Costco shares key news on membership price increases

Costco has built its business on memberships. It’s not a traditional retailer. It’s a club you can only enter if you pay a fee.

In exchange for that $65 Gold membership or $130 Executive membership, people get access to the chain’s warehouses. They also become part of a retail system designed to keep prices low.

About 65% to 70% of the chain’s operating profit comes from membership sales, according to World of Dividends. That allows it to focus on keeping prices low; because of its membership revenue, Costco does not need to make a significant margin on its goods sold.

It also means the chain’s entire business depends upon existing members renewing and new ones signing up. 

That makes it a challenge for Costco to raise membership prices. Any time it does that, it must weigh raising its bottom line against the prospect of alienating members.

Costco raised membership prices about a year ago

“In September 2024, Costco implemented its first membership fee increase since 2017, raising the standard membership fee by $5 and the executive membership fee by $10,” Kavout.com reported. 

“This strategic move is expected to bolster the company’s operating income significantly. Analysts estimate that the fee hike could add approximately $290 million to Costco’s operating income, representing a modest 2% to 4% boost for fiscal 2025.”

Roughly one year later, the chain reported a very slight decline in renewal rates during its fourth-quarter earnings call. CFO Gary Millerchip shared the numbers:

In terms of renewal rates at Q4 end, our U.S. and Canada renewal rate was 92.3% and the worldwide rates came in at 89.8%. The decline in renewal rates was largely attributable to a higher number of online sign-ups entering the renewal rate. And this quarter included a large Groupon campaign in December 2023, entering the calculation.

Overall, we view the growth in online sign-ups as a net positive, as they are helping to grow our overall membership base and membership revenue and are also introducing younger members to Costco. Almost half of our new member sign-ups are now under the age of 40.

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Millerchip made an effort to explain the slight drop in renewals.

As we previously shared, new online members renew at a slightly lower rate on average, and they have grown as a percentage of our sign-ups over recent years. We would, therefore, expect to continue to see a small decline in our renewal rate as this change in membership mix gets fully reflected in our renewal rate calculation, he added.

Costco membership fees (Gold Star/Business and Executive)

• 2015: $55/$110
• 2017: $60/$120 (first increase since 2011)
• 2024: $65/$130 (Executive reward cap raised to $1,250)
• 2025: $65/$130 (no change from 2024)

Costco is encouraged by these numbers

While renewal rates have dipped slightly, Millerchip made an effort to put the change in perspective.

So I think it’s important just to take that bigger picture step back because overall, we think the membership base, the renewal rate is very strong overall and the results that we’re seeing in growth, in our overall membership engagement is also very strong. Now with all that being said, as I mentioned a moment ago, we do view the membership renewal rate is an important measure, and we’ve analyzed it very closely, as you might imagine, because it’s something that we take pride in the overall level of membership renewal that we see.

He also shared some insight as to why renewals have gone down while overall membership is higher.

When we analyze it, it really is essentially the vast majority of it is attributable to this higher number of online sign-ups. And if you look at what’s happened really since Covid, we’ve seen in the last 3 or 4 years a significant growth in the number of members and the proportion of members that are signing up online. And that’s bringing in newer members. It’s helping to grow everything I just mentioned around membership fee income and overall membership base, but they do renew at a slightly lower rate.

Costco membership renewal rates

• 2015: U.S./Canada 93%, Global 88%
• 2016: U.S./Canada 93%, Global 88%
• 2017: U.S./Canada 93%, Global 88%
• 2018: U.S./Canada 93%, Global 88%
• 2019: U.S./Canada 93%, Global 88%
• 2020: U.S./Canada 93%, Global 88%
• 2021: U.S./Canada 93%, Global 88%
• 2022: U.S./Canada 93%, Global 88%
• 2023: U.S./Canada 93%, Global 88%
• 2024: U.S./Canada 92.9%, Global 90.2%
• 2025: U.S./Canada 92.7%, Global 89.8%

Experts share Costco membership comments

Retail expert and consumer advocate Clark Howard believes that many Costco members would benefit by upgrading from a Gold to an Executive membership.

Whether that makes sense comes down to whether you will recoup the added $65 in fees.

“The biggest advantage to upgrading to an Executive Membership is the 2% reward. In essence, it amounts to an additional 2% discount on almost everything you buy at Costco’s already-low prices. But paying more for the Executive Membership makes sense only if you’re going to spend enough at Costco to justify the additional $65 a year,” his website shared.

The breakeven point is roughly $300 a month in spending at the warehouse club.

Southern Living share some tips on maximizing your Executive membership:

• Getting a Costco credit card allows you to double rewards with every shopping trip. Costco currently offers 2% cash-back rewards on most Costco purchases along with 5 percent cash back on Costco gas.
• Make use of Costco’s website and compare prices when you’re shopping for big purchases like appliances, outdoor equipment, TVs, and furniture. You may be able to find a better deal.
• If you’re planning a cruise or vacation, check Costco’s current deals for any cost-saving opportunities.
• You can often save with other purchases at Costco like tires, prescriptions, and eyeglasses.

Related: Discount retail chain closes half its store locations

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