazon and Walmart, the warehouse club does not see itself as a technology company. That doesn't mean it never adds new innovations, the chain most certainly does, it simply waits until they become something that makes the membership experience better.
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Costco (COST) also finds clever ways, in many cases, to offer services that rival what Amazon (AMZN) , Walmart (WMT) , and Target (TGT) have spent millions, sometimes billions on. The warehouse club, for example, does offer same-day delivery but it does not spend any money to do it.
Instead, the chain contracted out the service to Instacart. That's a move that's very typical of a chain that focuses on delivering the best prices possible for members.
That starts with keeping its SKU (stock-keeping unit) count low so its buyers have the most purchasing power, but it extends in so many other ways. Costco works with its vendors to lower costs and scrutinizes every dime it spends.
The warehouse club, however, has identified an area where it could be taking in more money outside of memberships and what it sells in its clubs and online. It's an opportunity the company has not focused on, but that is changing and most of the money brought in will be put into lowering prices.
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Costco has an untapped source of revenue
In his final earnings call before stepping down as Costco CFO, Richard Galanti fielded a question about his company's plans for retail media and advertising dollars. Rivals including Amazon, Walmart, and Target take in hundreds of millions of dollars to deliver ads in their stores and websites.
"Well, without giving numbers out, we know there's an opportunity there, more than we've done in the past. In the last 6 or 8 months, we brought on people that are seasoned in this business to help us. And it's a point of focus. We know that there's money out there," he said.
Costco, he noted, does have related experience.
"We've always been very successful in other forms of vendor buckets, whether it's end caps or advertising in our own Costco connection, and of course, over the last several years, some advertising online or banners or placement. But there's a lot more that can be done there," he added.
Costco would give the money to its customers
Costco, should it manage to increase the advertising dollars it takes in, has good news for its members about how the money would be spent.
"Rest assured, whatever it is, we're going to use it to — just like when we always said, if we can save $1 on buying something, we're going to give $0.80 or $0.90 to the customer. I think that mantra will continue on this side as well," Galanti shared.
The now-retired CFO believes that this could be a major revenue source for the warehouse club.
"There's certainly ability for more dollars out there. Some of our big retail competitors have talked about doubling in five or six years what they have. I think, again, it's a lower market share for us, so there's a little more opportunity for us to continue to grow that," he added.
Costco ended the fiscal second quarter with 73.4 million paid household members, up 7.8% versus last year, and 132 million cardholders, up 7.3%, with continuing growth throughout the quarters. The company also continued to grow its Executive membership base. The quarter ended on Feb. 18.
"At Q2 end, we had 33.9 million paid executive members, an increase of 646,000 during the 12-week second quarter. Executive members represent a little over 46% of paid members and a little over 73% of worldwide sales," Galanti said.
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Executive members pay $120 per year, twice what a basic Gold membership costs, but get 2% cash back up, to $1,000 annually, on most purchases.
