Costco announced on Wednesday that it will increase its membership fees for the first time since 2017. Starting September 1, annual membership fees in the U.S. and Canada will rise by $5, bringing the cost to $65 for standard memberships. The higher-tier "Executive Membership" will see a $10 increase, going up to $130 annually.
This fee hike will affect approximately 52 million memberships, with over half being Executive memberships, according to the company. The announcement led to a 2% increase in Costco's shares during extended trading on Wednesday, reflecting investor confidence in the retailer's decision.
Costco's decision to raise membership fees is part of its strategy to maintain competitive pricing on merchandise. CEO Craig Jelinek and CFO Richard Galanti have previously emphasized that the company postponed the fee increase to ease the burden on consumers dealing with high inflation. "It was not the right time as consumers dealt with high inflation," Jelinek mentioned in an interview with CNBC earlier this year.
Membership fees are a critical component of Costco's revenue model, helping the company keep its product prices low. In the fiscal year 2022, Costco earned $4.6 billion from membership fees, marking an 8% increase from the previous year. This revenue stream is crucial for offsetting operational costs and maintaining competitive pricing, which is a key part of Costco's business strategy.
Costco's competitors have also adjusted their membership fees recently. Walmart-owned Sam's Club increased its membership fees in 2022 for the first time in nine years, with fees now at $50 for standard memberships and $110 for the higher-tier "Plus" memberships. BJ's Wholesale Club also charges $55 for standard memberships and $110 for its higher-tier options. Despite the recent increase, Sam's Club still offers a cheaper membership compared to Costco's new rates.
The new fees at Costco come with additional benefits for Executive members, who will soon be able to earn up to $1,250 in annual rewards, up from the previous cap of $1,000. This enhancement aims to provide more value to members who opt for the premium membership tier.
In addition to the fee hike, Costco has been tightening enforcement to prevent misuse of membership cards. Last year, the company implemented extra checks at self-checkout aisles to ensure that shoppers were using their own memberships. This move mirrors actions taken by companies like Netflix, which have also cracked down on shared accounts.
Costco's decision to increase fees follows a pattern of adjustments roughly every five and a half years. The previous increase was in June 2017, and this current hike was slightly delayed to account for economic conditions. This strategy aligns with the company's long-term approach to balancing revenue needs with consumer affordability.
The timing of this announcement coincides with a period of strong performance for Costco. The company reported a 7.4% increase in net sales for the five weeks ending on July 7 compared to the same period last year. This positive sales growth reflects Costco's resilience and strong market position amid broader economic challenges.
