The Weird Reason Why I Want Costco to Hike Fees

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Most people want to pay as little as possible for their Costco membership. Read on to see why I wouldn’t mind paying more than I do today. [[{“value”:”

Like all retailers, Costco is in the business of making money. But the way Costco goes about that is different from other companies.

Most retailers make money by selling products for a higher price than what it costs to get them. Costco does the same, but a large chunk of its revenue comes from membership fees.

Right now, it costs $60 a year for a basic Costco membership, and $120 a year for an Executive membership. The Executive membership offers 2% cash back on Costco purchases, including those made online. And if you don’t want to spring for an Executive membership, you can find a great credit card for Costco instead.

At this point, though, Costco is way overdue for a membership fee hike. The last time the warehouse club giant raised its fees was back in 2017.

Of course, most members don’t want to see a Costco fee hike come through. And I don’t blame you if that’s how you feel — why would you want to pay more than what you’re currently paying for any given service or membership? But here’s why I would actually welcome a Costco fee hike in the not-so-distant future.

When you pay a little more but get a lot more

If you’re a Costco member, you’ve no doubt noticed how competitive the store’s prices are on a wide range of products. But the awesome prices you get at Costco aren’t just a function of buying in bulk.

Remember, not everything at Costco comes in bulk. Sure, you might buy a mega-pack of sliced cheese or a massive jar of salsa. But when you buy items like a coat or a food processor, you’re usually getting a single item. And the reason you might pay a lot less at Costco for an item like that is because Costco uses its membership fee revenue to offset the cost of stocking its shelves.

To put it another way, Costco doesn’t have to make as large a profit on a per-item basis as other retailers because it has another revenue source — membership fees. And it’s for this reason that I wouldn’t mind seeing fees go up just a bit if Costco makes that decision.

If Costco’s next fee hike follows the same pattern as its last increase, the cost of a basic membership will rise by $5 and an Executive membership will go up by $10. But the way I see it, my extra $10 a year might mean Costco is able to offer me an even better selection of goods, and at even more competitive prices. So all told, customers might benefit financially from a fee hike, even though it may not seem that way at first.

Does Costco have concrete plans to raise membership fees?

As of May, Costco had no immediate plans to increase the cost of memberships. During its earnings call last month, CFO Gary Millerchip said, “We’ve historically looked at increasing the membership fee every five years or so. And obviously, we’re beyond that time period now in terms of what would be the typical cycle. There’s nothing about anything that we see within how the business is performing that’s changing our view on that.”

Millerchip did say that if Costco were to make concrete plans to raise membership fees, he’d be open about that and let the public know. But based on his comments, it’s pretty fair to assume that the cost of a membership isn’t going to increase in the next few months.

However, there is a good chance that a Costco membership will get more expensive in 2025 or 2026. So if that happens, don’t assume the worst. You may find that a membership fee hike results in an even better shopping experience for you, and that your overall savings end up increasing — despite paying a bit more to walk in the door.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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.

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