Why Costco made an unpopular warehouse club entrance change

Costco spares most expense when it comes to offering any sort of frills. The warehouse club generally does not spend money on things that do not directly translate to lower prices for members.

That’s why its warehouses are spartan affairs where merchandise remains on original delivery pallets. The company does not just call its locations warehouses; they are actual warehouses.

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Basically, the chain saves money by not having to handle items multiple times. There’s no storage area in the back where items have to be brought out to a customer showroom.

Instead, the back is actually the entire store, and there’s not much in the way of traditional retail displays. Yes, you might see some level of items being placed on shelves, but displays will be matched with large quantities of that item nearby.

This does not mean Costco (COST) executives don’t think about customer experience. They absolutely want people to have an easy time shopping.

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The company accomplishes that, however, by really looking at their process and only investing in technology when absolutely necessary. If Costco does decide it needs to invest in something, it will test it fully and then roll it out to the entire company.

It’s a very efficient process, focused on delivering the best possible experience for members.

Costco focuses on key area

During the chain's second-quarter earnings call, Analyst Edward Kelly asked Costco CEO Ron Vachris about its efforts to get people out of stores faster.

"I wanted to ask you about throughput in the stores. Maybe you can talk just a little bit about like where you are from a standpoint of initiatives to drive better throughput. I know you're scanning now when people are coming in," he asked.

Vachris seemed very happy with the question.

"The speed of the checkout is one of our primary focuses right now and what uses of technology we have," he said.

Costco actually uses its check-in technology for more than just making sure only members shop in its clubs.

"Scanning at the front door was very, very helpful for our operations, really kept our people informed on what traffic looks like, and they can adjust opening up registers and closing registers, and we saw some great improvements in productivity from that as well. That was just the foray into the whole technology thing," he said.

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Vachris also believes in other technology his chain has adopted.

"So, we see many things going with self-checkout, how we can improve that. And so...one of our biggest areas of focus for technology in our warehouses is how we can get members through quickly and turn parking spaces and do those types of things ....Yes, the scanners were a very big win for us," he added.

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Costco may not seem like a technology-forward company, but it's actually using data to consider extending store hours.

"That is something that is not off the table. We do look at that. I mean, our gas expansions, we have 60 U.S. gas stations going through different — they're at a different phase in expansions now," Vachris said.

Costco has been testing different hours at its gas stations. It has not made any permanent decisions on extending hours at those locations.

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"We did see some demand from the commuters, both at the early hours and the evening hours, so I think that that's going to be a real benefit to those folks as well. But we will continue to look at the warehouse hours. No plans in place at this time," he added.