Costco knows its members very well. That’s how the chain keeps its overall item count low, but its sales for each item high.

The chain has decades of data about what customers purchase and can use that to make sure its shelves have exactly what its members want.

“One of the secrets behind Costco’s efficient inventory management is its real-time inventory tracking system. The company uses a sophisticated software system that tracks the movement of products from the warehouse to the store shelves. This system allows Costco to quickly identify which products are selling well and which ones are not, and adjust its inventory levels accordingly,” according to a white paper by The Future Warehouse.

Costco, as I have discovered in the past when I was a member, is also really good at knowing what members will like, not just what they need. That allows the chain to increase sales by selling me candy, books, and the occasional clothing item I may not actually have had on my shopping list when I entered the store.

The chain also learns a lot about its members by tracking their purchases.

“The business model itself functions as a powerful data purification engine. The combination of a paid membership and a limited, curated product selection acts as a highly effective filter,” according to Klover.ai.

“…The transaction data Costco collects is not just a random assortment of purchases; it is a highly concentrated, longitudinal record of a household’s essential, high-volume consumption patterns, making it an exceptionally clean and valuable dataset for predictive AI modeling.”

Costco knows what you want, what you need, and it plans to leverage that information to get more personal with its members.

Costco has a technology plan

A warehouse, by its very nature, can’t be personalized, but Costco can do a lot to build a closer relationship with members in the digital space.

“Online, we continue to make enhancements to improve the member experience on our site and app. As an example, this quarter, we launched new personalization capabilities that provide members with more relevant product recommendations based on their past search history,” CEO Ron Vachris shared during Costco’s first-quarter earnings call.

Doing something that basic lifted sales, he emphasized.

“Our digital vision at Costco is to deliver a seamless experience that builds trust and loyalty with our members both in warehouse and online. We aim to make shopping at Costco easier, faster, and more personal, no matter where or how our members choose to shop. This isn’t about technology for technology’s sake,” he added.

Vachris made it clear that he wants the retailer to use technology to strengthen the fundamentals that make Costco who it is:

  • Increasing member loyalty
  • Driving top-line sales
  • Improving operational efficiency so that it can bring goods to market at the lowest possible price.
Costco has been slow to make digital changes.

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Costco invests in personalization

CFO Gary Millerchip further explained how Costco has been using personalization in its app and on its website.

“You heard Ron mention in the comments around the progress that we made on personalization where we really are now starting to use our data to look for ways. How can we really make the experience better for the member? How do we improve the convenience for them? How do we help them see the most relevant messages that help them get the best value from Costco?” he told analysts.

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The CFO acknowledged that the chain has a lot of room to grow in this area.

“We’re relatively early on the journey, so we’re learning what do our members really like, where are the places we can fine tune and improve those communications and the places in which they show up,” he added.

“I still think there are there are a number of elements on our road map where we still see parts of the experience that our members have that we can make that personalization more relevant.”

Brian Delp, a RetailWire Brain Trust member, thinks Costco has room to integrate more technology.

“There are certainly ways Costco can evolve with technology while staying true to its core values. A big element to Costco is the lack of frills; however, reducing friction for the consumer and simplifying the experience is related. How Sam’s Club introduced AI image tracking to reduce the long lines when leaving the store is just one example,” he wrote on RetailWire.

Costco has made slow improvements

Costco takes a slow and steady approach to technology. It has, however, made some key changes as part of its personalization efforts.

“Personalization was another key focus area in Q2, as Costco began sending multiple versions of its digital Member Value Mail (MVM), tailoring content based on members’ previous shopping behavior. While the company acknowledges there is more work to be done in this space, the initiative marks a significant step toward enhancing the relevance of its digital communications and promotions,” InfoTechLead reported.

Consumers clearly want personalization, according to a report from McKinsey & Company.

“Consumers don’t just want personalization, they demand it. With store and product loyalty more elusive, getting it right matters. Roughly 75% of consumers tried a new shopping behavior in the last 18 months, and more than 80% of those intend to continue with new behaviors,” according to the McKinsey data.

Here are some key takeaways from the research:

  • Our research shows that 71% of consumers expect companies to deliver personalized interactions. And 76% get frustrated when this doesn’t happen.
  • Seventy-two percent said they expect the businesses they buy from to recognize them as individuals and know their interests.
  • Over three-quarters of consumers (76%) said that receiving personalized communications was a key factor in prompting their consideration of a brand, and 78% said such content made them more likely to repurchase.

Related: Costco sees major shift in member behavior