The warehouse club has been steadily growing and that has led to a lot of questions from its members.
As a membership-based warehouse club, Costco (COST) – Get Costco Wholesale Corporation Report has different priorities than other retailers. Above all else, the chain has to keep its members happy so they keep renewing. That’s something the company has been doing in increasingly large numbers.
“At Q4 end, our U.S. and Canada renewal rate came in at 92.6%, which is 0.3 percentage points higher from 16 weeks earlier at Q3 end when we were at 92.3%. And our worldwide renewal rate came in at the end of the fiscal year at 90.4%, up 0.4 percentage points from Q3 end when it was 90%,” CFO Richard Galanti said during the retailer’s fourth-quarter earnings call.
That’s incredible loyalty that Costco earns through a combination of low prices and treating members very well. The chain always thinks of its members first and that’s why one big change will happen (eventually) and another will not.
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Costco Will Raise Its Membership Price
During the call, Galanti once again spoke about the possibility the chain would increase the price of its membership. It was widely reported that the warehouse club was not raising prices, but that’s not really what the CFO said.
“Certainly, as we’ve increased members’ fees historically about every five, five and a half years, we’ve turned around and used it to drive more value,” he said. “And whenever we do it, we’ll do that. I think at the end of the day, it’s — and I also want to point out, of course, if you look at the last three increases, on average, they were five years and seven months apart. If you look at June of ’17, plus five years and seven months, you’re talking roughly January ’23.”
That’s not Galanti saying a price increase won’t happen, he’s actually pretty much guaranteeing that it will, but leaving the timing vague,
“Now I’m not suggesting it’s January ’23. I’m just saying it’s not there yet anyway. And our view is, is we are confident in our ability to do so. And at some point, we will, but it’s a question of when, not if,” he added.
Costco Won’t Make This Membership Change
Costco has two kinds of memberships for household members. It offers a basic $60 Gold Star membership and a $120 Executive membership that comes with 2% cash back on most purchases up to $1,000 in a year.
During the call, Galanti was asked about whether the chain would add a third category.
“Would you leave Gold Star where it is, take Executive up, and maybe add an Executive Plus, right, that either has more than 2% or some other features, right? So you’re catering to people through the income spectrum,” Guggenheim Partners Analyst John Heinbockel asked.
Galanti was pretty definitive in his response.
“As you know, John, I think we try to keep things simple. We talk about all kinds of things, but we always come back home and say, let’s do this and keep it simple. One of the issues — one of the other issues about doing a higher level of membership than executive is the sales taxability in some states that is currently non-sales taxable, but at a certain level, states say it’s sales taxable, not just the increment, but the whole membership fee,” he said, “So that’s something we take into account also. At this juncture, I think we still went toward simple.”