Tuesday, 21 March 2023

Will Disappointing Sales Drive Costco to Raise Membership Fees in 2023?

by Earn Media

Will Disappointing Sales Drive Costco to Raise Membership Fees in 2023?

Image source: Getty Images

Shopping at Costco tends to save consumers money. If it didn’t, they wouldn’t be willing to pay their membership fees, which are currently $60 for a basic membership and $120 for an executive membership.

It’s been more than five years since Costco raised its membership fees, so members are actually due for a hike. And thanks to recent sales figures, that hike might have to happen sooner rather than later.

Costco sales disappointed

Costco recently reported sales information for its second fiscal quarter. All told, the warehouse club giant took in $55.3 billion in sales, which sounds like a lot of money. But actually, that figure was $300 million less than what analysts were expecting.

Fee hikes could help compensate

Costco, like many retailers, has seen its margins impacted due to inflation. And so between higher operating costs, disappointing sales numbers, and the fact that membership rates have stayed the same for over five years, it wouldn’t be so surprising to see the cost of a Costco membership increase before 2023 comes to an end.

In fact, on the company’s most recent earnings call, Chief Financial Officer Richard Galanti confirmed that June 2023 would be Costco’s sixth anniversary of the last time it raised fees. And he also said that with regard to fee hikes, “It’s a question of when, not if.”

Should consumers worry about higher Costco fees?

At a time when inflation is forcing many consumers to raid their savings accounts and rack up debt just to stay afloat, any added expense is apt to be a point of concern. But if Costco does opt to raise membership fees in 2023, it’s unlikely to raise them to an extreme.

We might see the cost of a basic membership increase to $65 and the cost of an executive membership rise to $130. But these are annual increases, so when we spread those added costs over 12 months, it doesn’t seem so extreme.

It’s also important to remember that it’s the revenue Costco collects in membership fees that allows it to offer such competitive prices. So while consumers may not be thrilled with a fee hike, the reality is that they’re apt to reap a lot of savings even when paying more for a membership.

Now that said, it’s important that those paying for a Costco membership actually get their money’s worth. If you’re not sure if a Costco membership is worth it, especially with a cost increase possible, then it’s a good idea to take a look at your credit card bills from last year and see how much Costco shopping you did.

If you only visited Costco on a handful of occasions, then it may not be worth it to pay up for a membership, especially at a higher price point than what you’re looking at today. But if you visited Costco pretty consistently, then chances are, you saved enough money to make that membership worth it. And chances are, if you keep your membership, you’ll continue to do the same.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Gala. The Motley Fool has a disclosure policy.