Costco knows you’re using your friend’s membership card. To save you the embarrassment of having to tell you off at the checkout, Costco is now trying to catch member freeloaders before they even get in the door.
The retailer is introducing stricter policies and cracking down on non-members using other people’s cards by requiring customers to scan their membership cards to enter stores.
“In the coming months, member scanners will be deployed at the front door of your local warehouse,” Costco said in an online statement. “Once deployed, all members will be required to scan their physical or digital membership card by holding the barcode or QR code to the scanner before entering.”
Customers walk past the membership counter at a Costco store in Richmond, California on July 11, 2024.
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Costco recommends that members whose cards do not have a photo bring a valid photo ID, but advises customers to go to the membership counter and have their photo taken.
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Costco’s new policy also requires that guests enter stores only when accompanied by a valid credit card holder, making it more difficult for non-members to sneak in with cards that don’t belong to them.
Costco did not immediately respond to a request for comment.
The move is an extension of a system Costco tested in some stores earlier this year, which required members to have their cards scanned at machines near the store entrance rather than simply showing them to employees.
Self-checkouts were also affected by Costco’s measures. Last year, the company required its customers to show their membership card and a photo ID at the checkout.
“We do not believe it is right for non-members to receive the same benefits and prices as our members,” Costco said in a statement last year.
Costco’s crackdown on non-members comes after the company announced last month that it would increase its membership fees in the U.S. and Canada by $5 to $65 – the first time since 2017. The change will take effect on September 1.
The majority of Costco’s profits come from annual fees. Last year, the company reported $4.6 billion in revenue from membership fees, an 8% increase from 2022.
What does brand loyalty look like today? Why companies are revising their customer loyalty programs
What does brand loyalty look like today? Why companies are revising their customer loyalty programs
These are tough times for retail. Inflation has taken a toll on consumers’ wallets over the past few years, and while prices are no longer rising as quickly as they will in 2022, they are still up around 20% compared to the start of 2020.
These price increases have prompted consumers to look for more ways to save money. Discount stores were the hottest segment of the retail sector in 2023, and spending at discount stores increased by 26%, according to a Deloitte study. In contrast, spending at department stores fell by almost 20%.
This, in turn, puts pressure on retailers, whose margins are already low. Task Group analyzed survey data from Deloitte to find out how retailers plan to overcome these challenges.
The Deloitte survey asked 50 retail executives what they believed would be the biggest growth opportunities for them in 2024. The most common response from executives was about brand loyalty programs, such as those that give consumers points with every purchase. Just over half of the executives surveyed believed that strengthening such programs was an important area with potential.
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Rewards go digital
Customer rewards programs are nothing new. Such loyalty rewards have been around since at least 1793, according to a 1971 New York Times report about a merchant in Sudbury, New Hampshire, who gave his customers copper coins that they could later exchange for goods.
“Private stamps” were popularized in 1896 by the Sperry and Hutchinson Company. The company provided these stamps to retailers in New England, who then distributed them to customers. Once they filled their books, customers could exchange their stamps for Sperry and Hutchinson goods.
Loyalty programs have evolved a lot since then. Reward stamps are now rare and have largely been replaced by digital accounts, with mobile apps playing a big role. This has created many opportunities for retailers, including the chance to create personalized shopping experiences for their customers by using data analytics to figure out what types of rewards work best for them.
The Deloitte report notes that Ulta Beauty was able to increase the number of its active loyalty program members from 30.7 million in fiscal year 2020 to 40.2 million in 2022. This proved crucial as over 94% of its sales came from such consumers.
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Keeping customers is difficult
The Deloitte report notes that digital rewards programs also provide retailers with a source of valuable data about their customers. When Apple introduced stricter privacy rules on iOS in 2021, it hindered the ability of traditional media networks to track consumers. This opened up the opportunity for retailers to sell their customers’ data to advertisers, but raised questions about privacy.
About two-thirds of American consumers already participate in one or five loyalty programs. Deloitte estimates that most consumers use half or even less of their memberships. The challenge for many retailers is not to attract new consumers, but to create benefits and shopping experiences that are attractive enough to get their existing customers to use the memberships and stay.
One possible silver lining is that customers aren’t just looking at price. In another study conducted by PwC, both business leaders and consumers were asked what they thought caused consumers to leave a company. About 37% of executives surveyed said they believe customers churn after price increases or the removal of discounts. Yet only 17% of consumers surveyed agreed. Consumers were more than twice as likely to say that a bad experience with their products or services would cause them to leave a brand.
In times of sustained inflation, companies may not have much room to adjust their prices. This suggests that companies may be better off focusing on quality rather than making painful decisions about pricing.
Story editing by Mary Reardon. Editing by Paris Close.
This story originally appeared on Task Group and was produced and distributed in association with Stacker Studio.
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CNN’s Elisabeth Buchwald, Samantha Delouya and Nathaniel Meyersohn contributed reporting.
