Costco‘s core product, selling items in bulk, works against the idea of visiting the chain multiple times a week. If you bought 36 cans of Coke, a four-pound tube of ground beef, and a 12-pack of toothbrushes, you probably don’t need to go back quickly.
Rising gas prices changed that as members flocked to warehouses to fill up.
“All three four-week fiscal periods of the quarter set successive all-time company volume sales records, with the final 5 weeks of the quarter becoming our top 5 volume weeks ever,” CEO Ron Vachris said during the chain’s third-quarter earnings call.
More members opted to fill up at Costco, he explained.
“The high consumer price sensitivity, which fueled these record volumes, also drove many members to use our gas stations for the very first time in the third quarter,” he added.
Costco, however, does not control gas prices, so the chain has made a number of other changes designed to help it drive increased visits, even after gas prices fall.
Costco improves and expands some warehouses
Costco does want more members to buy its gas.
“We believe this will drive even greater loyalty with these members in the future as members who use our gas stations typically spend more with us in the warehouse,” Vachris said.
One of the challenges many Costco members have faced is that lines at its gas stations have been long, especially when prices are high elsewhere. That’s something I have experienced firsthand, and it has driven me to opt to pay more at a chain without lines.
“We continue to relocate select high volume warehouses to larger locations with more parking and expanded gas stations to provide a better member experience and drive more volumes in these warehouses,” CFO Gary Millerchip said during the Q3 call.
The chain has also been making meaningful changes designed to drive more visits, regardless of where gas prices may land in the future.
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Costco has made changes to bring members in more often
Millerchip believes the chain’s efforts to entice members to visit more often have worked.
“I do think there is a lot of work that we have done over recent quarters to create more opportunity for members to visit more frequently, whether it was the extended hours for our gas stations, before the recent growth in gas that we have seen with higher prices,” he said.
Costco shared new hours for its gas stations in a February Facebook post.
The chain’s stations are now open earlier and close later.
“Latest hours are now 6 a.m. to 10 p.m. Monday through Friday, 6 a.m. to 8:30 p.m. on Saturdays, and 6 a.m. to 7:30 p.m. on Sundays,” according to the social media post.
Previously, the stations closed when the chain’s warehouses did, at 8:30 p.m. Monday through Friday, 7 p.m. on Saturdays, and 6 p.m. on Sundays.
About a year ago, on July 1, Costco expanded its shopping hours, giving Executive members an exclusive one-hour early entry at 9 a.m. Additionally, the chain officially extended its Saturday closing time to 7 p.m. for all shoppers, TheStreet reported.
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Executive Members pay $130 a year, instead of $65 for a Gold Star membership, to get 2% cash back on most purchases up to $1,250 per year.
Millerchip also cited the operating-hour changes as driving additional visits. He made it clear that the warehouse club intends to continue to make adjustments to drive visits.
“I think there is a lot of focus to make sure that we maintain that trajectory in traffic,” he added.
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Costco has been addressing its own success
Moving warehouses, adding new ones, and increasing hours helps Costco deal with a problem created by its own success.
“Costco is currently facing a unique real estate crisis: Their stores are simply making too much money. Once a specific warehouse hits $300 million to $400 million in annual volume, the parking lot completely maxes out and shoppers actively stay away on weekends,” RTMNexus CEO Dominick Miserandino told TheStreet.
When a store hits those numbers, that’s generally a signal for Costco to look for locations nearby that can alleviate some of that traffic.
That triggers the chain to look for expansion opportunities.
“To fix this, Costco is executing a strategy of ‘strategic cannibalization’ — building brand-new ‘relief stores’ just a few miles away from their most overburdened locations,” he added.
Expanded Executive member hours relieve some warehouse stress
Executive-only shopping hours also help Costco spread demand across a longer day. If even a modest percentage of Executive members shift their shopping to the earlier time slot, congestion during peak hours could ease for everyone else.
“The earlier hours add another benefit to the Executive tier of the membership program. Yes, it may cause a little confusion (and even resentment) but it may also encourage some people to trade up to a higher tier. It’s not as if other tiers lose anything as the opening hours will remain the same as they are now,” GlobalData Managing Director Neil Saunders wrote on Retailwire.
The change could shift some Executive member shopping away from the previous operating hours reducing traffic during the rest of the day. In addition, Costco has improved the perks for a customer group that drives most of its sales.
“When we see members who are at an Executive level, they generally spend more with us and visit more frequently,” Millerchip said during the Q3 call.
Executive members represented 47.7% of paid members and 74.2% of worldwide sales, Millerchip shared during the chain’s fourth-quarter earnings call. He did not update that number during the calls after that one.
The hours change benefits Executive members without hurting standard members, and it matches a perk offered by its closest rival.
“Without a doubt, Costco has excelled at developing its Executive Membership penetration. It has also shown value in its membership programs for decades, which has underpinned its success. Sam’s Club has offered early access to its Clubs to Plus Members for years, after initially only offering it to Business Members,” Scott Benedict, a retail consultant, added on RetailWire.
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