As we come to the end of 2023, one of the hot topics amongst retail stocks in the past year was self-checkout. Fast Company published an article in early December with a short list of companies scaling back on the technology.
Whether it be technology breakdowns or customer theft, retailers are no longer enamored with self-checkouts, pushing many large businesses to cut back and opt for the traditional checkout lane.
When I lived in Toronto before the pandemic, my wife and I would shop at Longo’s, a chain that provided a grocery bagger for each checkout aisle. Even at Christmas, the line moved rapidly.
Once the pandemic hit, grocery stores decided self-checkout was the way to go. Like trained seals, you now see people with 50 items going through self-checkout. That’s not what it was intended for. It was meant for convenience when you only had a few things.
My biggest concern is these firms will add a single cashier while eliminating self-checkout, making the customer experience even worse than it already is.
Thankfully, only some people are getting rid of the service. These three retail stocks are all holding fast. That makes them worth putting on your stocks-to-buy list.
Koninklijke Ahold Delhaize (ADRNY)
I got the idea for this article because of a Fortune piece from December featuring the CEO of Netherlands-based Koninklijke Ahold Delhaize (OTCMKTS:ADRNY), the global grocery store giant whose U.S. operations include Stop & Shop and Food Lion.
CEO Frans Muller heads up the company, the 12th-largest retailer in the U.S., with annual sales of $60 billion. In the article, he explained why his company is sticking with self-checkout.
“There are two main arguments to offer self-checkout. Some shoppers have smaller baskets, so they don’t have to wait in line, and it’s convenient. A lot of elderly shoppers find it fun, and they have time for it. For us, from a cost perspective, the savings on labor costs are higher than the potential downsides,” Muller told Fortune.
Of course, the downside he’s alluding to is shoplifting.
To me, any grocery retailer and discount store that removes self-checkout from their customer checkout options is shooting themselves in the foot. Firms like Fast Retailing (OTCMKTS:FRCOY), the parent of Uniqlo, have bins at their checkouts. You toss everything in the bin, and it scans all the individual RFID (radio frequency ID) tags, improving checkout speed and inventory management.
In the latest Q3 2023 results, Ahold Delhaize’s U.S. stores had underlying operating margins of 4.2%. Self-checkout is a big part of its profitability.
Lowe’s (LOW)
Unlike its competitor, who went off the deep end regarding self-checkout and theft, Lowe’s (NYSE:LOW) has taken technology to the next level so its customers can get in and out of the store quickly.
“This past quarter, we fully retired the old self-checkout systems and have shifted to the proprietary self-checkout systems that we built for the home improvement shopper,” stated Joe McFarland, executive vice president of stores for Lowe’s during its Q3 2023 conference call.
“We’ve seen greater customer adoption of these new systems since they’re so much easier to use. In fact, our front-end transformation is well underway, with approximately 450 stores planned by the end of this year.”
You can treat your customers like criminals or responsible citizens. Lowe’s chooses the latter.
The reality is that retailers are blaming self-checkout for increased theft to paper over the fact employee theft remains a big problem in America.
“‘The theme that comes back the most right now is internal theft … they’re realizing that a lot of [losses] come from there,’ said one of the sources who advises retailers. ‘If there’s an occurrence of external theft they would steal let’s say 10 bucks worth of merchandise, but if it’s internal theft, it’d be 40 bucks,’” CNBC reported comments from Patrick Tormey, an adjunct professor at the Lehman College School of Business, who spent more than 40 years in the retail industry.
Taking away convenience from customers is not going to solve retailer shrinkage. Paying employees more might.
Costco (COST)
I’m almost as big a fan of Costco (NASDAQ:COST) as Charlie Munger. I’ve shopped at its stores for years. I continue to recommend its stock. In August, I included it along with two other names of companies with a positive work culture. And it doesn’t hurt its margins keep getting better.
The Fast Company article mentions Costco as one of the retailers making changes to its self-checkout. However, I think it’s fair to say that the discount retailer is focused on something other than grab-and-go theft.
“The popular bulk retailer is adding more employees to help with self-checkout lanes, but not only because of the frustrations we’ve felt over errors. It’s primarily to curb nonmembers from sneaking in and using membership cards that don’t belong to them,” Fast Company stated.
Considering the company’s profits are primarily generated from membership fees, it makes sense it would have staff protecting its golden goose.
Everything Costco does is to ensure the member experience remains a good one. Like Netflix (NASDAQ:NFLX), it makes financial sense to crack down on membership abuse. If anyone could get rid of self-checkout and not miss a beat — it would be Costco.
As long as their customers want it, why wouldn’t they?
On the date of publication, Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
