During the pandemic, as shortages stripped items from the shelves of normal grocery stores, warehouse stores like Costco and Sam’s Club became lifelines, reliably stocking items which routinely sold out everywhere else. The Covid pandemic became an excellent demonstration of the benefits of having memberships in such warehouse clubs.
Due to the pandemic, Costco experienced both tremendous membership growth and membership retention, according to the warehouse club’s senior vice president of finance, Dave Nielsen. He said, “In terms of renewal rates, we hit all-time highs. At Q3 end, our U.S. and Canada renewal rate was 92.3%, up 0.3% from the 12 weeks earlier at Q2 end. And the worldwide rate came in at 90% for the first time in company history, and that’s up 0.4% from what we reported at Q2 end. Renewal rates continue to benefit from the increased penetration of both auto renewals and more executive members and, in addition to that, higher first-year member renewal rates than what we have historically seen.”
Gaining and keeping members is vital to the warehouse’s business model, which makes a large part of its profits from membership fees. And it did very well in the third quarter. Nielsen continued, “In terms of member counts, number of member households, and cardholders at Q3 end, we ended Q3 with 64.4 million paid households and 116.6 million cardholders, both of those up over 6% compared to a year ago. At Q3 end, our paid executive memberships were 27.9 million, and that’s an increase of just about 800,000 during the 12 weeks since Q2 end. Executive members now represent over 43% of our member base and over 71% of our worldwide sales.”
The chain has continued to grow its customer base steadily, even after the pandemic gifted it with those impressive numbers.
Asked about Costco’s membership fees, Neilsen said, “Now before I move on, I want to take just a minute and address the question that we’ve been getting a lot recently regarding the timing of the potential membership fee increase. Historically, we’ve raised fees every five to six years, with the last three increases coming, on average, at about the five-and-a-half-year time frame and our last increase coming in June of 2017. As we approach this five-and-a-half-year mark, there will be more discussions with Craig, Ron, and the executive team But for today, we have nothing more specific to report in terms of timing. In addition, given the current macro environment, the historically high inflation, and the burden it’s having on our members and all consumers in general, we think increasing our membership fee today ahead of our typical timing is not the right time. We will let you know, however, when that changes.”
Although he seemed to be indicating a fee increase would not occur immediately, he did seem to indicate they were due for one, and discussions had begun about it.
