Wall Street analysts believe Costco (COST) can benefit from the expanded use of artificial intelligence to enhance the customer experience, manage inventory and supercharge its private-label offerings. So do we. While it may be one of the best-run retailers in the world, Costco is not known for being on the cutting edge when it comes to implementing new technologies. We appreciate management’s solid operating model but would like to see Costco drive more of a digital experience for its customers like Walmart (WMT) and Target (TGT) are doing. It still lags in that regard, but that could be changing. Highlighting its takeaways from this year’s Groceryshop industry conference, TD Cowen praised Costco’s efforts to “improve its digital capabilities.” The analysts in a note last week said they also think the retailer can “improve its use of data analytics.” For the entire grocery industry, Cowen sees AI amplifying “loyalty by harnessing customer interaction data to offer prescriptive advice.” Shopping data from its large and very loyal membership base is certainly Costco’s competitive edge — so, capitalizing on any new AI capabilities to develop more sophisticated ways to analyze and act on it is a worthy and necessary pursuit. AI could also better equip Costco to deal with the kind of headwinds that other retailers struggle with. Customer experience Costco has the “unique opportunity to drill into the buying habits of their individual members,” Morningstar retail analyst Noah Rohr told CNBC in an interview. He believes that AI enhancements can lead to a more personalized member experience in physical stores and online, improved management of its inventory, and a boost to its private label Kirkland business. While already incorporating some AI capabilities to tailor marketing campaigns, Costco could leverage generative AI to do it “better and more efficiently,” Telsey Advisory Group analyst Joe Feldman told CNBC. Interest in generative AI, which can take user input and create images and human-like written responses, exploded when ChatGPT went viral late last year. Rohr believes that generative AI advancements could be as simple as making promotional emails more relevant to each individual member. “Rather than filling someone’s inbox with emails every week, you limit the number of emails you send out but increase the ROI [return on investment] per email because each one is more relevant to the individual customer,” he explained. In the stores, Feldman thinks generative AI could improve customer service functions. The Costco app might one day remind you to buy a product that you bought the last time you were shopping, he said, offering a hypothetical example. But, whether using AI to make asking questions to a chatbot more natural or to manage inventory levels or monitor supply chains, Feldman said it’s crucial that Costco “keep up with the times.” Inventory management In retail, managing supply and demand can make or break financial success. Last…
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