Warehouse clubs remain a tremendous value to customers even if they charge a membership fee in order to shop there. costco (cost) Walmart (WMT) Sam’s Club and BJ’s Wholesale (BJ) Everyone offers a similar offer for members – pay the membership fee and get a selection of items at low prices.
There are some tradeoffs. The selections are small and items tend to sell in large packages rather than smaller sizes. You can often have the brand you want, but not a size that would easily fit in your closet.
However, even with these small sacrifices, all three of these brands have been successful and Costco has been growing exponentially, and the company has done an amazing job in retaining existing members. CFO Richard Galante commented on this during the series’ second-quarter earnings call.
At the end of the fourth quarter, the renewal rate in the United States and Canada was 92.6%, which is 0.3 percentage point higher than 16 weeks earlier at the end of the third quarter when we were at 92.3%. Our global renewal rate at the end of the fiscal year was 90.4%, up 0.4 percentage points from the end of the third quarter when it was 90%. In terms of household members and cardholders, at the end of the fourth quarter, we ended the fourth quarter with 65.8 million paid individuals and 118.9 million cardholders, up 6.5% from the previous year.
This is a very strong growth, especially after the growth, the chain rushed forward during the pandemic. As numbers continue to rise, Costco has been reticent about raising the membership fee (Sam’s Club did recently), but Galanti made it clear that the increase would come (even if you’re not here yet.
Costco Membership Fee Will Go Up (Exactly When It’s The Only Question)
Early on in the call, Galanti somewhat denied that a membership fee increase was imminent.
“In terms of membership fees and a potential increase, there are no specific plans on a fee increase at this time. We are pleased with our growth in both top line sales and Membership in Families over the past several quarters and in member loyalty as this is reflected in increased member renewal rates. We will let you know when it is Something is about to happen.”
No specific plan is not the same No plans and the CEO gave a more complete explanation later in the call.
Look, at the end of the day, we’re always told and told you guys that we’re a leader. We are always looking to increase sales.
Sure, since we’ve historically increased member fees every five or five and a half years, we’ve turned them around and used them to bring in more value. And when we do, we will. I think at the end of the day – and I also want to point out, of course, if you look at the last three increases, on average, they were five years to seven months apart. If you look at June of the year 17, plus five years and seven months, you’re talking roughly on January 23.
Now I’m not suggesting it’s January 23. I’m just saying it’s not there yet anyway. And from our point of view, are we confident in our ability to do so. And at some point we will, but the question is about time, not if.
Galante has previously referred to the timeline for previous increments, but he didn’t use specific words like “and at some point we’ll do it, but the question is about time, not whether.”
Costco can afford to raise prices
The truth is, Costco has never seen a big dip (or even a big drop in renewals) when it has raised membership prices in the past. This is because their hikes are generally $5 for a basic Gold Star membership and $10 for an executive membership. This will raise prices from $60 to $65 or from $120 to $130 depending on your level.
This is such a slight increase that it’s hard to imagine people going crazy over five years later than the previous price, many customers, of course, use auto-renewal, and while they should be notified, it’s hard to imagine someone who wasn’t. On the fence about renewing anyway to drop their $5 or $10 membership.
Costco is keen here. It is very clear that she is planning to raise the membership fee but she is looking for the right time to do so.