Costco operates in pretty much the same way it has since its first warehouse club opened in Seattle in 1983. The company has a really simple business model. People pay a membership fee and that gives them access to the chain's no-frills warehouses when the company does everything possible to keep prices low.
While other retailers have embraced technology, Costco (COST) has focused on pricing and value. The company does not just call its stores "warehouses," they are actual warehouses with goods piled on pallets, metal shelving, and not merchandised all that well.
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Costco also has very few people working on its floors. It's largely a self-serve operation because people cost money and more staff means higher prices. The membership-based warehouse club watches every dollar in order to offer the best prices possible.
That's why Costco has been very slow to adopt any technology. The company did not even offer any sort of direct e-commerce until 2017 (it had a deal with third-party delivery service Instacart before that). Even then, the company has put very limited resources into online sales, keeping its offering focused.
Basically, Costco understands that its stores drive its business and it has let its rival innovate in technology then it picks and chooses areas where it thinks it can bring value for members.
Now, speaking during his company's third-quarter earnings call, CFO Richard Galanti believes his company can improve its technology in ways that will benefit members.
Image source: Tim Boyle/Getty Images
Costco Wants to Use Technology Better
Costco sees itself as being in the retail business with its focused mission being delivering the best prices for customers. It does that by keeping its product count low so it can drive volume in each specific item. That allows the chain to have more leverage with its vendors to ask them to push prices lower.
Galanti, however, does believe that the company can improve its technology in ways that fit its overall mission.
"I think that our first order of business is to drive business in store, certainly driving it online as well, but not to just replace what's in store," he said.
He noted that "everybody is a technology company today, and there are some things that we have been a little slow to doing, and we know there's a lot of opportunity there to do some of the even basic things."
This isn't Costco copying Amazon (AMZN) and offering grab-and-go technology or even the chain mimicking some of Walmart's (WMT) digital efforts. Instead, it's the warehouse club starting to do some very basic things better.
Galanti cited that the company does not want to send members "five emails a week, none of which relates specifically to you."
Instead, he believe Costco can make some simple improvements that will improve the member experience and drive more sales.
"If it was an email, even just based on a couple of items you purchased in store that had a banner of items that you might be interested in, you could literally double the click rate on them," he said. "So those are the kind of things that bringing in the fore, what we call catalyst VP hires, in our IT department over the last few years. One is data analytics and one is digital, and it's not just two individuals, it's the teams that they have built in short order. So we'll continue to do that and tell you more as we go along."
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