INQUISITR.COM / News & Politics

Costco Hours May Get Dearer Soon – Could Raising Membership Fees Hurt The Popular Discount Warehouse Retail Company?

By Alap Naik Desai
Published on: 08:56 PST, Apr 24, 2016

https://phoenix.playwire.com/en/publishers/1013074/videos/4830946

Costco might be raising its annual membership fees, indicated analysts monitoring the company’s activities. The popular discount warehouse retail company could jack up its basic membership fees from $55 to $60, an increase of about 10 percent.

The hours spent at Costco may get dearer. According to an analyst note from financial services company UBS, the retail company that mandates an annual membership from its patrons, may increase it from $55 to $60. The change isn’t confirmed, but it is quite possibly on the cards, expect experts. UBS cautiously adds that they aren’t a 100 percent confident Costco will increase its membership fees, instead, they are basing their predictions on the past behavior of the company and patterns it has displayed in connection to the membership fees, wrote UBS analyst Michael Lasser.

“The conditions are in place for Costco to bump up its membership fee early next year. We suspect [Costco] will take its basic membership to $60 and its executive membership to $120.”

The analysts reportedly interacted with Costco representatives, including the retail company’s executive vice president and chief financial officer Richard Galanti, but couldn’t get a confirmed response, reported The Huffington Post. Evidently, Costco flatly refused to offer any details, and while the company hasn’t denied the possibility of a fee hike, neither has the company offered any indication when it might happen.

Incidentally, even the quantum of the hike is purely speculative, based on the company’s past decisions, implied Galanti with his statement on the matter.

“We have not announced if, or when, we would increase our annual membership fee. Historically, it has been increased about every five or six years. I would guess that many equity analysts following our company might assume that same pattern.”

Costco does increase its membership fees every five or six years. The last revision occurred way back in November 2011, reported Yahoo. Costco had raised the annual fee for its basic Gold Star Membership to $55. It was $50 earlier. Hence, analysts expect this time too, the company will maintain the same pattern and jack up the basic membership fees from $55 to $60. Costco’s Executive Membership could also be revised. It currently stands at $110 and analysts expect it will be increased to $120. Once again, Galanti refused to confirm and the analysts were forced to note the following.

“If its [competition] were to dramatically slow in the meantime or if there were some major macro disruption, it might delay this increase. But, it sounds like that’s not likely.”

What this essentially means is that Costco is presently evaluating whether it is a good idea to jack up membership fees, especially when online retail giants like Amazon and rival companies like Sam’s Club, which is owned by Wal-Mart Stores Inc., and Target are intensifying their approach to extend more benefits and add ever more convenience to their shoppers.

The Gold Star Membership, which is cheapest at Costco, allows customers entry into the various outlets and gives them access to discounts ranging from 5 percent to 50 percent on select items. The Executive Membership actually gets customers 2 percent cash-back on all their purchases within the year. It is quite evident that members have found the fees quite acceptable. While the number of Costco members increased by just 6 percent last year, the retail company boasts of more than 81 million customers. Moreover, the discount warehouse chain has very loyal followers. According to the company’s own admission, 91 percent of U.S. customers renewed their membership in 2015, reported CNN.

Membership fees have earned Costco a whopping $2.53 billion in the fiscal year 2015. This figure represents about 70 percent of the retail company’s operating income. Based on customer behavior, Costco could speed up its earnings by raising annual membership fees without hurting its sales.

[Photo by Brendan Smialowski/Getty Images]

Share this article: Costco Hours May Get Dearer Soon – Could Raising Membership Fees Hurt The Popular Discount Warehouse Retail Company?
More from Inquisitr