Costco’s business model is remarkably different from the one embraced by competitors like Walmart and Target.
First, Walmart and Target pride themselves on being superstores that carry everything under the sun, from fresh foods to apparel to toys and games.
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Costco, too, is known for its wide range of products. But Costco specifically limits its inventory to about 4,000 SKUs (stock keeping units). So whereas consumers can typically find everything they’re looking for at a local Walmart or Target in one visit, they may not be able to complete their shopping in a single Costco run.
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Another thing that makes Costco unique is its revenue strategy. Costco is willing to accept lower margins on the products it sells because it makes up for that in membership fee revenue.
Most stores don’t force customers to buy a membership just to get in the door. At Costco, access is limited to members only, or the guests of paid members.
This means that people who shop at Costco tend to do so intentionally. They can’t just waltz in on a whim to see what’s in stock because it costs money to simply walk in the door.
But because Costco knows that its members are paying good money for store access, it tries hard to ensure that the customer experience is a positive one. This extends to the store’s generous return policy, which, with few exceptions, allows members to bring back any item at any time for a complete refund.
Costco’s CFO shares an update on the company’s membership fee.
Image source: Ting Shen/Xinhua via Getty) (Xinhua/ via Getty Images
Costco is careful about raising membership fees
In September 2024, Costco raised the cost of its basic Gold Star membership from $60 to $65, while the cost of an Executive membership rose from $120 to $130. Executive memberships give shoppers 2% back on their Costco purchases, and frequent customers can often earn enough to make up for the extra $65 outlay.
Costco’s 2024 fee hike was the first time the store had raised membership costs since June 2017.
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Typically, Costco raises its membership fees every five-and-a-half years. Based on that cadence, the store was due for an increase in the late 2022 to early 2023 time frame.
But Costco’s management team understood that this wasn’t an opportune time to raise fees. Back then, inflation was even more rampant than it is today, and many consumers were struggling to make ends meet.
Costco didn’t want to drive members away with an ill-timed fee hike, so it opted to wait longer than usual to raise its membership prices.
Costco has a well-thought-out membership fee strategy
Costco has faced its share of criticism over membership fees, given its notably higher price points than rival Sam’s Club. A Club membership at Sam’s Club costs $50 per year, while a Plus membership costs $110 per year, making it the more affordable warehouse club option at face value.
Plus, Sam’s Club commonly offers promotions that cut down the cost of membership fees. This is something Costco specifically does not do.
But that doesn’t mean Costco hasn’t put thought into how it determines membership fees. And it also tends to spread out fee hikes across its international locations.
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During the company’s last earnings call, CFO Gary Millerchip explained that the company increased membership fees in Australia in fiscal year 2023, and an increase in Mexico followed later.
Meanwhile, the company recently announced a membership fee increase in Japan and Korea.
But all told, “we don’t have them all on the same cadence,” Millerchip explained. “They tend to be tied to their own individual plans and when the membership fee was introduced and when they’ve previously had changes,” he added.
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Of course, with tariffs now in the mix, the big question on members’ minds is how Costco will be forced to react. The broad assumption is that Costco will do its best to shield members from tariffs but raise prices when it becomes necessary.
But Costco has another option it can keep in its back pocket – a sooner-than-expected fee hike.
This is the less likely option of the two, given that a near-term increase in membership costs would likely spark outrage among Costco fans. But it remains an option nonetheless.
 Either way, members can bank on Costco being mindful of its membership fee strategy at a time when so many consumers are on edge. The company will no doubt do everything it can to continue offering members the low prices it’s known for without having to charge them extra to walk in the door.Â
Maurie Backman owns shares of Costco.
