Costco’s membership card scanners are already paying off

Costco’s introduction of membership card scanners at the front of US stores is still rolling out, but the move is already paying off big for the wholesale club.

Morgan Stanley analysts wrote in a note this week that Costco warehouses are seeing as much as low double-digit increases in membership counts after implementing the scanners, and suggested the high conversion rates of previously non-paying customers could lead to the retailer’s “Netflix moment.”

The report, led by Simeon Gutman, acknowledged that Costco and Netflix have two very different business models, but suggested the warehouse club’s new tool for checking memberships could lead to the kind of growth in paying customers that the streaming giant saw after it cracked down on password sharing.

Since limiting password-sharing last year, Netflix has seen a significant surge in new accounts.

In the first quarter of 2024 alone, the streaming company added 9.3 million sign-ups – a five-fold increase compared to the same quarter in 2023. 

“Our base scenario suggests Costco could capture an additional 4 million members through conversion of nonfee paying customers in North America,” the Morgan Stanley analysts wrote.

During Costco’s fourth quarter earnings call last month, CEO Ron Vachris noted that the company has used card readers at the front of its stores in Europe for more than two years now and has been piloting the system in the US for roughly six months.

He pointed to several ways the scanners help Costco improve operational efficiency at stores.

“It gives our operators real-time traffic counts throughout the day. So, we’re able to adjust front-end lines that we need to open and close lines based on the fluctuations of business,” Vachris explained. 

“We can monitor our fresh foods a little better because we know what the traffic counts look like and so forth,” he said, “and it has also taken the friction of membership verification away from the front-end registers and moved that to the front door, where we’re able to look at people’s membership status.”

The Costco chief added that the scanners also allow customers to be notified if their membership renewals are due before they reach the front end of the store, “and the membership card scanners installed at the front doors have delivered on the goal of speeding up the checkout process.

“This has been very well received by our members.”