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Costco members become more loyal; Upcoming Membership Fee Increase

Costco (COST) – Get Costco Wholesale Corporation Report built his business on low prices and loyalty. Members even have to pay to access the clubs in the chain, but once they do, they have access to very low prices.

It’s a very different business model from what Amazon (AMZN) – Get the report from, Inc. and Wal-Mart (WMT) – Get the report from Walmart Inc. use. Both of these companies sell memberships to get free, fast shipping, but they don’t require people to have a membership to shop (other than at Walmart’s own warehouse club, Sam’s Club).

That means Walmart and Amazon sell to everyone, with memberships building loyalty. Costco has to entice customers to join it — which has always been a challenge — and then has to retain them for years to make its business model make sense.

Costco is essentially selling something – low prices – that its main rivals are giving away. And, it does this through no-frills outlet stores that have somehow become destinations and attracts in their own right.

The pandemic has sent a lot of customers — both regulars and new members — to Costco. Being able to buy in bulk and at low prices had a lot of appeal when people were limited in their ability to leave home and uncertain about their financial future. It would have made sense for the warehouse club to see a spike in membership not being renewed once more normal conditions returned.

That’s not what happened.

Costco increased customer loyalty

Costco spends very little money advertising its brand. Instead, it generates interest through word of mouth, customer satisfaction, and curiosity when entering a new market. He signs people up for a membership that costs $60 for basic entry to his warehouse or $120 for an upgraded “Executive” membership that includes 2% cash back up to $1,000.

Getting members to renew year after year has been a key part of Costco’s business. It’s something the chain has done very well, and it’s gotten even better, according to chief financial officer Richard Galanti, who spoke on the chain’s second-quarter earnings call.

“In terms of renewal rates, they continue to increase. At the end of the second quarter, our renewal rate in the United States and Canada was 92%, up 0.4 percentage points from the previous 12 weeks at the end of the first quarter. And the global rate, it came to 89.6%, up 0.6% from 12 weeks earlier at the end of the first quarter,” it said. -he declares.

These are astonishing numbers, but there is a good reason for this increase.

“Our renewal rates continue to benefit from the automatic renewal of a greater number of members, as well as an increased penetration of executive members who, on average, renew at a higher rate than non-executive members and higher renewals in the first year for our new members”, he added.

Is a Costco membership price increase coming?

Costco was careful about how and when to raise the cost of its membership, but it increased the price slowly, but steadily. Galanti wouldn’t commit to a price increase, but shared how the company plans to make one.

“Historically, we always look at things like do we feel we can — we look in the mirror, do we feel that we’ve continued to increase the value of membership? Certainly, we look at the rates of renewal. We look less at what other people are doing frankly, but it’s certainly what other people are doing. And what I note is that I’ve looked at the last three increases in the last 15 years, ” did he declare.

The CFO also noted that the warehouse club has reached the usual time frame in which it traditionally raises prices.

“And on average they were done about every five years, a little more every five and a half years, about five years and seven months,” he said. “And five years from the anniversary of June 2017 would be that month of June. So I think the question will continue to be asked until we do or don’t do something. But at the end of the day, we certainly feel very good about the loyalty of our members, our success in getting members to become executive members, who are the most loyal.”