Should Costco Be Raising Membership Fees?

Costco announced plans to raise annual membership fees in the U.S. and Canada by about 8% in its first increase since 2017.

Effective Sept. 1, annual fees climb to $65 from $60 for “Gold Star” and business members and to $130 from $120 for Executive members. “The fee increases will impact around 52 million memberships, a little over half of which are Executive,” Costco’s press release stated.

Membership perks include discounts on food, gas, home insurance, travel, and grocery items. Executive members earn an annual 2% reward on qualified purchases, and the max reward is increasing from $1,000 to $1,250 for these individuals.

On average, rates have been raised about every five and a half years, which would have put Costco on track to raise the fee in late 2022 or early 2023. However, Costco held off on raising fees prior to now. In an interview with CNBC, CEO Craig Jelinek said in July 2022 that it was not the right time as consumers dealt with high inflation.

Company officials on analyst calls over the last two years have hinted that fees would increase eventually while making similar comments about the need to showcase value for consumers amid inflationary pressures. On an earnings call in late May, Gary Millerchip, Costco’s new CFO, earned widespread acclaim across social media for committing to Costco’s hot dog-soda combo remaining at $1.50 — a price that hasn’t changed since the 1980s.

The fee hike comes as Costco’s business remains healthy, with the company also reporting on Wednesday that U.S. comparable sales, excluding gasoline, grew 6.3% in June.

Costco relies on membership fees to drive most of its profits and help keep merchandise prices low. In 2023, Costco collected $4.7 billion in membership fees, up 8% from the previous year. Net profits were $7.1 billion in the last fiscal year, much of that due to membership fees.

Jennifer Bartashus, a Bloomberg Intelligence analyst, wrote in a note that the fee increase was overdue. She said, “The company delayed an increase amid consumer concerns about inflation and the economic outlook, which have eased some.”

Costco’s annual membership was already a step higher than warehouse rivals. Sam’s Club, which increased its membership fees in 2022, charges $50 for standard members and $110 for “Plus” members. BJ’s Wholesale Club charges $55 for basic and $110 for its higher tier.

Amazon faced backlash in 2014 when it raised the cost of Amazon Prime for the first time, but U.S. Prime members have since more than tripled. A Prime fee increase in February 2022 met minor pushback.

Speaking to the Washington Post, Dinesh Gauri, a professor of marketing at the University of Arkansas, said the higher fees could impact Costco’s ability to attract new customers and retain newer members with the less-expensive options at wholesale club rivals and improved offerings at Target and Kroger that don’t require membership for entry. He said, “I do not think they have provided any other offering or new services…to shoppers to justify the fees increase.”