Dive Brief:

• Costco plans to bring back sampling to its stores this summer as store traffic continues to decline during the pandemic, Chief Financial Officer Richard Galanti said during the company’s third-quarter earnings call Thursday.
• Galanti said Costco will resume sampling in mid-June “on a slow rollout basis,” but said the practice would look different due to safety restrictions. “I can’t tell you any more, but it’s needless to say not going to be where you go and just pick up an open sample with your fingers,” he said. 
• U.S. comparable sales grew 8% during the third quarter, while overall net sales increased 7.3% to $36.45 billion. U.S. store traffic declined 2%, while e-commerce sales increased 66%.

Dive Insight:

Costco is hoping that by reviving key parts of its store experience, it can entice more shoppers to visit and boost sagging sales growth.

The company shut down store sampling in March and cut ties with its main sampling vendor soon after. It’s not clear what its food sampling stations, which formerly appeared in high-traffic areas of the store and tended to be customer gathering spots, will look like in the pandemic era. Safety restrictions could fundamentally alter the experience for shoppers. But bringing back tiny portions of snacks and beverages also promises to re-inject some of the much-needed treasure hunt vibe the company relies on.

Costco’s food courts, another quintessential part of its shopping experience, also closed down in March, but began reopening in late April and early May with limited menus, including by-the-slice pizza. Galanti said Costco has gradually added more menu items for takeout service.

The formerly high-flying club retailer, which relies on packing shoppers into its stores, has felt the pinch of pandemic-related safety restrictions. In addition to service station closures, it has placed limits on shopper flow into its stores — though the company did recently lift a rule requiring no more than two shoppers per membership card to enter.

Costco also requires shoppers to wear masks, a practice that has become increasingly politicized. Galanti said most shoppers follow the policy and appreciate it. “There are a few people that don't like it, but most people do,” he said during Thursday’s earnings call.

The club retailer’s e-commerce service, which includes two-day grocery delivery and same-day delivery on select items, accounted for around 10% of sales in Q3. Other retailers have quickly ramped up fulfillment and are investing in new services. And while Costco is spending more money on online fulfillment, as Galanti noted, its a relatively small offering and not a core focus for the company.

Costco has struggled to regain momentum following a sales surge during stock-up shopping in early March. In April, the company posted its first sales loss in more than a decade. Research indicates consumers are isolating at home less, and the summer months promise to bring more shoppers into Costco stores. However, an increasing focus on value shopping driven by financial instability promises to further curb discretionary spending on many of the big-ticket items Costco sells.

The company’s model remains fundamentally at odds with the restrictions and consumer habits unfolding during the pandemic, analysts at R5 Capital told clients in a note.

“The COVID world is not in our view constructive for a company that thrives on heavy traffic to its crowded stores where members are tempted to impulse purchase unique, well priced, merchandise,” the firm wrote.