Costco executives have revealed the clever tricks they use to entice members to buy far more than they intended.
The wholesale club offers two types of shopping experiences, they explained in their third-quarter earnings call, according to The Street.
The former offers members a well-curated selection of food and household items at low prices, which typically draws shoppers into its stores.
But Costco also offers an ever-changing collection of items, creating a much-desired treasure hunt experience.
Items can be anything from clothing to furniture to toys to gift cards that are too good to pass up.
Costco offers its members two types of shopping experiences, including a scavenger hunt to purchase items they didn’t expect to buy, but that have deals too good to pass up.
For the grocery section, that means offering a variety of international foods from its warehouses in other countries.
“We were in a session with our grocery divisions and we were talking there,” Chief Executive Ron Vachris said on the third-quarter earnings call in May.
“And we’ve seen tremendous success with international foods that have been brought into the U.S. and then from the U.S. to the other regions of the world where we do business.”
‘But we don’t just want to take care of consumables in the food sector, but when we bring in an item that is a hit in Taiwan, Korea or the UK, then we create that excitement for the member.
“At that point, we’ve really done a good job of driving that impulse purchase, where members trust the shoppers and add that additional item to their cart. That’s been a big win for us.”
Executive Director Ron Vachris said the wholesale club has especially benefited from its international food offerings.
Vachris went on to say that he understands that part of the Costco experience is having items on display that members may not be looking for, but really want to buy.
“And again, it happens a lot with that treasure hunt,” he said.
“You’ve heard the phrase ‘people come in and spend $100 and walk out with $300.’ That’s because our buyers and operators do a great job of making the store interesting.
“When they go in there and do their basic shopping, they buy a few additional items that catch their eye at that moment.”
However, Costco has recently seen its members visiting more frequently but spending less.
Recently, Costco has seen its members visit its stores more frequently but spend less.
CFO Gary Millerchip now sees this as an opportunity to expand the treasure hunt items.
“The good thing about this opportunity for us is that travel is up 5 percent, that’s really why the average basket size has been more stable recently, and that’s because we’ve been increasing member engagement in consumables, as Ron mentioned, with fresh food and produce,” he told investors.
Millerchip added that as inflation eases, consumers are returning to purchasing discretionary items “led by toys, tires, lawn and garden supplies, and health and beauty products.” according to Yahoo Finance.
“This represents a great opportunity and I think it also speaks to the good work the team is doing in achieving a higher frequency of visits from members,” he said.
“So this creates a great opportunity for us to push for larger basket sizes as well.”
Membership dues generated $1.12 billion in revenue for the company.
Costco reported net sales of $58.52 billion on its third-quarter earnings call, beating Wall Street estimates of $57.98 billion in sales.
Membership dues, however, were in line with Wall Street estimates of $1.12 billion in revenue, up 7.6 percent from the same period last year.
On Tuesday evening, the wholesale club was trading at $876.20, up 0.44 percent from the previous day.
The wholesale club is now expected to report its fourth-quarter earnings in late September.