Costco customers have enjoyed relative stability, at least in terms of their membership fees, as inflation and a rising cost of living have impacted the American chain.
This stability looks to be coming to an end, though, as Costco customers will be experiencing an increase in the cost of their memberships for the first time in a long time.
Membership Fee Increase
Costco Wholesale announced that its membership fees will be going up for the first time since 2017.
The announcement comes less than four months since new finance chief Gary Millerchip took the post and will come into effect on September 1, impacting around 52 million members — a little over half of whom have the more expensive executive membership.
What Are the New Membership Prices?
The wholesale retail giant announced that U.S. and Canada Gold Star, business and business add-on members will be faced with annual fees of $65 moving forward, up from $60 previously.
Executive membership plan holders will also see an increase, with prices going up to $130 from $120. The reward cap will also rise from $1,000 to $1,250.
How Often Does Costco Adjust Membership Prices?
This marks the first membership price increase for Costco, which operates 882 warehouses, since 2017. In the past, Costco tended to increase prices every five years or so.
The most recent increase in prices prior to the increase going into effect in September of this year affected around 35 million Costco members.
Further Changes on the Horizon?
Costco members should prepare themselves for further changes beyond this increase in membership fees if Millerchip’s comments to the Wall Street Journal are anything to go by.
Costco is a physical, wholesale retailer operating big warehouses, but in Millerchip’s own words: “We believe there’s a lot more opportunity to grow digital.”
A Costco Evolution
Millerchip continues in the article with the Wall Street Journal, saying: “I have experience in those areas and would hope that I can bring some of that to help us continue to evolve.”
He is very aware, though, that Costco has a strong brand identity among members, adding that this digital evolution would be “very much in the Costco way.”
Don’t Wish to Overwhelm Shoppers
According to Millerchip, the priority with any further changes to Costco’s services would be to not overwhelm customers with choices and ensure they maintain the quality and value shoppers expect from the brand.
He states: “If we’re offering the service, it’s going to be curated.” Any further shifts would be carefully measured.
Membership Increases Were on the Way
With regard to the recent news of this impending increase in membership fees, Costco shoppers shouldn’t be surprised. The change was felt to be coming for months and pre-dates Millerchip’s tenure.
His predecessor as Chief Financial Officer, Richard Galanti, stated it was a matter of “when, not if” when discussing membership price increases on the company’s earnings call in September 2023.
The First Big Move of Millerchip’s Tenure
The membership fee increase marks the first major change Millerchip has put into action during his time as CFO, but judging by his comments to the Wall Street Journal, it will not be the last.
Though the increase was on the cards prior to his taking the position, it was Millerchip who finally pulled the trigger. Galanti wished to wait until the impact of inflation on customers eased and ultimately played out the end of his tenure without implementing the price increases.
A Huge Decision for a CFO
Membership fees make up the bulk of Costco’s profit, with the company’s business model relying on it to roughly break even on their operations.
Though a $5 increase on the basic Gold Star level membership might not seem like a lot on the face of it, the weight of Millerchip’s decision becomes clear when you put the price change into this context. There’s a reason why there have been no price increases since 2017.
Costoco’s Healthy Finances
Costco is currently in a very solid position financially, reporting total revenue, including membership fees, of $58.5 billion for the three-month period ending May 12. This is a 9% rise compared to the same period last year.
Costco shares are also looking healthy, and are up 34% so far this year.
A Measured Increase
In a world where inflation seems to have been hitting American wallets hard, news of prices going up isn’t normally noteworthy.
But Costco is extremely careful with how they manage their membership fees, trying to find the perfect price point so as to not scare paying members away and remain profitable. Though the actual increases may seem negligible at first, there’s no question that this was a very carefully calculated decision and not an arbitrary increase in fees.
