Costco’s Updated Membership Rule: Potential Impacts and What Shoppers Should Expect
According to The Street, Shopping alone with your partner’s Costco membership card may no longer work, as Costco has rolled out tighter entry rules. The retail giant is implementing stricter enforcement policies, aiming to limit access only to paying members or their guests. This new move reflects Costco’s commitment to ensuring that only authorized shoppers benefit from its exclusive deals.
Costco Rolls Out Membership Scanning System
In an effort to prevent non-members from gaining entry, Costco announced it would introduce new scanning devices at store entrances. “Over the coming months, membership scanning devices will be used at the entrance door of your local warehouse. Once deployed, prior to entering, all members must scan their physical or digital membership card by placing the barcode or QR code against the scanner,” Costco stated in August. This updated policy means shoppers must either hold their own membership or be accompanied by a cardholder to enter.
Beyond Hotdogs: The Value of Costco Membership
While the $1.50 hotdog and soda combo remains a classic draw, the value of a Costco membership goes far beyond food deals. Costco has recently lowered prices on several of its private-label products, underscoring its commitment to delivering value amidst rising inflation. The brand’s reputation for affordable pricing is central to its member loyalty strategy, making membership retention a cornerstone of Costco’s continued success.
Membership Fee Increases and Earnings Performance
Costco recently announced an earnings beat for its fiscal fourth quarter, reporting $5.29 per share compared to analysts’ expectations of $5.08. Total revenue reached $79.7 billion for the quarter ending on September 1, slightly below the $79.9 billion forecasted. Although same-store sales rose 5.4% year-over-year, they fell short of the anticipated 5.7% growth.
A significant portion of Costco’s income comes from membership fees, which the company uses to offset expenses and maintain low prices. In fiscal year 2024, Costco’s membership fee revenue hit $4.8 billion, comprising about 65% of the company’s annual net income. September saw Costco’s first membership fee increase since 2017, although the immediate impact on revenue was minimal.
Also read: Walmart Pharmacies Announce Major Changes to Prescription and Medication Refill Process
Growing Base of Younger Members Boosts Long-Term Outlook
A positive trend in Costco’s membership demographics suggests sustainable growth. CFO Richard Galanti noted, “We ended Q4 with 76.2 million paid household members, up 7.3% versus last year, and 136.8 million cardholders, up 7% year-over-year. About half of new member sign-ups in fiscal year 2024 were under 40 years of age.” The trend of younger members joining, accelerated since the COVID-19 pandemic, has lowered the average age of Costco’s customer base, supporting long-term growth.
Card Scanner Implementation Could Boost Membership, Morgan Stanley Says
Morgan Stanley has noted that the introduction of card scanners may have a similar effect on memberships as Netflix’s password-sharing crackdown did for subscriptions. After implementing its password-sharing policy in May 2023, Netflix saw a surge in paying subscribers, with membership rising from 231 million in December 2022 to 283 million by the third quarter of 2023. Likewise, early channel checks from Morgan Stanley suggest Costco could see low-double-digit growth in memberships at some locations due to the stricter enforcement.
While Morgan Stanley has not updated its earnings forecast for Costco, the firm maintains an overweight rating on Costco stock with a price target of $950. Costco shares closed at $899.17 on October 23, up 36% year-to-date, signaling investor optimism about the retailer’s robust membership growth strategy.
