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Costco Ups Membership Fees After 7 Years: What’s New?
Published: July 11th, 2024.
Costco Wholesale Corp. is raising their membership fees for the first time in seven years. Effective September 1, the basic membership fee will increase from $60 to $65 annually, while the premium “Executive Membership” fee will rise from $120 to $130. This move will affect approximately 52 million memberships across the U.S. and Canada, including over half of executive memberships.
The announcement came on Wednesday, causing Costco shares to rise by 2.4% in extended trading. This year, the stock has seen a 34% increase, outpacing the S&P 500 Index.
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Long-Awaited Increase
Investors and analysts have been anticipating this fee increase, as Costco typically raises membership prices every five years. In recent earnings calls, company executives have hinted that a price hike is imminent. Still, it took longer to materialize due to economic uncertainties and consumer concerns about inflation.
Jennifer Bartashus, a Bloomberg Intelligence analyst, noted that the fee increase was expected and overdue. She highlighted inflation and the economic outlook, and Costco delayed the hike to ease consumer concerns, which have moderated recently. Bartashus expects renewal rates to remain steady despite the increase.
Inflation & Consumer Behavior
U.S. consumers have faced rising prices across various sectors in recent years, although inflation is now beginning to moderate. Retailers, including Costco, anticipate that inflation will return to more normalized levels with low single-digit increases. Some areas, such as general merchandise, have already seen price drops.
Costco’s membership model, which targets a more affluent customer base, has helped the company remain relatively insulated from broader sales declines and reduced discretionary spending. For June, the company reported a 6.3% increase in U.S. comparable sales, excluding gasoline, compared to the previous year.
Importance of Membership Income
Costco's membership fees are a crucial revenue stream, allowing them to invest in their operations and keep product prices low. The higher fees are expected to boost profit, supporting Costco’s strategy of offering low prices on bulk goods. Premium memberships have been a significant growth driver, constituting just over half of the total paid memberships.
Costco appointed Gary Millerchip from Kroger Co. as their new Chief Financial Officer earlier this year. Ron Vachris has been serving as Chief Executive Officer since January. The company continues to expand their presence in the U.S. and overseas while investing in e-commerce.
Additional Measures & Consumer Reactions
Costco has also stepped up enforcement to prevent shoppers from using other members’ cards, introducing extra checks in self-checkout aisles.
Despite the fee increase, Costco’s Chief Financial Officer emphasized that the retailer has no plans to change their popular $1.50 hot dog combo special, which has been in place since 1985. Earlier this year, Costco restricted members' access to its food court, ensuring that only paying members could enjoy the discounted deal.
Conclusion
Costco’s first membership fee hike since 2017 reflects the company’s strategic timing amid easing inflation and a stable economic outlook. With the additional revenue from increased fees, Costco aims to continue investing in their operations, maintaining their competitive edge in the retail sector, and providing value to loyal members.