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Sun. Jul 21st, 2024

Costco is raising membership fees for the first time since 2017

Costco is raising membership fees for the first time since 2017

Costco shoppers will see their membership fees rise for the first time since 2017, the company said Wednesday, betting the move will boost profits without cutting off its loyal customer base.

Starting September 1, Costco Gold Star, Business and Business add-on members in the United States and Canada must pay $65 for annual memberships, up from $60.

Executive members will have to pay $130, an increase of $10 per year. The move will affect 52 million members, “just over half of whom are executives,” Costco said in a news release. Executive members are offered up to $1,000 in rewards for their purchases. Maximum rewards will increase to $1,250 with the tax increase, the company said.

The tax increase comes despite Costco defending its image as a place to find low-priced bulk goods in an economy struggling with inflation. On an earnings call in late May, Gary Millerchip, the company’s chief financial officer, told investors that Costco’s hotdog-soda combo would continue to be sold for $1.50 — a price that has not changed since 1980s – a movement that gained widespread recognition. .

Millerchip also said on the May call that it is not ruling out a membership fee increase, adding that Costco considers raising membership fees every five years or so.

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“Despite inflation, Costco has kept prices low,” said Felipe Caro, a professor at the UCLA Anderson School of Management. “But the membership fee eventually had to go up, and it makes sense to do so now that customers are really noticing the value. Costco’s share price rose after the announcement, so the market agrees that it was the right decision at the right time.”

Costco shares rose more than 2.5% after the announcement.

The company posted net income of $1.68 billion for the 12 weeks ended May 12. That figure incorporates the $1.12 billion in membership fees it collected during the quarter. Costco earned nearly $4.6 billion in annual membership fees in the fiscal year that ended in early September, an 8 percent increase from a year earlier.

However, the additional fees could hurt Costco’s ability to attract new customers and retain relatively newer members who may not be as loyal as longtime customers, according to Dinesh Gauri, a marketing professor at the University of Arkansas.

“I don’t think they’ve offered any other new deals or services … to shoppers to justify the tax increase,” he said. Shoppers who are not loyal or have recently joined may consider buying from rivals such as Sam’s Club, Gauri added.

Sam’s Club, a wholesaler like Costco, raised membership fees in 2022. It now charges $50 for a basic membership and $110 for a Plus membership, up from $45 and $100, respectively.

Customers may also switch to subscription-free rivals such as Target and Kroger, according to Gauri. Those companies have “stepped up their game” in recent years, he added, while offering what he sees as stronger pickup and delivery options than Costco.

“If someone doesn’t need the membership, they might not lose much,” he said.

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