Costco to hike membership fees

The warehouse retailer faces rising costs, and a 10% fee increase will help counter those expenses.

By Kim Peterson Oct 5, 2011 1:26PM
Will Costco (COST) shoppers accept a hike in membership fees? The company hasn't raised its main membership fees since 2006 but said Wednesday it will implement a 10% increase.

The reason? Costs are going up, and even though sales are doing just fine, margins are headed down. To offset some of those costs, Costco will increase individual membership fees by $5 to $55 and executive fees by $10 to $110.

The announcement comes amid disappointing quarterly results. The retailer reported $1.08 per share in profit on $28.18 billion in revenue. Analysts were looking for $1.10 per share on $27.84 billion in revenue. So even though Costco came in higher on sales -- same-store sales rose 12% when analysts expected 10% -- the narrow profit miss got most of the attention.

Gross margin was a killer as well, falling by 34 basis points to 10.5% of sales.

So what's Costco to do with rising costs? It could raise its own prices more -- and risk losing customers to BJ's Wholesale Club and Sam's Club. Raising membership fees was another option, and it seemed to work fine for BJ's, which raised its membership fees by $5 to $50 in January.

One analyst expects Costco's fee increase to add 20 cents to 25 cents to earnings per share over the next two years, Reuters reported. The analyst thinks about half of that fee increase will go to keeping prices down.

Costco shares fell more than 2.5% Wednesday to $79.50. The stock had been on a roll lately, rising 30% in the past year.

Raising fees in this economy is risky. We saw what happened when Netflix (NFLX) essentially raised its fee structure by removing the DVD bundling discount. Even previously loyal customers rebelled and jumped ship.

Will Costco suffer the same fate? People were surprisingly quiet about news of the move Wednesday, so maybe Costco will get lucky.
84Comments
Oct 5, 2011 2:48PM
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Everything is going up but my paycheck!
Oct 5, 2011 4:11PM
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I just closed my account with a bank that wants to charge me for the privilege of spending my own money if I use their bank card. I certainly am not going to pay anyone for privilge of spending my money in their store! Come on people, let's get together and put an end to this!!!

Oct 5, 2011 3:59PM
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I agree with those who won't pay for the privilege of shopping.
Oct 5, 2011 2:57PM
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I just eat more samples to make up for the difference.

Saves on lunch for the day anyway.

Oct 5, 2011 4:14PM
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bad idea! Increase the price of some merchandizes by 25 cents instead. I will not pay more for membership.
Oct 5, 2011 4:25PM
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I think people don't realize that MOST of Costco prices are NOT cheaper than other wholesale clubs or even regular supermarket like Shoprite; only FEW items are cheaper. I have been Costco member for 10 years now and we are buying less and less each year. Costco can't even compete with Shoprite supermarkets when lots of items are on sale in Shoprite and there is no membership fee. Now Shoprite has become my MAIN store for almost everything I need in terms of food beside Farmers Market. In this kind of economy most of Corporations are still greedy and they really deserve to lose their customers. All current members should boycott greedy corporations like Costco and stop being their members as soon as possible.
Oct 5, 2011 3:32PM
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Costco certainly has good prices on many items, if you need them at bulk, but not all prices are lower than what you can find at other stores.  I finally didn't renew my membership  since too often I would leave the store spending much more than I had planned on.  That decision has saved me a lot of money. 
Oct 5, 2011 2:10PM
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I've had to learn how to shop at Costco, but having done that, I save a substantial amount of money. I, too, will pay the extra money for the membership. I also think Costco has a great return policy. They have gone out of their way to serve.
Oct 5, 2011 1:47PM
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I save more than 10 dollars on 1 single bag of dog food vs. the exact same dog food at the local pet store. So yeah, I will pay an additional 10 bucks for my membership.
Oct 5, 2011 3:25PM
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"I refuse to shop at Costco. I don't care how low the prices are. It is against my religion to pay a membership fee to shop. Just call me stubborn."

Your more stupid than stubborn.  You can save the membership fee on gasoline purchases alone.
Oct 5, 2011 5:29PM
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Time to drop my membership.  Thanks Costco for encouraging me.

I own a business and have had to cut my overhead to 1/3 what it was 2 1/2 years ago, which included cutting my own salary in half.  I don't get how big corporations and government workers are so aloof that they don't get that it is vulgar for them to impose on the rest of us so they can do even better than last year and whine how unfair it is if they don't.

Oct 5, 2011 4:54PM
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I don't know where they get that $50 going up to $55 figure.  For the last few years I was paying $54.  I was a Costco member for more than 20 years.  I shopped about 4 times a year.  I finally realized that I never stayed to my list and ended up buying a lot of food I didn't really need.  I retired last year and my Costco membership fee was one of the cuts I made. For the last few years  I was only buying paper goods, TP, Bounty, garbage bags etc which I found I could buy just as cheap at Wal-Mart.  So I dropped Costco now go to Wal-Mart every three months and stock up on those things.  I shop at Sprouts and Trader Joes for a lot of food stuffs and I find that their fish is better and generally cheaper than the normal grocery stores.  I still shop at grocery stores but I watch the sale flyers and always have a list.  Now I believe didn't save enough to cover the membership fee all thos years, plus driving out of my way to get there, and having to deal with some very rude, pushy customers.Confused

Oct 5, 2011 6:05PM
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This article is funny because just yesterday they had an article about how good Costco was doing.
Oct 5, 2011 5:25PM
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It's the straw.  I have never felt that comfortable with paying to shop; and that business about checking your sales slip when leaving is an insult added to the fact that they really don't  look what you purchased.  They have store security to look for shop lifters like othe retailers.  Bye Costco.  Bye B of A.

Oct 5, 2011 3:31PM
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Ohhh I'm a member... I'm saving money!

Buying the five gallon size of anything and throwing it out when it goes bad before you can finish it - Priceless

Oct 5, 2011 2:56PM
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Hot
Been a member for several years. I practically live there. Of course,being a careful shopper is a must.  Most items are well priced. Some items are not available there, but are obtainable at SAM'S or at the local supermarket. (The service at SAM'S is horrific). Lately, the price of GASOLINE has NOT been competitively priced.  However, my COSTCO credit card (AMEX) gives a 4% discount on gas, no matter where you buy it.  However, I do like the service and return policy at COSTCO.  So, I believe that the membership fee is well worth the price.  i will continue to shop there despite the fee increase.
Oct 5, 2011 3:45PM
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Costco will be kissing me goodbye!!!  To hell with their greed for there share holders!!  Their prices aren't that great anymore anyway!!
Oct 5, 2011 3:24PM
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Its time to cancel the Costco membership!!!!! This company is posting a profit for their shareholders and want more???  Sorry, but most companies have discountinued profits per share and Costco is not satisfied with the opportunity to post profits in the BILLIONS???  Their prices are not cheaper than other retailers (I've done comparison shopping) and buying in bulk is not always a good way to go.  This corporate greed is getting too far out of control and I will never give my business to a greedy company who only cares about their bottom line and not about what is best for its consumers.  I, like many other Americans have not had any reportable income this year and Costco wants more of the money I'm not making,  SEE YA!!!!!  I don't have to pay to walk into the local supermarket.
Oct 5, 2011 3:21PM
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I find I resent yet another cost increase - be it only $5 - from yet another business.  The economy is tanked - consumers are hurting - and Costco whines because there profit margin is down a little?  They're still profitable - so suck it up for a year or two and help out your customers...

In truth, we wouldn't be Costco members if the local Sam's Club hadn't closed.  We have three Costco's near us - 4, 10, and 15 miles away.  This market dominance choked out the local Sam's Club. Pricing is very similar - some things are higher at Costco, others cheaper...  but two things at Costco annoy me no end.  First, Costco has a habit of putting sample (taste testing) stations at far too many of their end caps, which serves to clog up the two main aisles of the store., while Sam's did this far less obtrusively.    Second, and I have no explanation for this, but Costco's clientele behaves in a far ruder fashion than Sam's Club's customers did.  At Costco, people walk up the middle of the lanes in the parking lot so you can't go around them, and families walk three and four wide in the store's aisles, and stay that way when they stop to look at an item... leaving you stuck until they decide to move along.  People barge into you coming out of side aisles without looking, and the checkout lines resemble the mad rush to the gates at a festival seating concert (or a restart of a NASCAR race) -  people think nothing of cutting in front of you if they see more than a foot or two of space.  This is bad enough when your clearly moving to be next in a given line and only a few feet away when somebody sprints over and cuts in ahead with a smirk firmly in place... but I've also seen it happen when people were already in line, and didn't move quite fast enough to suit a new arrival.  For whatever reason, this type of behavior was rare at our Sam's Club, and unfortunately quite common at Costco.
Oct 5, 2011 3:34PM
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Nearly didn't renew my membership this summer past.  Not really saving anything at their gas pumps, and besides shredded cheese, almost everything else we buy can be had for the same price by keeping an eye on sales and buying in advance/stocking up.  Diapers, wipes, cheese and TP really were the clinchers this year, but I think when August comes around, they will be losing my business.

As people stop doing $$$ impulse buys when they make their trips to Coscto, membership costs will keep increasing.  after an extended recession and a changed consumer spending model, Costco and other clubs may end up with the short stick, out-pricing themselves with over-inflated membership fees.

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