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Facing a host of competitive pressures, Costco last week announced a raise in its membership fees for first time since 2011.
Beginning June 1, standard Gold Star membership will cost $60 a year, a $5 increase. Executive membership, which offers an annual reward on purchases, moves up $10 to $120 annually. The retailer will lift the cap on Executive members' two percent annual reward to $1,000 from $750.
Membership fees account for about 70 percent of the wholesale club’s operating income and helps support the low prices it is able to deliver.
The fee announcement wasn’t a surprise. Costco typically raises them every three or four years. This one comes as Costco’s second-quarter report revealed strong renewal and traffic rates. Membership renewals came in a little over 90 percent in the U.S. and Canada. Traffic grew three percent in the U.S., slowing slightly as Costco has begun to offer fewer coupons in its mailers while shifting to lower prices on fewer items and more everyday-low pricing.
Yet third quarter sales and profits were lower than expected largely due to higher gas prices, investments in digital efforts and price cuts.
Taking advantage of lower food commodity prices, Walmart, Target, Kroger and others have promised to invest in steeper price cuts this year. On a conference call with analysts, CFO Richard Galanti called the competitors' moves “formidable,” but said they had no impact on the decision to raise membership fees or tweak coupon book mailings.
"I don't know where else you can get in the country a 40-pack of half-liter water bottles for $2.99 down from $3.49. And we're driving units, and we're driving a little traffic. And that's what we do, and it's not because somebody else went down to that price," Mr. Galanti said.
Some analysts have also been concerned about competition from Amazon as it increases its presence in the fresh foods category.
- Costco Wholesale Corporation Reports Second Quarter And Year-To-Date Operating Results For Fiscal Year 2017, February Sales Results, And Plans For Membership Fee Increase – Costco
- Costco Second-Quarter 2017 Conference Call – Seeking Alpha
- Costco is raising membership fees for first time since 2011 – CNN
- Costco shares fall after fee hike, Wall Street miss – USA Today
- Costco to Raise Membership Fees, Higher Costs Take Toll on Profit – The Wall Street Journal
- Should Costco raise its membership fees? – RetailWire