Even global retailers like Costco Wholesale Corporation are not immune to the cost of borrowed memberships. Last week, the company said it was cracking down on membership sharing. At standard checkout registers, Costco will continue to ask for Costco membership cards to verify the photo matches the person making purchases. The membership-based warehouse club is now doing the same at self-checkout. If the Costco cards do not contain a photo, staff ask for photo IDs to confirm the shopper is a Costco member.
Costco said membership sharing has increased since the company has expanded self-checkout stations to more of its stores, reports CNBC.
“We don’t feel it’s right that nonmembers receive the same benefits and pricing as our members,” Costco said in a statement.
Costco memberships
Though Costco’s original customers were businesses, Costco memberships are now available to businesses and individuals. Unfortunately, this does not reduce membership sharing or the number of borrowed memberships. Costco offers two membership plans: a $60/year Gold Star plan and a $120/year Executive plan. On the company’s May 25, 2023 earnings call, Costco ended the third quarter of fiscal year 2023 with 69.1 paid household members and 124.7 million cardholders, an increase of 7% compared to a year ago.
At the end of the third quarter, there were 31.3 million paid executive members, an increase of 681,000, or 57,000 per week, during the 12-week third fiscal quarter. Executive members represent slightly over 45% of total paid members and 73% of global sales.
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Costco financials
Costco reported total revenue of $53.6 billion for the third quarter of fiscal year 2023. Net income for the quarter was $1.3 billion, or $2.93 per diluted share. For the period ended May 7, 2023, revenue consisted of $52.6 billion in net sales and $1.0 in membership fees. Membership fees now make up 1.98% of sales compared to $984 million, or 1.91%, for the third fiscal quarter of 2022.
For the fourth quarter of fiscal year 2023, Costco estimate inflation in the 3% to 4% range.
“We continue to see improvements in many items, notably food items like nuts, eggs and meat, as well as items that include, as part of their components, commodities like steel and resins on the nonfood side. Switching over to inventory levels. Inventories overall are in pretty good shape,” said Richard Galanti, director, executive vice president and chief financial officer, on the earnings call.
The Issaquah, Washington-based Costco currently has 853 warehouses, including 587 in the US and Puerto Rico, 107 in Canada, 40 in Mexico, 32 in Japan, 29 in the UK, 18 in Korea, 14 in Taiwan, 14 in Australia, four in Spain, three in China, two in France and one each in Iceland, New Zealand and Sweden. In addition to the physical stores, Costco operates ecommerce sites in the US, UK, Canada, Mexico, Korea, Taiwan, Japan and Australia.
Insider Take
Though Costco is a very different type of business, their issue is similar to that of Netflix who is now enforcing password sharing restrictions. Whether it is Costco or Netflix, when nonmembers and nonsubscribers share someone else’s membership or subscription, they are getting something for free. It might seem like a good deal to the nonmembers and nonsubscribers, but Costco and Netflix lose money when memberships and subscriptions are shared, and they pass those losses onto paying customers.
While $60 a year for a Costco Gold Star membership may not seem like much for a multi-billion dollar company to lose, when you have thousands of people doing it, that adds up. Shoppers who are using a borrowed membership card are getting member-only pricing without paying for the membership, and Costco is footing the bill for the warehouse, staff and products sold to nonmembers. If this continues, Costco members can anticipate a price increase.
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