Dive Brief:
- Costco Wholesale on Wednesday said it will raise its annual membership fees in U.S. and Canada by about 8%, effective Sept. 1, in a long-anticipated move that marks the global retailer’s first such hike since June 2017, according to a company release and webcast.
- In the U.S. and Canada the Issaquah, Washington-based company’s Gold Star, business and business add-on members will see annual fees rise to $65 from $60 while the price for executive memberships will rise to $130 from $120, according to the company.
- Given that the roughly seven-year pause since the last hike was longer than the retailer’s historical cadence of a fee hike every 5.5 years, Costco’s move may have been driven in part by recent signs of cooling inflation, according to Michael Baker, managing director and senior research analyst at D.A. Davidson. “They’ve been cognizant of consumers battling inflation and feeling strapped … in that sense this signaled that the worst of inflation is behind us,” Baker told CFO Dive. Costco declined to comment on the strategy behind its move.
Dive Insight:
In addition to inflation, the timing of the increase may also have partially been impacted by the fact that the company was ushering in new finance leadership this year, Baker said. The company’s long-time CFO Richard Galanti stepped down from the finance chief post in March, handing the finance reins over to Gary Millerchip, formerly the CFO at Kroger, the Cincinnati, Ohio-based grocer.
“Part of me thinks [Galanti] wanted to let the new team make the decision,” Baker said. “It makes sense because that’s the team that’s going to feel the impact of the increase — good or bad.”
Baker stated in his report that renewal rates in the past have been relatively unaffected by fee increases, with any “churn” being largely offset by new memberships.
Spread across 52 million Costco members, Baker projects that Costco’s fee hike will add $377 million in total revenues over 24 months and about $189 million annually, yielding an incremental earnings per share impact of $0.31 or about 1.8% to 2025 estimates, according to a Wednesday note.
Baker thinks the fee hike was overdue and that, given signs of easing inflation, this is a “smart time” for Costco to make the move given the easing inflation. On Thursday the core consumer price-index — which excludes food and energy costs — climbed 0.1% from May, the smallest advance in three years, Bloomberg reported.
He also expects the fee move could have a knock on effect on some other companies such as BJ’s Wholesale Club, which often follows Costco’s price increases with bumps of their own. Costco isn’t alone in its price push; generally Baker said a number of retailers have been getting more aggressive on their pricing.
There are risks: PepsiCo has said customers are not buying as many drinks and snacks after the company has raised prices every quarter for over two years, the Associated Press reported.
Costco declined to comment on the fee increase.
