Costco Wholesale declared on Wednesday that it will raise annual membership fees for its U.S. and Canadian customers for the first time in seven years, beginning September 1.
Costco Memberships Provide a Variety of Benefits and Rewards
The retailer's memberships allow numerous advantages such as free examples, deductions on food, gas, home insurance, travel, and grocery items, along with an annual 2% advantage on qualifying purchases at its warehouses.
The annual fee, formerly adjusted in June 2017, will rise by $5 to $65 for "Gold Star" and business members, and to $130 from the former $120 for executive members. Costco also noted that the maximum annual 2% reward associated with executive membership will rise to $1,250 from $1,000.
About 52 million members will be affected by the fee increase, with slightly over half falling into the executive classification, according to the membership-only retailer. Costco's shares, which have surged about 34% this year, rose by 2.2% in after-hours trading.
Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors, remarked that this declaration meets market anticipations for a membership fee raise, which Costco management commonly enforces every 5 to 6 years. Schulman also recommended that this move is anticipated to raise revenue and strengthen the company's stock performance.
In the third quarter concluded May 12, membership fee revenue increased by about 7.6%, adding 1.9% to the company's total revenue for fiscal 2023.
Also on Wednesday, Costco declared a 7.4% raise in net sales to $24.48 billion for the retail month of June.
Impact of Costco's Premium Membership Fee Increase
The cost of the retailer's premium membership will increase from $120 to $130. This adjustment impacts approximately 52 million memberships. Costco's shares increased 2.4% in broadened trading in New York, persisting its strong performance this year, which has outpaced the S&P 500 Index.
Analysts and investors had been expecting the fee raise from the Issaquah, Washington-based company, known for commonly adjusting fees every five years.
Costco executives had previously indicated that a fee increase was imminent, citing robust renewal rates, new memberships, and customer loyalty.
Despite delays prompted by consumer concerns about inflation and economic conditions, analysts like Jennifer Bartashus from Bloomberg Intelligence expected the increase, noting its overdue timing from Costco's usual schedule.
Costco's customer base, described by its membership model favoring more wealthy customers, has given a buffer against expansive economic pressures influencing sales growth in the retail sector.
The company recorded a 6.3% year-over-year development in U.S. comparable sales, excluding gasoline, for June. Membership fees are important for Costco, allowing investments in operations and supporting its strategy of allowing aggressively low prices on bulk goods.
Costco densely awaits membership fees for revenue, which helps its action of maintaining competing merchandise costs.
In contrast, Walmart-owned Sam's Club increased its membership fee in 2022 for the first time in nine years, with annual fees at $50 for basic members and $110 for the higher-tier "Plus" level.
Similarly, BJ's Wholesale charges $55 and $110 annually for its membership tiers.
To prevent misuse, Costco intensified card verification procedures last year, particularly in self-checkout aisles, a move reminiscent of Netflix's efforts to curb unauthorized account usage.
