Costco's Membership Price Increase: Implications for Investors

Historical Context of Membership Price Changes

Costco's membership fee increases, effective September 1, 2024, reflect a historical trend of gradual price adjustments. The upcoming hikes will affect approximately 52 million memberships, with fees rising by $5 to $65 for standard memberships and $10 to $130 for executive memberships, indicating a strategic approach to revenue growth.

"Our investments in merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members, negatively impacting gross margin and gross margin in the near term as a percentage of net sales (gross margin percentage)." --- (COST, sec filing, 2024/Q1)

"Membership fee income was $111.4 million in the first quarter of fiscal year 2024 compared to $102.5 million in the first quarter of fiscal year 2023, an 8.6% increase." --- (BJ, sec filing, 2024/Q1)

"As with prior increases due to membership fees being accounted for on a deferred basis and the memberships renewing annually, the P and L benefit of the fee increase will flow into the P and L over 2 years spanning FY 'twenty 5 and FY 'twenty 6.Looking ahead, the July reporting period will include 4 weeks beginning July 8 and ending August 4 compared to the 4 weeks beginning July 10 and ending August 6, 2023." --- (COST, event transcript, 2024/07/10)

"Pharmacy, food court and optical were the top performers. As reported in our release, effective September 1, 2024, our annual membership fees will increase in the U. S. And Canada.Gold Star Business and Business Add on memberships will increase by $5 to $65 and executive memberships will increase by $10 to $130 Additionally, the maximum annual 2% reward will increase from $1, 000 to $1,250 The fee increases will impact about 52,000,000 paid memberships, a little over half of which are executive." --- (COST, event transcript, 2024/07/10)

"Also effective September 1, annual fees for Executive Memberships in the U.S. and Canada will increase from $120 to $130 (Primary membership of $65, plus the Executive upgrade of $65), and the maximum annual 2% Reward associated with the Executive Membership will increase from $1,000 to $1,250. The fee increases will impact around 52 million memberships, a little" --- (COST, press release, 2024/07/10)

Impact on Customer Retention and Future Growth

Costco's membership price increase is seen as a strategic move to reinvest in members, aiming to enhance customer retention and drive future growth. The company is focused on accelerating unit growth in the U.S. market, despite economic challenges that may affect consumer spending.

"Just want to get a sense of the opportunities to potentially accelerate that unit growth, especially in the U.S. just given some of your competitors are planning to accelerate growth from here." --- (COST, earning call, 2024/Q3)

"In addition, changes in fuel, utility, and food costs, interest rates, and economic outlook may impact customer demand and our ability to forecast consumer spending patterns." --- (AMZN, sec filing, 2024/Q2)

"Walmex’s had another strong quarter. And India Flipkart again delivered positive contribution margin and PhonePe continues to deliver amazing growth in total payment volume. In China, strong membership trends and Sam's Club continue to drive double-digit sales growth and about half of our sales there are digital." --- (WMT, earning call, 2025/Q2)

"And as I mentioned earlier, though, I would definitely think of it as something that we'll look at to as we do with everything, reinvest in the member to really accelerate the growth of the company overall." --- (COST, earning call, 2024/Q1)

Revenue and Profitability Implications of Price Increase

The membership price increase at Costco is expected to enhance revenue and profitability, as evidenced by a 9.4% rise in net sales following the increase. Executives emphasize that growing net and comparable sales are crucial for profitability, indicating a positive outlook for financial performance.

"For the 16-week fourth quarter, the Company reported net sales of $78.2 billion, an increase of 1.0 percent compared to net sales of $77.4 billion in the 17-week fourth quarter of fiscal year 2023." --- (COST, press release, 2024/09/05)

"And so that drove some of the improvement in the first quarter. The third point, and the one that I'd want to emphasize the most here, if you look at the composition of our operating income improvement year-over-year, roughly $900 million, about a third of that came from our newer businesses like advertising, membership, data ventures, and we're quite excited about that." --- (WMT, earning call, 2025/Q1)

"We believe that the most important driver of our profitability is increasing net sales, particularly comparable sales." --- (COST, sec filing, 2024/Q1)

"As reported in our release, net sales for March came in at $23,480,000,000 an increase of 9.4% from $21,460,000,000 last year." --- (COST, event transcript, 2024/04/10)

"Net sales for the first 39 weeks were $186.07 billion, an increase of 6.9 percent from $174.07 billion last year." --- (COST, press release, 2024/06/05)

Competitive Landscape and Market Positioning

Costco is strategically expanding into markets like China, while competitors like Walmart and BJ's are enhancing their market reach through innovative models and strong member engagement. Amid rising prices, value remains crucial, intensifying competition as peers invest in pricing strategies, impacting Costco's market positioning.

"And then obviously, we have markets like China where we're really just sort of starting that journey, but there's tremendous growth opportunity as we identify the right path forward in that market." --- (COST, earning call, 2024/Q1)

"So really good strength, because they've worked out a model of dark stores that give them access to a larger addressable area of the market and allow them to deliver really, really efficiently. So our eCom omni business is growing." --- (WMT, earning call, 2025/Q1)

"In doing so, we are driving great member engagement as exhibited by growth in trips, units and market share in the first quarter, an achievement in today's challenging retail backdrop." --- (BJ, earning call, 2024/Q1)

"While our team is always committed to value, it's particularly important in today's environment as consumers look for ways they can stretch their budgets in the face of suddenly high prices." --- (TGT, earning call, 2025/Q1)

"Christian Carlino: Got it. That's really helpful. And just broadly, are you seeing the competitive environment heat up in terms of peers investing in price, particularly in non-foods?" --- (COST, earning call, 2024/Q3)

Long-term Outlook on Membership Growth

Costco's long-term membership growth outlook appears positive, driven by strategies to enhance member value and engagement, despite inflationary pressures. Observations on evolving member behaviors and competitive insights suggest a focus on improving the member experience, which is crucial for sustaining growth in membership numbers.

"And so if you think about the three main categories in core between foods and sundries, fresh and non-foods, fresh would have continued to have been slightly lower year-over-year, and that's a very deliberate strategy for us to make sure we're delivering more value for the member, and we think that's a really important place for us to drive member engagement and support, especially as we're still seeing some commodities that are a little bit inflationary right now." --- (COST, earning call, 2024/Q2)

"Peter Benedict: Great. That all makes sense. Thanks. My follow up question probably around kind of membership, member growth and MFI, comp club member growth is driving two-thirds of the total member growth." --- (BJ, earning call, 2024/Q1)

"Can you just talk about maybe just your observations around maybe income cohorts, any other ways you bucket or slice your membership base, just how the behaviors have evolved here over the last several months." --- (COST, earning call, 2024/Q1)

"We will grow the size and quality of our membership. We will offer unbeatable member experience through our merchandising improvements." --- (BJ, earning call, 2024/Q1)

Comparison with Competitors' Membership Strategies

Costco's membership strategy emphasizes enhancing member value through strong relationships and digital improvements, as noted in their earnings call. In contrast, competitors like Walmart and BJ's focus on broad accessibility and convenience, respectively, highlighting different approaches to member engagement and value delivery.

"So we focus a lot on ensuring that customers get what they ordered, when they ordered it, with only appropriate substitutions when those are absolutely necessary, and those are all helping.In terms of assist and other things we have a membership program that should and is we believe very applicable for customers at all income brackets." --- (WMT, earning call, 2025/Q2)

"So using the strength of the membership relationship in driving a very large co-brand payment program that delivers value to members and delivers values to the company." --- (COST, earning call, 2024/Q3)

"The higher comparable club sales, the more we can leverage certain of our selling, general and administrative (SG&A) expenses, reducing them as a percentage of sales and enhancing profitability." --- (BJ, sec filing, 2024/Q2)

"And that's everything that our team is focused on is that how does this move to the member and how does it improve their experience with us digitally." --- (COST, earning call, 2024/Q3)

"We work hard to save our members' time and money. For members taking advantage of our value proposition is easier than ever as our digital conveniences allow them to shop our clubs how they want." --- (BJ, earning call, 2024/Q1)

Analysis of Membership Value Perception Among Customers

Costco's focus on enhancing member value through diverse offerings and partnerships is crucial for maintaining customer perception. Competitors emphasize the importance of convenience and trust, indicating that members prioritize value in their purchasing decisions, which aligns with Costco's strategy to save and add value for its members.

"These dynamics and their impact on consumer demand are beyond our control, but we will remain focused on what we do best, that's bringing great value to our members." --- (BJ, earning call, 2024/Q2)

"These financial results reflect that our value proposition extends beyond great prices into convenience. Our combination of price, trust, assortment, and experience has made us more relevant with our customers and members than ever before." --- (WMT, earning call, 2025/Q1)

"So it really complements the core warehouse business, but gives us an opportunity to expand member value to these other partners as well." --- (COST, earning call, 2024/Q1)

"The health of the consumer remains top of mind for many. From our vantage point, members remain value focused in their purchasing behavior, and they are seeking us out to attain that." --- (BJ, earning call, 2024/Q2)

"But again, our job is to save the members where we can and be it airline tickets or Uber Drive tickets or Instacart shopping, we look at all those opportunities to add value to the member." --- (COST, earning call, 2024/Q1)