2024-07-12 11:00:01
Belonging to the “Cult of Costco” just got more expensive. For the first time in seven years, the retail behemoth is raising membership fees to enter its famously gigantic stores by $5 to $10, the company announced Wednesday. Monthly sales were also up from last year—another promising sign that Costco would continue to deliver for shareholders, who have enjoyed gains that have outpaced the S&P 500 this year.
While Costco shares jumped nearly 3% in premarket trading following the announcement, the price soon tumbled to $846.59 on Thursday, more than a 4% drop from its open at $890.76. Overall, however, the stock’s price has climbed over 29% in the first half of 2024, with shares up over 60% from a year ago.
For customers, meanwhile, the cost of accessing Costco’s towering aisles of stacked pallets will increase by $5 to $65 starting Sept. 1. The price of a premium “executive membership,” which is held by customers who represent just under half of the overall membership base but account for 73% of sales worldwide, per Jennifer Bartashus of Bloomberg Intelligence, will rise to $130 from $120.
Membership fees drive Costco’s profits
As Phil Wahba recently explained in the most recent Fortune 500 issue, these memberships are what primarily enable Costco to provide the bargains shoppers brag about to their friends, family or social media followers.
“Last year the fees amounted to roughly two-thirds of profits, and on several occasions in the past few years, Costco would have reported a net loss without them,” Wahba wrote. “Without membership growth, Costco’s bargain, sometimes loss-leading prices—and the clout with suppliers that makes them possible—would be hard to sustain.”
New Costco CEO Ron Vachris has said, “The most important item we sell is the membership card,” Wahba noted. “Everything we do supports that transaction.”
That strategy has proven to be a success, with the company jumping to No. 11 in the Fortune 500 and boasting $242 billion in revenue.
Former CEO Craig Jelinek and ex-CFO Richard Galanti had previously held off on raising fees as customers dealt with high inflation, even as competitors like Walmart-owned Sam’s Club and BJ’s Wholesale did so in 2022, which would have followed Costco’s pattern of raising membership fees about every five-and-half years. Instead, the company waited for prices to cool, as the consumer price index dipped last month for the first time in over four years.
New CFO Gary Millerchip has promised not to touch the price of the company’s signature $1.50 hot-dog-and-drink combo, however, protecting what has been a Costco staple since 1985.
Comparable sales and e-commerce numbers remain strong
Analysts explained the long-awaited fee increase will hit the profit and loss statement over the next two fiscal years, supporting earnings visibility into 2026. Renewal rates have remained strong after previous fee hikes, and if that holds this time around, the lift could provide Costco with an increased investment pool as the company seeks to expand its e-commerce business and international presence.
The company reported net sales of almost $24.5 billion for the previous five weeks ending July 7, up 7.4% from the year before. Comparable sales, excluding gasoline and foreign exchange, increased over 6.3% for the same period, punctuated by an 19.1% jump in online sales.
