Attention Costco shoppers.Starting this week, buyers of bulk-sized toothpaste and gallon-sized dishwashing soap will have to pay a little more for the privilege stocking up on their daily bread.That’s because the prolific retail chain is increasing the price of its basic gold-star membership by the modest sum of $5, to $65 for the year. Executive members will now have to fork out an extra $10, or $130.An added perk for the upscale crowd is that the maximum annual 2% rebate reward ticks up to a maximum of $1,250 from $1,000 previously. It still comes with one free extra card per household for those over 16 years..The company notified existing members back in July and the higher fees will be auto-renewed at the new rate.The higher fees affect about 52 million people in Canada and the US, with half of those being the executive category.“Our membership fees help to offset operational costs so we can keep our prices low. A modest increase in fees will allow us to bring our members even greater value,” the company said in a statement.According to its website the membership fees take the place of needless markups on everyday items. Costco long ago implemented a rule that no branded item could be marked up more than 14% over cost. Signature Kirkland items are jacked up 15%.In 2023 the company generated about USD$1.04 billion in membership fees accounting for about 62% of its operating income, while the rest came from product sales..By contrast, Walmart generated more than $160 billion in sales during the same period. However, Walmart’s cost of sales was was about $121.9 billion compared to $51 billion for Costco.“Offering our members low prices on a limited selection of nationally-branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover,” Costco said in its annual report.“When combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self service warehouse facilities, these volumes and turnover enable us to operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other retailers.”.Little surprise then, that the company is taking steps to crack down on membership sharing ala Netflix. And in fact, analysts suggest Costco’s business model is more similar to an online subscription service like Netflix than a traditional retailer like Walmart.That’s why it has resorted to scanners and other ‘invasive’ means to police membership leakage while keeping prices low enough to attract shoppers.“For Costco, managing memberships to realize price necessarily requires making some hard and unpleasant customer experience decisions. It means policing, denying, requiring hoop-jumping, being rude, and cracking down ruthlessly and repeatedly, all for the purpose of keeping non-members out, encouraging non-members to sign on and getting current members to renew,” says consumer watchdog Uptal Dholakia on his Pricing Conundrum.“None of these goals are possible without injecting a significant degree of unpleasantness into the shopping experience of members and the working experience of frontline employees.”The good news? Hotdogs and a pop are still $1.50.
