Costco's 'No Sharing' Club: Cracking down on membership sharing to keep those exclusive deals just for the insiders!
Is this about exclusivity or protecting profits?
Costco, inspired by Netflix, is tightening its grip on membership sharing. The company, known for its exclusive discounts to members and guests, is now piloting a new entry system at a Washington store. Customers must scan their membership cards to gain entry, replacing the traditional method of showing a card to an employee. This move aims to streamline the entry and checkout process while safeguarding Costco's membership model.
However, the two models differ; Costco’s model benefits from transaction counts, store visits, and wallet share. That is, the more people shop, the higher the gross revenue for the warehouse club. So, why turn off sharing? Let’s dig a little deeper.
In 2022, Costco netted a 93% membership renewal rate. However, the company warns that any decline in membership revenue might lead to higher prices. Upping the game with technology competitor Sam's Club and a Walmart subsidiary is leveraging AI for cart scanning.
Fees are a good thing.
For several reasons, membership fees are core revenue for warehouse clubs like Costco. Firstly, these fees create an exclusive atmosphere, making members feel part of an exclusive community, which can encourage loyalty and repeat business. Secondly, the revenue, likely at a 95% or better margin (compared to the goods and services sold in the club), allows warehouse clubs to offer products at lower margins than traditional retail stores.
With 124.5M club members and fees starting at $60 (regular) and $120 (Executive with 2% cashback up to $1,000), that represents north of $7.5B annual revenue.
This pricing strategy attracts a broad customer base and maintains the perception of value among members. Additionally, the regular income from memberships provides a stable financial base, enabling these clubs to confidently plan and invest in improvements and expansions.
Lastly, by ensuring that only members (and their guests) can access the discounts and benefits, these clubs can maintain a controlled and sustainable business model, balancing quality service with attractive pricing.
This raises a logistical question. Family dynamics have changed since the warehouse club opened in 1983. Spouses don’t always adopt the same last name, and domestic partnerships put another spin on names. Which and how many names are to be associated with the club cards? Simple but not and a careful line for Costco to tread.
Does your company’s membership allow sharing? What are the three top-of-mind considerations for you if you were in the top seat at Costco?
