Costco Wholesale Corp. is increasing its membership fees for the first time since 2017. Starting September 1, the cost of a basic membership will rise from $60 to $65 annually, while the premium membership will go up from $120 to $130. This 8% price hike will impact approximately 52 million memberships in the U.S. and Canada.
Following the announcement, Costco shares saw a 2.4% increase in extended trading, contributing to a 34% rise in stock value this year, significantly outpacing the S&P 500 Index.
Investors and analysts have been anticipating this move for some time. Historically, Costco has adjusted its membership fees roughly every five years. Recently, analysts have been inquiring about the company’s timing for this expected increase.
Executives have been hinting at a forthcoming price hike, citing strong renewal rates, new sign-ups, and high customer loyalty as key factors. On earnings calls, they acknowledged that the increase had been delayed longer than usual.
Bloomberg Intelligence analyst Jennifer Bartashus noted in a Wednesday statement that the fee hike was “expected and overdue from Costco’s usual five-year cadence.” She explained that the delay was partly due to consumer concerns about inflation and the economic outlook, which have since eased. Bartashus anticipates that renewal rates will remain steady despite the increase.
U.S. consumers have faced rising prices across various sectors in recent years, but these increases are now starting to moderate. Retailers are predicting inflation will return to lower, more normalized levels this year, with some sectors already reporting price drops, including general merchandise.
Costco’s customer base, typically more affluent due to the membership model, has been relatively insulated from the broader slowdown in sales growth and discretionary spending affecting other retailers. In June, Costco reported a 6.3% year-over-year growth in U.S. comparable sales, excluding gasoline.
Membership income is crucial for Costco, allowing the company to reinvest in its operations and maintain low prices on goods. The higher membership fees are expected to boost profits, as Costco continues to attract shoppers with bulk products at competitive prices. Premium memberships, which have driven growth, now make up just over half of Costco’s total paid memberships.
Earlier this year, Costco appointed Gary Millerchip from Kroger Co. as its new chief financial officer. Ron Vachris has been serving as chief executive officer since January. The company continues to expand, adding more stores in the U.S. and overseas, and investing in e-commerce.
Costco’s move follows a similar fee increase by Sam’s Club, owned by Walmart Inc. In 2022, Sam’s Club raised its annual fees to $50 for basic memberships and $110 for premium memberships, although it offset the increase with a rewards program for members during the first year.
Costco’s decision to raise membership fees reflects its confidence in maintaining strong customer loyalty and financial performance, despite the broader economic challenges.