Costco CFO shares the main update on membership fees

The Costco business model is significantly different from the model adopted by competitors such as Walmart and Target.

First, Walmart and Target are proud that they are involved with everything in the sun, from fresh foods to clothes to games and games.

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Costco, also, known as a wide range of products. But Costco specifically limits its stock to about 4000 SKU (stock saves units). So while consumers can usually find everything they are looking for in the local Walmart or the goal in one visit, they may not be able to complete the shopping in one Costco.

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Another thing that makes Costco unique is the revenue strategy. Costco is ready to accept lower margins on the products you sell because they compensate for this in membership fee revenues.

Most stores do not force customers to buy membership just to enter the door. In Costco, only members are accessed, or guests of paid members.

This means that people who shop in Costco tend to do this intentionally. Not only can they go to a whim to find out what is in the stocks because it costs money simply walking in the door.

But since Costco knows that its members are paying good money to reach the store, he is trying hard to make sure that customer experience is a positive experience. This extends to the store’s generous return policy, which, with a few exceptions, allows members to return any element at any time to a full recovery.

Costco is keen to raise membership fees

In September 2024, Costco raised the basic cost of Gold Star from $ 60 to $ 65, while the cost of executive membership increased from $ 120 to $ 130. Executive members are given 2 % on their Costco purchases, and repeated customers can often earn enough to compensate for additional expenses of $ 65.

Costco 2024’s height was the first time that the store has raised membership costs since June 2017.

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Usually, Costco raises its membership fees every five and a half years. Based on this rhythm, the store was due to an increase in late 2022 to early 2023 the time frame.

But the Costco management team understood that this was not a suitable time to raise the fees. At that time, inflation was more prevalent than it is today, and many consumers were struggling to meet their needs.

Costco did not want to keep the members away from the height of the unlimited fees, so he chose to wait longer than usual to raise the prices of his membership.

Costco has a studied organic fee strategy

Costco has faced its share of criticism on membership fees, given significantly high price points from SAM’s Club. The cost of the club’s membership in SAM is $ 50 annually, while Plus membership costs $ 110 a year, making it the most option of warehouse club at affordable prices at the nominal value.

In addition, Sam’s Club offers promotional offers that reduce the cost of membership fees. This is something that Coststo does not specifically do.

But this does not mean that Costco did not think about how to determine the membership fee. It also tends to spread the high fees across its international sites.

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During the company’s last profit call, Gary Millerchip’s financial manager explained that the company increased membership fees in Australia in the fiscal year 2023, and followed an increase in Mexico later.

Meanwhile, the company recently announced an increase in membership fees in Japan and Korea.

But he was told, “We are not all of the same rhythm,” Marshib explained. “They tend to be linked to their individual plans, and when the membership fees were presented and when they had changes previously,” he added.

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Of course, with the customs tariff now in this mix, the big question about the minds of the organs is how Costco will have to respond. The wide assumption is that Costco will do its best to protect members from tariffs but raising prices when they become necessary.

But Costco has another option that you can keep in its back pocket-a height of fees expected.

This is the least likely two option, given that the near -term increase in membership costs is likely to cause anger among Costco fans. But it is still an option though.

Either way, members can need Costco to realize the membership fee strategy at a time when many consumers are ready. There is no doubt that the company will do everything in its power to continue to provide the low prices in which it is known without the need to impose additional fees on walking in the door.

Morey Pakman has the shares of Costico.