Costco has always kept its warehouses as the focus of its business, but changing membership demographics have forced the warehouse club to direct resources elsewhere.
It’s a change the retailer has both embraced and begun to fight.
CEO Ron Vachris explained the change in the chain’s membership during its fourth-quarter earnings call.
“Our member base under 40 has grown nearly 60% since Covid, increasing our total penetration of members under 40 to more than a quarter of our total base. While these younger members start out spending a little less with us, over time, they grow into higher spending members,” he said.
The rising number of younger members has forced the chain to make changes and invest in areas outside its warehouse clubs.
Costco improves its digital experience
As a former Costco member, I can say that I almost never used the warehouse club’s website. That has been changing as younger members follow a different path.
“What we’re seeing is that, first of all, as younger members engage with Costco, of course, they’re generally signing up through a digital phone, laptop, or iPad because that’s the way they generally start that engagement and journey,” CFO Gary Millerchip said.
More Costco
- Costco helps members solve a key problem, but at a cost
- Costco quietly made a big pricing change
- Costco beats Aldi, Kroger, and Publix where shoppers care most
Engaging those members has caused Costco to make changes.
“I think what we found over time is that how we communicate with those members definitely requires continued growth in our digital capabilities through improving the member experience online and through the app as we’ve been doing over the last year or so, continuing to use the information that we know about our members to provide a better personalized experience for them as they’re engaging through the membership,” he added.
Shutterstock
Costco wants members to visit its warehouses
While Costco has been changing its communication strategy and investing in its digital capabilities, it also wants to bring younger members into its clubs.
“I think just as importantly, if not more importantly, has been how we draw those members into the experience of the warehouse and to really help them see the value of the relationship,” Millerchip said.
That includes delivering the traditional experience that makes Costco Costco.
“You may have seen, actually, there was a recent article that talked about, for younger consumers, how they’re really engaging and excited about experiences and the opportunity that Costco presents to be in a brick-and-mortar retail environment and to enjoy the treasure hunt experience and engage in whether it’s the food court or the nonfood items that we offer,” he added.
When I was a Costco member, its website did very little. Its new website offers a lot more functionality, but it’s still a very secondary part of the Costco experience.
It’s good to see it improve, but I’m wary of the chain investing in things outside of keeping prices as low as possible. Costco has strong capital discipline, but I hear the words “artificial intelligence” more than I would like during its earnings calls.
Costco has the best buyers in retail, and I hope it keeps improving its website, but the desire to ramp up AI use seems to fall outside the chain’s core strengths.
Related: History of Costco: Company timeline and facts
Costco is changing with the times
The warehouse club has evolved to meet changing member needs, according to RTM Nexus CEO Dominick Miserandino.
“Costco has never needed its website to be the star of the show. The warehouse is the experience, and the treasure hunt is a big part of why people keep coming back. But customers increasingly expect the convenience of digital, even from Costco. The trick is making the website better without turning Costco into just another online retailer,” he told TheStreet.
Kelly Tyko, a retail reporter who covered Costco for USA Today and Axios, thinks the website is additive to the chain.
“I think investing in the website gives Costco more chances to sell to members between warehouse trips. Clothing promos get people browsing and adding to their carts, and the site is also useful for bigger purchases like furniture and appliances, where shoppers want to compare options before they buy,” she told TheStreet.
Tyko noted that she uses the site for its “buy more, save more” promos.
“It’s the online version of the Costco treasure hunt,” she added.
Some of the company’s technology investment has also improved the in-store experience as well, she shared.
“Recent app improvements make warehouse trips easier, too. I use the app to check whether something is in stock at my local Costco before I drive over and to keep tabs on prices for things I’m considering,” Tyko told TheStreet.
Related: Publix faces uphill battle as customer behavior shifts
