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Costco is known for its competitive prices. Read on to see how the warehouse club giant pulls that off.
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Skinny Pop popcorn bags for just $0.50 per serving. A 62-ounce jar of M&Ms for just $18.99. These are just some of the low prices you might find on Costco.com. And since prices tend to be even lower in warehouse club stores, it’s clear that shopping at Costco could result in a world of savings.
So how does Costco do it? Here’s the scoop.
Costco uses membership fees to offset its costs
Costco currently charges $60 a year for a basic membership and $120 for an Executive membership. The Executive membership gives you 2% cash back on all Costco purchases, including those made online.
Some people refuse to join Costco because they don’t like the idea of having to pay to simply enter a store where they’ll then, in turn, spend money. But it’s important to realize that it’s those very membership fees that allow Costco to offer the ultra-low prices it’s known for.
Costco even says on its website: “Our goal is to provide the best products at the lowest prices available—and we mean anywhere. The membership fee is crucial to achieving this goal because it covers our overhead and allows us to operate the business at margins much lower than other retailers (these savings get passed on to you, of course).”
In fact, Costco doesn’t make a point to offer discounted memberships like Sam’s Club sometimes does. That’s because Costco is confident that its prices are low enough for members to recoup their fees via savings on buying groceries and household essentials throughout the year.
So you might, for example, spend $60 a year on a basic Costco membership. But if you shop at Costco once a month and save $15 on food and household products each time you go, you’re spending $180 less per year. So all told, you’re coming out ahead by $120, which means you’re not “losing money” to your membership fee.
Will Costco soon raise its fees?
The last time Costco raised fees was in 2017. At that time, the cost of a basic membership rose from $55 to $60, while the cost of an Executive membership rose from $110 to $120.
There’s been talk that Costco will raise fees again pretty soon, because it’s been more than six years since its last fee hike. Prior to 2017, the warehouse club giant raised fees in 2011. So if we follow that pattern, it would make sense to see membership fees increase if not by the end of 2023, then at some point during the first half of 2024.
Whether a Costco membership will still be worth paying for at that point will hinge on your shopping habits and the amount of savings you’re able to reap. But remember, if your fee goes up by $5 or $10 (which would likely be the case based on Costco’s last hike), that higher fee is making it possible for Costco to continue offering you great products at low prices. And chances are, if it’s worth paying $60 or $120 for a membership now, it’s going to be worth it to you to pay a little bit extra in the future.
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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. The Motley Fool has a disclosure policy.
