In the United States, the membership-based chain store Costco continues to crack down on non-members at the entrance of its stores, promoting the use of membership card scanners, a move that has brought unexpected returns to the company.
According to a report by analysts at Morgan Stanley, after implementing scanners at the entrance of Costco stores, the number of members has seen double-digit growth. The bank stated that the high conversion rate of non-paying customers becoming members may bring Costco a “Netflix moment.”
Netflix had made it more difficult for users to share free accounts through various actions, significantly increasing its user base. Therefore, analysts referred to Costco’s increase in new members after cracking down on non-members as a “Netflix moment.”
Although acknowledging that Costco and Netflix have two distinct business models, lead analyst Simeon Gutman mentioned that Costco’s crackdown on non-members could lead to growth in paying customers, similar to the results achieved by streaming giant Netflix after combating password sharing.
Since restricting password sharing last year, Netflix has experienced a substantial increase in new accounts. In just the first quarter of 2024, it added 9.3 million registered users, a fivefold increase compared to the same period in 2023.
The report from Morgan Stanley suggests that Costco could attract an additional 4 million members by converting non-paying customers in North America.
Costco confirmed in January that it had begun testing member card scanning at the entrances of certain stores to enhance member experience. Starting in March, Costco tightened its membership qualification checks, preventing non-members from dining at outdoor food courts.
In the coming months, membership card scanning devices will continue to be deployed at store entrances. Once fully implemented, members will need to scan their physical or digital membership cards by placing the barcode or QR code on the scanner before entering the store.
According to Costco, customers who are not members must be accompanied by a valid member to enter the store.
During last month’s fourth-quarter earnings conference call, CEO Ron Vachris noted that the company had been using membership card scanners at the entrances of European stores for over two years and had been piloting the system in the U.S. for about six months.
“It provides all-day real-time traffic counts for our operators,” he said.
Vachris added, “We can better monitor fresh foods because we know the flow of customers, etc.” He mentioned that this move also eliminates the hassle of member verification at the front checkout.
He said the scanners also allow customers to receive advance notifications on whether their membership needs renewal, “The member card scanner installed at the front door has achieved our goal of expediting the checkout process and has been warmly welcomed by our members.”
Whether Costco will experience growth similar to Netflix in the future remains to be seen. However, Morgan Stanley still maintains a buy rating on Costco stock with a target price of $950.
So far this year, Costco’s stock price has risen by 36%.