Costco Hikes Membership Fees Amid Slow Retail Environment

-10.76%
Downside
732
Market
653
Trefis
COST: Costco logo
COST
Costco

Costco (NASDAQ:COST) has decided to hike its membership fees by 10% effective November 1. Costco currently charges $50 as membership fees from individuals and business members and $100 from executive members. It operates a warehouse club model wherein it charges annual membership fees to customers and, in turn, offers deep discounts on selected merchandise. In Q4 2011, the new member sign-ups witnessed an increase of 22% as compared to a year ago. It traditionally competes with warehouse club operators including BJ’s Wholesale Club (NYSE:BJ) and Sam’s Club, in addition to large retailers like Wal-Mart (NYSE:WMT), Best Buy (NYSE:BBY) and Target (NYSE:TGT).

Our price estimate for Costco’s stock stands at $86, implying a premium to the current market price.

See our full analysis and $86 price estimate for Costco

Relevant Articles
  1. Does Costco Stock Have More Room For Gains After Rising 40% in 2023?
  2. What To Expect From Costco’s Stock Post Q4 Results?
  3. Costco’s Stock Up 23% So Far, What’s Next?
  4. What To Watch For In Costco’s Stock Post Q3?
  5. What’s Next for Costco Stock?
  6. Company Of The Day: Costco

Membership Price Hikes a Positive:

  • This is the first time Costco increased membership fees since 2006. The retailer has been very cautious of passing on these costs to customers, and we believe the increase is a positive move given the loyalty and difficult retail environment.
  • According to Costco, the membership fees hike will impact approximately 22 million members, roughly half of whom are executive members. We believe the size of the price hikes won’t affect the executive members.
  • The renewal rates are approximately at the 89-plus percent range in the U.S. and Canada and 86% worldwide. Costco is also experiencing increasing penetration in the executive membership.

We believe the hike in membership fees would not have an adverse effect in terms of lower renewal rates. This sure looks like a carefully thought of decision on part of Costco.

Understand How a Company’s Products Impact its Stock Price at Trefis