Costco Visa card hits 1 million-member milestone
Costco Wholesale’s new co-branded Visa payment card is definitely resonating with shoppers.
Since launching its co-branded Citi Visa Anywhere credit card in June, the club retailer reports that 1 million members signed up for the payment card.
“Most of them have it in hand,” Costco’s CFO Richard Galanti said during the company’s earnings call on Dec. 7. “In terms of conversion, usage and new sign up for the card, all [is] good so far.”
In June, the club retailer stopped accepting American Express at all United States and Puerto Rico-based brick-and-mortar locations and online, and forged a new partnership with Visa. In addition to launching its co-branded payment card, Costco also accepts Visa cards at all locations.
Out of the chain’s approximately 11.4 million American Express co-branded cards, “about 7.5 million accounts were converted to the new Citi Visa Anywhere card,” he added. “More than 85% of the accounts transferred over have been activated.”
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Report: Big increase in holiday offers — and related costs
Retailers continue to launch digital deals this holiday season to snag new customers — but these efforts come at a price.
Retailers’ promotional offers are eclipsing 2015 efforts. Customer orders using a promotion are up 34% versus 2015, and up 52% over the holiday season (Nov. 1-Dec. 5) versus 2015 in North America.
However, these promotions reduced product profit margins by 19% year-to-date (YTD) versus 2015 for North American retailers, according to DynamicAction’s “Retail Index: Holiday 2016.”
The report, which analyzes more than $8 billion in consumer transactions globally, said that marketing costs increased 7% YTD versus 2015, and jumped 25% over the holiday season. While these promotions were positioned to drive new customer acquisition, North American retailers failed to get the number of new shoppers they needed in the digital door. Specifically, new customer acquisition was down 12% YTD, and 6% over the holiday season.
“From BOGO offers to 40% off everything, Amazon began this process of training consumers to expect a sale, but nearly every major retailer has now joined in this costly race to the bottom,” said Sarah Engel, senior VP of global marketing for DynamicAction.
“In order to cut through the clutter and answer shoppers’ emotional desire to get a good deal, promotions have become table stakes for the holiday season,” she added. “However, customer-centric retailers, who will also drive profits, are those who understand their cross-organizational data and act on it quickly to provide excellent shopping experiences and promote wisely without destroying profit margin.”
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Amazon Go’s Implications for an Industry in Need of a Revolution
Amazon fired the first shots of a long-needed retail industry revolution recently with its announcement of Amazon Go. While most major retailers have been working on solutions to many of the point-of-sale issues that a checkout-less store solves; Amazon is simply going to eliminate these issues entirely — at least in its own stores.
Having followed Amazon through its journey over the years — beginning with the major disruption to the publishing industry, continuing into connected TV and video content, and always with a hand in the transformation of the retail experience — it’s not difficult to imagine the basic trajectory that Amazon’s interests in the brick-and-mortar retail space will take.
Amazon is already softening the market for retailers looking to shake up their checkout process, and early adopters will quickly follow suit. The major stores, however, will run a mile from anything that puts Amazon in contact with sensitive customer data. Retail agnostic AI and computer vision companies will ride the wave as they’re called upon to introduce proprietary solutions. Companies like Facebook and Google will get in on the action by positioning themselves as the answer to Amazon. POS companies will fight for dear life. And consumers will enjoy the ride.
Here’s how it will all likely play out:
First, Amazon will prove their concept. Amazon Go is currently open only to Amazon employees; in 2017 it will open its Seattle doors to the public. Word about the “look ma, no hands” experience will spread far and wide to consumers, tech companies, retailers and the rest of the world. Suddenly, non-checkout will officially be a thing, rather than a novelty that exists somewhere in the future.
This will create demand for a new type of shopping experience. Apple stores have unintentionally paved the path for a register-free shopping experience, and customers who have become accustomed to that have subsequently come to resent waiting in lines at other stores. Amazon will take this a step further and customers will quickly become accustomed to the idea of not having to speak to a single store employee in order to complete a transaction.
Amazon will likely package their technology as an off-the-shelf solution for retailers. To cater to growing demand for the no-checkout experience, Amazon will introduce a viable new revenue stream by packaging their artificial intelligence and sensor hardware. They’ll provide this to retailers eager to introduce this experience into their stores, but without the resources to build their own solutions.
Major retailers will look to checkout-free solutions to solve legacy problems. If customer demand isn’t enough to motivate retailers to get on board, a new solution to age-old problems will. Major chains, in particular, will see the obvious value to a checkout-free system considering the point-of-sale is a major source of overall loss. In particular, products not being scanned at self- and staffed-checkouts account for 96% of all loss at the point of sale , which is further responsible for the industry’s $45.2 billion annual shrinkage problem.
Because retailers haven’t historically had access to data about the origins of this loss, they haven’t been able to properly stop it. This has extended the issue beyond the checkout and throughout the supply chain, interfering with stock file accuracy, on-shelf availability, and even compliance issues. All retailers will additionally save on staff costs as register attendants will be replaced by some form of strolling customer service agents, of which they’ll require far less.
Major retailers will steer clear of Amazon. Although major retailers have the most to gain from a technology that cures them of their checkout ails, they’re the least likely to hand over any of their sensitive customer POS or behavioral data to Amazon, a company that has repeatedly proven that it wants to put retailers out of business. Instead, these retailers will look for neutral, retail-agnostic technology companies who can implement a solution without a conflict of interest on the consumer side.
Google, Facebook and other companies will quickly enter the scene. Data companies like Google and Facebook that thrive on rich consumer information will begin competing with Amazon Go, and as they have success doing so, they’ll begin gaining access to data around consumers’ habits within the physical store environment. Most larger retailers won't trust them either since they too have their own conflicting consumer interests. Google and Facebook will try to lure those retailers in with a focus on a cohesive retail ecosystem that ties in-store consumer data into their online retail efforts.
Smaller retailers who want to get in on the action will have to make a compromise. That compromise is giving a company like Amazon, Facebook or Google access to their customer data in return for fairly-priced technology that won’t be available to them otherwise. While major retailers will turn to the computer vision and artificial intelligence community to create their own proprietary solutions, smaller retailers won’t have this luxury and will have to sacrifice their customers’ privacy for their customers’ convenience.
Traditional POS companies face an uncertain future. These companies have, in many cases, failed to solve retailers ongoing problems with loss at checkout, and as a result, retailers won’t have a hard time wishing them farewell when presented with a better solution.
Amazon will collect a lot of customer data from its own stores and other retailers.
The positive side of this story is that Amazon will inevitably use this data to introduce more personalized shopping experiences for customers, including their famous recommendations. The downside is that with an influx of customer data and spending patterns, Amazon will continue the refinement of its dynamic pricing solution, which introduces customer-specific pricing based on how much they estimate a customer will pay for a product (among other factors), rather than on basic law of supply and demand.
Long story short, Amazon is shaking things up in retail, for better or worse. But the retail industry in its present form is around 200 years old and will not be transformed by Amazon Go over night.
Alan O’Herlihy is CEO of Everseen, an AI software company whose signature retail technology uses AI, deep learning and real-time video analysis to detect non-scans at checkout as they happen.
Amazon Go is a membership store
Alan, thanks for an informative preview of the impact which Amazon Go may have on brick & mortar retailing. There is no doubt that many consumers will find the concept attractive. You mentioned other retailers wanting to adopt a similar strategy. One issue not covered in your commentary is that Amazon Go is in essence a membership store, with customers pre-approved via a smartphone (or tablet), the Amazon Go app and a credit account accepted by Amazon. That may work for Amazon with a limited number of outlets in places like tech-saavy Seattle, but would probably prove to be a major issue for already-existing retailers who would suddenly be forced to turn-away customers who just want to pay cash.