Costco is one of the most popular warehouse wholesalers with close to 115 million members worldwide. Currently, membership fees are $60 for Gold Star members and $120 for Executive members. Last year, Costco brought in $3.9 billion in membership fees, a 9% increase from the prior year. Costco’s net income, or profit, increased by 25% to $5 billion. Membership fees are vital to Costco’s business model and made up nearly 80% of Costco’s profit last year.
Membership fee increase coming "at some point"
In the most recent earnings call, Richard Galanti, executive vice president and chief financial officer for Costco, stated that Costco has on average increased membership fees every five to five and a half years.
"And five years from the anniversary of the June of '17 would be this June," Galanti remarked. "We certainly feel good about our member loyalty, our success in getting members to move to Executive member, which are the most loyal."
Responding to the UBS analyst who asked about the possibility of a membership price hike this year, Galanti suggested that membership fees would "at some point" be raised. Based on companies like Amazon and Netflix raising their fees, and it being nearly five years since the last membership fee increase, members should anticipate Costco raising fees sometime this year.
Members renewing their membership
Costco’s success is based on membership loyalty and growth. Galanti also said member renewal rates were increasing due to members using the auto-renew feature. He also said an increasing number of Executive members were renewing at a higher rate than Gold Star or Business members. Costco’s member renewal rate was 91% in the U.S. and Canada and 89% worldwide.
On top of more loyal members, inflation has hit a 40-year high, with prices 8.5% higher than the previous year. With the costs of goods increasing, in order to maintain its profit margin, Costco will need to increase membership fees. The timing will be important since Costco’s membership format "is designed to reinforce member loyalty and provide continuing fee revenue."
The last time membership fees went up in 2017, fees increased from $55 to $60 for Gold members. Executive membership fees increased by $10, from $110 to $120. This increase impacted 35 million members worldwide. Now with close to 115 million members, many more people will be impacted by an increase. Costco will need to be careful when raising rates, but with the combination of high inflation and member renewal rates increasing, members, especially small businesses, need to brace their bank accounts for membership fee increases in the next year.
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