Costco's Membership Strategy: Exploring New Revenue Frontiers

Historical Evolution of Membership Pricing

Costco's membership pricing has evolved through strategic fee increases, such as the recent hike in Executive Membership fees, and maintaining competitive pricing despite cost pressures. These adjustments, aimed at enhancing member value and driving growth, reflect a dynamic approach to staying competitive and meeting member expectations over time.

"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)

"I mean, we really do indeed see that. I think especially with our limited SKU count in the warehouse, how can we expand the offering to the members, bring value to their membership card beyond what's within our four walls or what's on costco.com and we see this as a great growth driver for us in the future and a way to bring expanded value to the members as we look forward." --- (COST, earning call, 2024/Q3)

"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/Q3)

"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)

"Ron Vachris: It moves as time moves and you see pricing in categories and where we have the greatest opportunity to be more competitive for our members." --- (COST, earning call, 2024/Q3)

Current Trends in Membership Base

Costco's membership base is experiencing growth, driven by a seamless CEO transition and a focus on delivering value to members. This trend aligns with the broader industry, where competitors like Sam's Club also report increased membership and income, highlighting the importance of membership programs in the retail sector.

"The increase was due to growth in the membership base and Plus penetration." --- (WMT, sec filing, 2025/Q1)

"And so the current CEO transition has been very seamless process. Since January, my time has been focused on working closely with the teams around the world to ensure we continue to deliver the best quality merchandise that are best value for our members." --- (COST, earning call, 2024/Q3)

"Sam's ad business now has 30% more active advertisers versus last year. We're pleased with the trends in our membership programs around the world." --- (WMT, earning call, 2025/Q1)

"Membership and other income increased $0.3 billion or 21.0% for the three months ended April 30, 2024, primarily due to strong growth in membership income globally." --- (WMT, sec filing, 2025/Q1)

"In the well, at this point in time right now, roughly 20% of our operating income comes through our membership how it's resonating." --- (WMT, conference, 2024/06/25)

Value-Added Services for Members

Costco is enhancing member value through diverse services like airline tickets, Uber Drive, and Instacart shopping. Additionally, introducing successful international products excites members, fostering trust and impulsive purchases. Competitors like Amazon and Sam's Club are also expanding value-added services, highlighting the importance of convenience and digital engagement.

"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/Q3)

"For instance, we're adding even more value to Prime, recently introducing free restaurant delivery in many of our geos, expanding Amazon's PharmacyRx pass to Medicare members." --- (AMZN, earning call, 2024/Q2)

"anonymous: I think that's really well said. And like markets learning from each other, we, in Sam's, are also able to learn from what Walmart and International has done as we look at how do we best fulfill what our members are telling us, which is that they really deeply value and want the convenience of digital engagement, whether that's in the club with Scan and Go and just walking out or whether that's online shopping, whether that's from the club or whether we're delivering it to them." --- (WMT, event transcript, 2024/06/07)

"But you want to take care of not only the consumables in the grocery side, but when we bring in an item that's a success in Taiwan or Korea or the UK and it creates that excitement for the member, that's when we really have done a good job of triggering that impulsive purchase where members are trusting the buyers and they will add that additional item to their cart." --- (COST, earning call, 2024/Q3)

Competitive Landscape and Strategies

Costco operates in a highly competitive environment, with major players like Walmart and Kroger implementing strategies to boost sales and e-commerce visibility. Despite this, Costco's focus on effective execution and a strong company culture has proven successful, positioning it well to potentially accelerate unit growth in response to competitors.

"And you already said and you don't know competitive response to No. Look, we operate in a very competitive environment." --- (WMT, conference, 2024/06/25)

"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/Q1)

"By executing on our go-to-market strategy built on the four pillars of Fresh, Our Brands, Personalization and Seamless, we are creating a shopping experience that builds loyalty and grows sales." --- (KR, sec filing, 2024/Q1)

"Our Walmart U.S. team is executing strategies to improve general merchandise sales and to increase the visibility of our growing e-commerce brand assortments in fashion, home, and electronics." --- (WMT, earning call, 2025/Q1)

"We just want to continue to actually execute well. Gary Millerchip: And Scott, maybe just to add from my perspective of being new to the role and new to the company, early observations to me, obviously, the incredibly impressed with the culture and the strategy is clearly working very well." --- (COST, earning call, 2024/Q1)

Impact of Digital Transformation on Membership

Costco is enhancing its digital experience to improve member satisfaction, leveraging its strong merchandise and value offerings. Competitors like Walmart are also focusing on digital transformation to boost membership and eCommerce growth, highlighting the importance of digital channels in modern retail membership strategies.

"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)

"This includes increasing comparable store and club sales through increasing membership at Sam's Club and through Walmart+, accelerating eCommerce sales growth and expansion of omni-channel initiatives that complement our strategy." --- (WMT, sec filing, 2025/Q1)

"Ron Vachris: Our biggest strength on digital e-com is, of course, the merchandise and the value that we have." --- (COST, earning call, 2024/Q3)

"I would argue that's got to be one of the highest digital penetrations in an in person experience that exists out there." --- (WMT, Bank of America London Investor Conference, 2024/06/25)

Future Outlook and Revenue Impact

Costco's future revenue outlook appears strong, with consistent net sales growth and robust comparable sales across regions and e-commerce. However, factors like capital spending, vendor actions, and geopolitical conditions could impact future performance.

"Comparable sales and comparable sales, excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with U. S. GAAP.As reported in our release, net sales for the month came in at $24, 480, 000, 000 an increase of 7.4% from $22, 780, 000, 000 last year." --- (COST, event transcript, 2024/07/10)

"Comparable sales were as follows: 4 Weeks 35 Weeks U.S. 5.8% 4.1% Canada 5.2% 7.7% Other International 5.1% 9.1% Total Company 5.6% 5.2% E-commerce 14.6% 14.7% Comparable sales excluding the impacts from changes in gasoline prices and foreign exchange were as follows: 4 Weeks 35 Weeks U.S. 5.2% 4.4% Canada 5.9% 8.2% Other International 7.0% 7.8% Total Company 5.5% 5.3% E-commerce 14.8% 14.6% This year's retail month of April was impacted by the shift in timing of Easter." --- (COST, press release, 2024/05/08)

"capital spending, actions of vendors, rising costs associated with employees (generally including health-care costs), energy and certain commodities, geopolitical conditions (including tariffs and the Ukraine conflict), the ability to maintain effective internal control over financial reporting, regulatory and other impacts related to climate change, public-health related factors, and other risks identified from time to time in the Company's public statements and reports filed with the Securities and Exchange Commission." --- (COST, press release, 2024/04/10)

"Comparable sales were as follows:
4 Weeks 39 Weeks U.S. 5.8% 4.3% Canada 6.7% 7.6% Other International 9.3% 9.1% Total Company 6.4% 5.4% E-commerce 15.3% 14.8% Comparable sales excluding the impacts from changes in gasoline prices and foreign exchange were as follows:
4 Weeks 39 Weeks U.S. 5.7% 4.6% Canada 7.5% 8.1% Other International 10.0% 8.0% Total Company 6.5% 5.5% E-commerce 15.4% 14.7% Additional discussion of these results is available in a pre-recorded message." --- (COST, press release, 2024/06/05)

"Comparable sales were as follows:
4 Weeks 48 Weeks U.S. 5.3% 4.5% Canada 6.3% 7.2% Other International 3.7% 8.1% Total Company 5.2% 5.3% E-commerce 20.2% 15.6% Comparable sales excluding the impacts from changes in gasoline prices and foreign exchange were as follows:
4 Weeks 48 Weeks U.S. 6.3% 4.9% Canada 10.2% 8.3% Other International 8.9% 8.2% Total Company 7.2% 5.8% E-commerce 21.1% 15.6% Additional discussion of these results is available in a pre-recorded message." --- (COST, press release, 2024/08/07)