Costco thinks about every dime it spends. That's why the membership-based warehouse clubs stores are literally warehouses.
There are no fancy displays or even efforts to take items off their shipping pallets. It's a serve yourself environment designed to take as much labor expense out of the in-store experience as possible.
It's not that Costco (COST) -) does not have workers on its warehouse floors. The chain famously pays well and has been a career destination for retail workers. Costco does, however, think about how every body is deployed because every dollar spent in excess labor adds cost which increases prices for its members.
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Throughout everything it does for members, the warehouse club always keeps pricing at the center of its thoughts. That starts with the chain keeping its total number of products very low so it can make larger orders and push its vendors on price.
That strategy continues into its stores where it tries to keep its workforce right at the minimum needed to help customers and check them out of the store. In theory, that makes Costco a perfect retailer for self-checkout. But, the chain's membership-based business creates added problems when you take a human clerk out of the mix.
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Costco makes a major self-checkout change
Unlike it major rivals Walmart and Target, Costco has not had major theft issues. That could be because it's a membership-based chain and the company's customers feel a deeper connection to the brand because they are paying to be there.
A smaller theft problem, however, does not mean no theft and Costco CFO Richard Galanti talked about the issues during his company's fourth-quarter earnings call.
"We are asked often recently about our inventory shrinkage results and whether it has dramatically increased in the past year versus historical shrink results. The answer is no. In the past several years, our inventory shrink has increased by a couple of basis points, in part, we believe, due to the rollout of self-checkout. Over the past year, it has increased by less than 1 basis point more," he said.
The warehouse club, however, has another problem that's caused by self-checkout and it's taking steps to fix it.
"Costco said it's adding more staff in self-checkout areas after it found that non-members were sneaking in to use membership cards that didn't belong to them at self-checkout," CBS News reported.
To shop at a Costco, you must be a member of the warehouse club.
Costco members are very loyal
Costco calls itself a "warehouse club." Members have to join and it makes sense that people would be less likely to steal from a club where they are a member than from a store they have no emotional connect to.
The company has retained its members — who pay either $60 for a basic "Gold" membership or $120 for an "Executive" membership, which comes with 2% cashback up to $1,000 — at very high rates.
"In terms of renewal rates, at Q4-end, our U.S. and Canada renewal rates stood at 92.7%, which is up a tenth of a percent from the 92.6% figure as of the end of Q3. The worldwide rate came in at 90.4%, down a tenth of a percent, reflecting the impact of increasing penetration of memberships from international, which renew at a lower rate, in large part, because of new openings internationally," Galanti shared.
Executive memberships have climbed over 45% of the total and those members account for 73% of global sales. Overall, membership numbers continue to climb.
"We ended fourth quarter with 71.0 million paid household members, up 7.9% versus a year ago; and 127.9 million cardholders, up 7.6%," the CFO shared.
