Costco has a simple relationship with its paying members. The warehouse club sells memberships and in exchange for paying to join, members get prices that are generally lower than what any other retailer charges.
The warehouse club has two membership levels (as well as two comparable offers for business members). It sells a basic Gold Star membership for $60 a year. That gives the members (and any immediate family living in the same household) access to Costco's (COST) warehouse locations. The chain also sells an Executive membership for $120 that comes with 2% cash back up $1,000 per year.
DON'T MISS: Costco's 'Outrageous' Price Move Actually Makes Perfect Sense
Costco raises its membership price roughly every six years. It doesn't follow a set schedule perhaps partially because it gets a lot of "will they/won't they" media coverage. The chain's CFO Richard Galanti has commented on when Costco would raise its membership prices during its quarterly earnings calls and he has not committed to a timetable.
During Costco's most-recent call, however, he was more specific with his very carefully-chosen words.
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Costco Confirms a Membership Price Increase
Galanti conducts a very straightforward earnings call. He answers questions, but he's very careful in what he says -- likely because he understands the media attention his words will bring. He did, however make a number of comments on raising the warehouse club's memberships fees during its second quarter earnings call.
"June would be our sixth anniversary. But -- and as I mentioned in the previous calls, looking at the last, I think they averaged around five years and seven months, which is about now or last month," the CFO shared.
Galanti then confirmed that a change would be coming.
"And what we said over the last few semesters -- over the last few quarters, it was -- I'm a college kid. For the last few quarters is that it's a question -- in our view, it's a question of when, not if," he added.
The CFO, however, still would not confirm a timetable for the change.
"And so we'll let you know," he said.
How Costco Will Spend a Membership Fee Increase
While nobody likes paying higher prices, Galanti made it clear that the money it brings in by raising fees would be used in a way that members should be happy about.
"But keep in mind, that's one way that we become even more competitive. We take those monies and directly become more -- even more competitive," he added.
Basically, Costco takes the extra money it earns in membership fees and uses it to hold or even lower the price of certain items. Galanti shared some insight as to how the company sets its prices.
"I might add though, when we do -- our locations do weekly comp shops of 100 to 150 key items, all directly competitive items and then a variety of other our direct competitors and other limited comp shops against other forms of traditional retail where the gap of competitiveness is much greater," he shared. "But at the end of the day, our relative level of competitiveness in our view is as strong as it's ever been."
Costco has historically done an impressive job retaining and adding members.
"In terms of renewal rates, at second quarter end, our U.S. and Canada renewal rates was 92.6%, up 0.01% from Q1 end and worldwide rate came in at 90.5%, also up 0.01% from the prior quarter, both represent all-time highs. Membership growth has remained strong. We ended the second quarter with 68.1 million paid household members and 123.0 million cardholders, both up more than 7% versus a year earlier," he added.
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