Belonging to the “Cult of Costco” has become pricier. For the first time in seven years, the retail giant is raising membership fees by $5 to $10, the company announced on Wednesday. Monthly sales have also increased from last year—a positive sign that Costco will continue to perform well for shareholders, who have enjoyed gains surpassing the S&P 500 this year.
While Costco shares initially jumped nearly 3% in premarket trading following the announcement, the price soon fell to $846.59 on Thursday, marking a more than 4% drop from its open at $890.76. Overall, however, the stock’s price has climbed over 29% in the first half of 2024, with shares up over 60% from a year ago.
For customers, accessing Costco’s expansive aisles will become more expensive with the cost of membership rising by $5 to $65 starting Sept. 1. The price of a premium “executive membership,” which is held by customers who represent just under half of the overall membership base but contribute to 73% of global sales, will increase to $130 from $120.
Membership fees are crucial for Costco’s profits
Phil Wahba recently explained in the latest Fortune 500 issue that these memberships primarily enable Costco to offer the bargains shoppers rave about to their friends, family, or social media followers.
“Last year, the fees accounted for roughly two-thirds of profits, and on several occasions in the past few years, Costco would have reported a net loss without them,” Wahba wrote. “Without membership growth, Costco’s bargain, sometimes loss-leading prices—and the leverage with suppliers that makes them possible—would be difficult to maintain.”
New Costco CEO Ron Vachris emphasized, “The most important item we sell is the membership card,” according to Wahba. “Everything we do supports that transaction.”
That strategy has been successful, with the company rising to No. 11 in the Fortune 500 and boasting $242 billion in revenue.
Previous CEO Craig Jelinek and former CFO Richard Galanti had refrained from raising fees while customers contended with high inflation, even as competitors like Walmart-owned Sam’s Club and BJ’s Wholesale did so in 2022. This decision deviated from Costco’s pattern of raising membership fees roughly every five and a half years. The company waited for prices to stabilize, as the consumer price index decreased last month for the first time in over four years.
New CFO Gary Millerchip has promised not to increase the price of the company’s iconic $1.50 hot-dog-and-drink combo, a staple at Costco since 1985.
Strong comparable sales and e-commerce performance
Analysts noted the long-awaited fee increase will impact the profit and loss statement over the next two fiscal years, supporting earnings visibility into 2026. Renewal rates have remained robust after previous fee hikes, and if this trend continues, the increase could provide Costco with additional funds to expand its e-commerce business and international presence.
The company reported net sales of nearly $24.5 billion for the five weeks ending July 7, up 7.4% from the previous year. Comparable sales, excluding gasoline and foreign exchange, rose over 6.3% for the same period, highlighted by a 19.1% surge in online sales.