Costco CFO on Item-Level RFID: "That Ain't Happening"

Tools

Item-Level RFID has its backers at Macy's (NASDAQ:M) and a lot of supporters at JCPenney (NYSE:JCP) (if the retailer only had the cash). But a warehouse chain such Costco (NASDAQ:COST)—with aisle inventory stacked dozens of feet in the air—should be a natural. Not so, Costco CFO Richard Galanti said Tuesday (March 12). In fact, not even close.

Asked about ways to cut labor costs, Galanti went out of his way to dismiss it, arguing that he's not buying item-level RFID's promises. "Everybody thought that RFID would free up the front end and reduce our biggest labor cost area. That ain't happening." (How can you not like a CFO who tells a recorded investor call "that ain't happening"?)

Costco has always been the contrarian among the largest chains. Whereas most chains go out of their way—for good reason—to have huge overlap in products offered by its site and its stores, Costco prides itself on having as little overlap as possible. Two different shopping experiences justify two very different sets of products. It also means minimal channel cannibalization.

It's also the only major chain—and one of the few chains of any size—that accepts only the American Express (NYSE:AXP) card in its stores. It's been assumed for years that the discount Amex delivers to Costco must be pretty substantial to keep Visa (NYSE:V) and MasterCard (NYSE:MA) out of the doors. Officials gave a hint as to how substantial when referencing that on Costco.com—where MasterCard and Visa and other cards are accepted and, presumably, give Costco healthy discounts of their own—Amex's interchange rate is lower. Amex offering a lower interchange than MasterCard and Visa? There's a switch.