Costco Gets Ready to Raise its Membership Prices
Costco (COST) – Get Free Report has a tremendously loyal customer base with an over 90% membership renewal rate worldwide and an even higher rate in the United States (92.5%) in its most recent quarter. The warehouse club, as you might imagine, does everything it can to protect that retention rate as members are the lifeblood of its business.
Currently, Costco charges $60 for a Gold Star membership and $120 for an Executive membership. Those rates have not gone up in over fives years while a growing number of the chain’s members have migrated to the pricier offer which comes with 2% cashback up to $1,000 on qualified orders.
Executive members have been rising in importance for the company. Only 43% of members have the more-expensive class of membership, but that drives 76% of the chain’s sales.
CFO Richard Galanti, who leads the company’s earnings calls has been answering questions about whether the company would raise its prices during each of the last few earnings calls. He has generally said very little on the subject, implying that the company had not made any decision.
On Costco’s first-quarter earnings call he was a little more specific and finally gave members some, but not full, clarity on the issue.
Galanti noted that Costco has averaged 5 years and 7 months between membership price increases, which places the next one in January 2023. He did make it clear that that timetable was not rigid, but he was clear that an increase was coming.
“It’s a question of when not if,” he said.
The CFO shared that while the company was conscious of the economic concerns facing many Americans, but he made it clear that a struggling economy would not be a reason to hold prices indefinitely.
He noted that if the company increased membership prices, it could use the added revenue to hold the line on prices for some items where the company’s cost has gone up.
Galanti repeated the “when not if” line twice during the call and added “”If we have to wait a few months that’s fine. I’ll be coy as to actually when,” he said.
Galanti noted that Costco had, in some cases, started to see some prices inching back down when it comes to fresh food, He specifically noted that proteins (chicken, beef, and fish) prices have fallen somewhat which has led to a decrease in customers trading down.
Last quarter, he noted an increase in people buying canned chicken and fish, because the prices for fresh had risen. The company has also, in certain cases, taken less margin on some food items to keep prices in line with historical norms,
“We intend to remain competitive,” Galanti said about the company’s prices. “We’re our own biggest competitor,” he shared, noting that the goal was to hold or lower prices.
The CFO noted that big ticket and discretionary items had experienced a slowddown. He did share that sales of televisions had increased overall, but sales for larger-size screens had dropped.
He was cautiously optimistic about overall sales remaining strong no matter what happens to the economy.
“People need to eat,” he said.