With a keen eye for operational efficiency and a deep understanding of customer engagement, e-commerce strategist Zainab Hussain has built a career analyzing how retail giants adapt to the digital age. Today, she joins us to dissect Costco’s remarkable first-quarter performance, where the warehouse leader posted a stunning 20.5% surge in e-commerce sales. We’ll explore how the company is leveraging technology, from practical app enhancements to sophisticated AI, to strengthen its legendary member loyalty. Our conversation will touch on the strategies behind their booming digital traffic, the lessons learned from integrating AI into core operations, and how Costco is translating its massive in-store success into a compelling online experience, all while maintaining the core value that keeps 92.2% of its members coming back.
Costco’s ecommerce sales grew an impressive 20.5% in Q1, with app traffic surging 48%. Could you walk us through the specific strategies or website enhancements that drove this significant digital engagement and share the key learnings you’ve taken from this success?
What we’re seeing is the tangible result of a very deliberate “digital vision.” This isn’t just about throwing technology at a problem; it’s a focused effort to make the entire shopping journey easier and more personal for the member. The surge in app traffic, a massive 48% jump, and the 24% increase in website traffic didn’t happen by accident. They are a direct response to the enhancements made in Q1, particularly the new personalization capabilities. By showing members more relevant product recommendations based on their actual search history, you’re not just improving the user interface; you’re fundamentally increasing the value of each digital visit. The key learning here is that even for a brand famous for its physical experience, investing in a seamless, intuitive, and personalized digital front door directly translates into stronger engagement and, as the “very positive” sales lift shows, a healthier bottom line.
The article highlights AI’s success in your pharmacy, boosting in-stock rates to 98%. Beyond just drug pricing, what were the biggest operational hurdles in implementing this AI system, and how will you apply those lessons to the AI tools planned for your gas business?
Implementing an AI system that autonomously reorders inventory is a massive undertaking, and the hurdles go far beyond the initial algorithm. The primary challenge is integrating such a predictive system into a vast, established supply chain without causing disruption. You’re essentially teaching a machine to manage the delicate balance of supply and demand for critical items, which requires immense trust and data integrity. Proving its reliability was key, which is why starting in a controlled, high-stakes environment like the pharmacy was so brilliant. Achieving an in-stock rate of over 98% is a powerful proof of concept. The biggest lesson is the importance of a methodical, targeted rollout. For the gas business, we’ll apply that same principle. We won’t try to overhaul everything at once. Instead, we’ll deploy AI tools incrementally to improve efficiency, whether in logistics or pricing, proving the value at each step before expanding.
CEO Ron Vachris described a “digital vision” to make shopping easier and more personal. Can you provide a specific, step-by-step example of how the new Q1 personalization features are working and elaborate on the metrics behind the “very positive” sales lift you’ve observed?
Absolutely. Think of it from a member’s perspective. Let’s say a member has been searching for small electrics, maybe a new air fryer. In the past, the site might have just shown them more air fryers. Now, with these new capabilities, the system is smarter. It understands the member’s intent and purchase history. So, the next time they log in, their homepage might feature not only top-rated air fryers but also complementary items like high-quality cooking oils, popular frozen foods that are great for air frying, or even a best-selling cookbook. It connects the dots for them. While the company hasn’t quantified the exact sales lift, describing it as “very positive” in an earnings call is significant. It tells us the data is clear: when members feel the experience is tailored to them, they don’t just browse; they buy more. It’s a direct line from personalization to increased basket size.
Selling 3.5 million pies around Thanksgiving is an incredible physical retail achievement. How does this massive in-store success inform your digital strategy, especially as you plan to bring cake and deli tray ordering online? What are the key steps to ensure that experience is seamless?
That 3.5 million pie figure is staggering, and it speaks volumes about Costco’s operational mastery in the physical world. That success is the benchmark for our digital ambitions. It proves we can deliver quality at an incredible scale. The key to bringing this online for cakes and deli trays is to translate that in-store trust and efficiency into the digital realm. The first step is creating an ordering platform that is incredibly simple and intuitive—no friction, no confusion. Second, we must guarantee that the product a member orders online is the exact same high-quality item they would pick up themselves. Finally, the pickup process must be seamless. This isn’t about replacing the warehouse; it’s about using digital to add a layer of convenience to a beloved in-store experience, so a member can pre-order for a party and have it ready and waiting.
With a US and Canada renewal rate of 92.2%, member loyalty is remarkably strong. How are digital tools like the app and same-day delivery—which outpaced overall digital growth—being used to deepen member relationships beyond just the transaction and further justify the membership fee?
That 92.2% renewal rate is the ultimate measure of our success, and digital is becoming a critical component in maintaining it. The relationship with our members has to be about more than just the transaction; it’s about delivering overwhelming value for that membership fee. Digital tools are a perfect way to do this. For instance, the growth in same-day delivery, which is outpacing our overall digital sales, provides a new dimension of convenience. A member might not have time to go to the warehouse, but they can still get the products they need, delivered right to their door. The app, with features like a digital wallet, streamlines the in-store experience. Each of these digital touchpoints is an added benefit, a reason that makes the membership indispensable in their daily lives and the renewal decision an absolute no-brainer.
What is your forecast for the evolution of the Costco member experience over the next five years, particularly regarding the balance between warehouse shopping and your growing digital platforms?
My forecast is for a deeply integrated, hybrid experience. The magic of the warehouse—that “treasure hunt” feeling of discovery—will always be the heart of the Costco experience. That will not change. However, the digital platforms will become the essential connective tissue that makes the entire ecosystem more efficient and valuable. In five years, I envision a member using the app to build a shopping list that maps to their local store’s layout, pre-scanning items in their cart for a lightning-fast checkout, and ordering a custom cake online for pickup during that same trip. The balance won’t be a competition between physical and digital. Instead, they will be two sides of the same coin, working together to strengthen the core value proposition: providing the highest quality goods at the lowest possible price, with unparalleled convenience.
