Costco to raise membership fees 10%
Warehouse club Costco Wholesale Corp. will raise annual membership fees 10% amid rising costs.
The discount chain announced the price hike Wednesday, the same day that it reported strong fourth-quarter and September sales growth.
The fee increase, which goes into effect Nov. 1, affects members in the U.S. and Canada and is Costco’s first since May 2006. The company has locations around the world including Mexico, the United Kingdom, Japan and Australia.
The company will raise annual membership fees by $5 for U.S. individual, business and business add-on customers as well as for Canada business members. Those members will now pay an annual fee of $55.
U.S. and Canadian executive members, meanwhile, will see their annual membership fees increase to $110 from $100. The maximum rebate reward for executive members will increase to $750 from $500.
Business members qualify by owning or operating a business; they can buy up to six additional membership cards for partners or associates in the business. Executive members receive the usual benefits and are also allowed to buy discounted services, such as auto and homeowner insurance; they also receive an annual reward on most of their warehouse purchases.
In all, slightly more than 22 million Costco members will be affected, said Richard Galanti, the company’s chief financial officer. In a call with analysts, he said the change would help the company remain competitive, offer more services and drive business for the long term.
“Needless to say, we feel the enhanced value of the Costco membership far exceeds the modest $5 and $10 increase in the membership fees level and will continue to allow us to bring our members even greater value on everything we offer,” he said. Although the fee hike is relatively small, “we don’t take it lightly.”
Retail analyst David Schick of Stifel, Nicolaus & Co. said the 10% increase was in line with the company’s historic membership increases and didn’t expect customers to balk at the extra cost.
“A very slow and steady increase in the membership fee is just part of the way they do business,” Schick said. “Costco has an increasingly long-term point of view, and by charging the membership, it allows them to run the business and sell products at prices that are not achievable at other points of retail.”
Indeed, Issaquah, Wash.-based Costco has been gaining share in the U.S. this year as it outperforms competitors, especially rival Wal-Mart Stores Inc. The nation’s largest retailer has struggled with its sales domestically, recently posting its ninth straight quarter of same-store sales declines in the U.S.
Meanwhile, Costco, known for selling an eclectic lineup of goods including jumbo packs of toilet paper, flat-screen televisions, car tires and diamond rings, has seen sales rise.
For the three months ended Aug. 28, Costco said, sales totaled $27.59 billion, up 17% from $23.59 billion in the same quarter a year earlier.
Sales at stores open at least a year, known as same-store sales and considered an important measure of a retailer’s health, rose 10% in the United States and 19% internationally. Galanti said fourth-quarter and September same-store sales were the strongest in the Southeast, the Midwest and California.
Fourth-quarter profit was $478 million, or $1.08 a share, compared with $432 million, or 97 cents, in the year-earlier period. That narrowly missed Wall Street expectations for $1.10 a share.
Costco shares fell $1.40, or 1.7%, to $80.25 Wednesday.
Jeff Lineberry, a longtime Costco customer from Lincoln, Calif., near Sacramento, said that although he didn’t like to see his membership fee rise, the price hike didn’t seem like “another nickel-and-dime” situation.
“I don’t think a 10% increase will deter me from renewing next year,” the 61-year-old said. “There are significant savings for me at Costco.”
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