New members re-up at Costco in record numbers
First-time Costco members renewed their memberships in record numbers for the third quarter ending May 8.
Bob Nelson, senior VP of finance and investor relations at Costco, speaking last week on the company’s earnings call said that memberships were up 10.4 percent during the three-month period.
“In terms of renewal rates, we hit all-time highs,” said Mr. Nelson. “At Q3 end, our U.S. and Canada renewal rate was 92.3 percent, up 0.3 percent from the 12 weeks earlier at Q2 end. And the worldwide rate came in at 90 percent for the first time in company history, and that’s up 0.4 percent from what we reported at Q2 end.”
The retailer reported a six percent year-over-year increase in member households and cardholders, with both auto renewals and executive memberships up during the quarter.
Executive members represent over 43 percent of Costco’s total membership and over 71 percent of its sales worldwide. Costco reported that it had 27.9 million paid executive memberships, an increase of about 800,000, since the end of the second quarter.
Mr. Nelson also addressed public speculation that the company was ready to announce an increase in its membership fees. He acknowledged that Costco has typically raised its fees every five to six years and that the last increase happened in June 2017. That said, the retailer was not ready to raise its rates.
“Given the current macro environment, the historically high inflation, and the burden it’s having on our members and all consumers in general, we think increasing our membership fee today ahead of our typical timing is not the right time,” he said.
Mr. Nelson said that Costco has seen inflation rise over the first nine months of its fiscal year with the first quarter in the 4.5 percent to five percent range, the second quarter at “six-ish” and the third at “seven-ish.”
“We did see inflation in fresh foods come in slightly lower in Q3 versus Q2 a year ago as we began cycling high meat prices,” he said.
Costco’s dollar inventory was up 26 percent during the quarter. Mr. Nelson attributed the gain to several factors, including inflation, the opening of 20 new club openings over the past year and added stock in several categories that were light on inventory. The chain also added bulky items to its inventory for its growing e-commerce operations.
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DISCUSSION QUESTIONS: What is behind Costco’s record membership renewal rates? Do you think the chain’s decision to hold off increasing membership fees is the right move at this time?