Yes, Costco Plans to Raise its Membership Fees

The warehouse club has seen strong growth in members and CFO Richard Galanti recently shared news on its future pricing plans.

Warehouse clubs remain a tremendous value for customers even if they do charge a membership fee in order to shop there. Costco (COST) – Get Costco Wholesale Corporation Report, Walmart’s (WMT) – Get Walmart Inc. Report Sam’s Club, and BJ’s Wholesale (BJ) – Get BJ’s Wholesale Club Holdings Inc. Report all offer members a similar proposition — pay a membership fee and get access to a selection of items at low prices.

There are some trade-offs. The selection is small and items tend to be sold in bulk packages rather than smaller sizes. You can often get the brand you want, but not in the size that might easily fit in your cabinet.

Still, even with those small sacrifices, all three of these brands have been successful and Costco has been steadily growing and the company has done an astounding job at retaining existing members. CFO Richard Galanti commented on that during the chain’s second-quarter earnings call.

At Q4 end, our U.S. and Canada renewal rate came in at 92.6%, which is 0.3 percentage points higher from 16 weeks earlier at Q3 end when we were at 92.3%. And our worldwide renewal rate came in at the end of the fiscal year at 90.4%, up 0.4 percentage point from Q3 end when it was 90%. In terms of the number of member households and cardholders, at Q4 end, we ended the fourth quarter with 65.8 million paid household members and 118.9 million cardholders, both up 6.5% from a year earlier.

That’s very strong growth, especially after the growth the chain pulled forward during the pandemic. Because the numbers keep going up, Costco has been reticent about raising its membership fees (Sam’s Club recently did), but Galanti made it clear that an increase would come (even if it’s not quite here yet.

Costco Membership Fees Will Go Up (Exactly When Is the Only Question) 

Early in the call, Galanti sort of denied that a membership fee increase was coming.

“In terms of membership fees and a possible increase, there are no specific plans regarding a fee increase at this time. We’re pleased with our growth in both top-line sales and membership households over the last several quarters and in member loyalty as reflected in increasing member renewal rates. We’ll let you know when something is about to happen,” he said.

No specific plan isn’t the same as no plans and the executive offered a more full explanation later in the call.

Look, at the end of the day, we’ve always been told and I’ve told you guys that we’re a top-line company. We’re looking to always drive sales.

Certainly, as we’ve increased members’ fees historically about every five, five and a half years, we’ve turned around and used it to drive more value. And whenever we do it, we’ll do that. I think at the end of the day, it’s — and I also want to point out, of course, if you look at the last three increases, on average, they were five years and seven months apart. If you look at June of ’17, plus five years and seven months, you’re talking roughly January ’23.

Now I’m not suggesting it’s January ’23. I’m just saying it’s not there yet anyway. And our view is, is we are confident in our ability to do so. And at some point, we will, but it’s a question of when, not if.

Galanti has previously referenced the timetable for past increases, but he has not used words as specific as “and at some point, we will, but it’s a question of when, not if.”

Costco Can Afford to Raise Prices

The reality is that Costco has never experienced major attrition (or even a meaningful drop in renewals) when it raised membership prices in the past. That’s because its hikes are generally $5 for a basic Gold Star membership and $10 for an Executive Membership. That would hike prices from $60 to $65 or from $120 to $130 depending upon your level. 

That’s a tiny increase that it’s hard to imagine people getting mad about after over five years at the previous price, Many customers, of course, use auto-renew and, while they would have to be notified, it’s hard to picture someone who wasn’t on the fence about renewing anyway dropping their membership over $5 or $10.

Costco is being careful here. It very clearly plans to raise membership fees but it’s looking for the right time to do it. 

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