Costco's Higher Membership Fees May Start This Summer
Costco is a very popular club. Over 68 million people worldwide currently pay for the privilege of shopping at its discount-filled warehouses, including more than a million new members that signed up since December.
While most of the company's profits come from membership fees—they generated over $1 billion during the last quarter alone—the cost to individual members hasn't gone up by a single penny in over five years. The annual fee currently stands at $60 for a basic membership and $120 for executive-level added perks.
That's about to change. Exactly when, though, is the subject of endless speculation, dating back over a year.
Company officials have been hinting at a looming fee increase for months now. "A question of when, not if," Costco CFO Richard Galanti has said repeatedly, mostly recently during an earnings call last week.
Prior increases came about five years apart in 2006, 2011, and 2017, leading many observers to anticipate that an announcement about higher fees is imminent.
One analyst who closely follows the company made an intriguing prediction over the weekend.
"I suspect that they'll announce it later this spring and implement it early this summer," UBS US Hardline & Broad-line and food retail analyst Michael Lasser said in an interview with Yahoo! Finance.
Lasser said the company will use the additional revenue from fees to then lower its prices on groceries and other goods, thereby making the warehouse club even more competitive and also more attractive to potential new members.
"What they find is that as they get the profit infusion from this fee—because it really is pure profit—that they take a portion of that and reinvest it back in lower prices," Lasser said. "And that helps to drive the model. It helps to differentiate Costco versus other retailers out there."
During last week's earnings call, Costco reported a membership-renewal rate of about 92% in the United States and Canada, an all-time high.
"You can't find many businesses where 92% of the customers say this is so good that I'm going to continue to pay to go there," said Lasser. "Costco offers a very good deal for the consumer. You pay to shop there. And the reason why you pay to shop there is because you find prices that are as good or better than anywhere else."
CNBC reported last year on a survey showing that a fee increase would likely face little resistance from current Costco members.
Costco's warehouse club rival Sam's Club raised its membership fees last October. Sam's Club CEO Kathryn McLay said during a recent earnings call that the fee increase had no impact on the membership count so far—in fact, the company reported a "record high" during the past quarter.