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You Don’t Have to Be Costco to Innovate Like Them


There’s a view in some economics circles that the biggest change in retailing over the last several years is not the rise of internet selling, but, according to a 2012 article in the Journal of Economic Perspectives, the growth of warehouse clubs and supercenters.

Take warehouse clubs Costco and Sam’s Club, and grocery-department store formats like Wal-Mart Supercenters. This segment of the retail sector is huge. Its four largest companies accounted for almost 8% of retail sales in 2012. This is almost 50 percent more than all e-commerce retail sales in 2012.

And while that’s a figure from more than three years ago, sales online have certainly surged since then, even though it’s not yet at 8%. Disruption by digital retail has proven to brick-and-mortar stores that they must get more creative to compete.

While it doesn’t have the market cap of Amazon, Costco is still the most successful warehouse club chain and the nation’s third largest retailer.

Warehouse clubs have also been part of the trend toward locating stores in areas with a greater population density. While online shopping is convenient, proximity to a physical store also carries its own convenience.

Also, most of our shopping is still done in the store. Research from consultancy Deloitte has found that digital interactions influence 36 cents of every dollar spent in a retail store, a sign that online browsing can often be a gateway, not a deterrent, to an in-store purchase.

While more and more stores are expanding their online sales, Costco is nonetheless creating buzz in the store and figuring out ways to attract and retain employees, and keep customers coming back.

Costco pays its workers an average of $17 an hour and covers 90% of health-insurance costs for both full- and part-timers.

A long time ago, Costco management focused its attention on putting its employees first. It follows that Costco has the lowest employee turnover in retail and considering the turnover is very expensive, the higher wages Costco pays are returned in a high retention rate that gives them a competitive advantage.

These higher wages and benefits attract employees of a higher caliber also—ones who are driven to provide exemplary service. Former CEO James Sinegal noted, “When employees are happy, they are your very best ambassadors,” and Costco is known for outstanding customer service.

Costco management also encourages their employees to provide suggestions for improving efficiency. Incentives and bonus plans are implemented to support this.  Managers have autonomy within their store to experiment with departments to boost sales and reduce expenses.

By heeding employee suggestions, Costco instituted several important changes. Solar panels and skylights were installed in stores to reduce the amount of electricity used for lighting, resulting in a lower bill. Product packaging was simplified and redesigned to increase efficiency in shipping, thus reducing fuel costs.

Happy employees translate to more sales. Costco’s per-employee sales are much higher than those of its competitors, Target and Wal-Mart.

Another shopping innovation in Costco’s arsenal is the introduction of the Costco TV network, which will showcase content in both native 4k and ultra HD resolution and the existing 1080p Full HD resolution. This way, in-store shoppers can compare the viewing experience and differences more easily, and choose the one they prefer. Analysts are expecting accelerated 4K adoption as a result, given the usually obvious visual benefits of the format over 1080p.

Happy employees, constant in-store and operational enhancements illustrate the kind of philosophy and management style that delivers measurable and valuable results.

TAGS: retail, retail trends, retailers, omni-channel,
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