USA- Retail giant Costco Wholesale has announced its annual membership fees will be increased by US$% in the US and Canada, and its higher-tier membership fee will be increased by US$10 from September 1.
The annual membership fee will increase to US$65 from US$60, while the higher-tier plan will increase to US$130 from US$120 in the first membership increase since 2017.
The company has raised membership fees on average every 5 and a half years. Although the company was on track to raise membership fees in 2022 or 2023, inflation challenges implored the company to not increase fees in the past year.
Costco relies on membership fees to keep prices low and drive revenue.
Rival Walmart, however, raised its membership fees in 2022 for the first time in 9 years as it sought to drive up revenues. However, the membership fee increase remained competitive compared to Costco at US$50 for annual members and US$110 for club members.
Costco revealed the fee increase will affect 52 million members, about half of whom are exclusive members.
The news received mixed reactions in the market. Some quarters believe the membership hike would be detrimental to new membership and stunt the company’s growth, while other quarters view this membership increase as a sign of stabilizing inflation.
The US government’s consumer price index (CPI) for June revealed that pricing pressures are moderating from their multi-decade high experience since 2022. According to the data, CPI dropped to 0.1% in June compared to May, which essentially translates to a 3% year-on-year (YoY) increase, the lowest since 2021.
Jim Cramer, a market analysis expert, told CNBC, “If you want to get these lower prices that the CPI is now reflecting, [Costco] had these prices months ago. If a product is too expensive, they’ll kick you out.”
The company expressed optimism over the fee increase, reiterating it has thrived on customer value and strived to keep prices lower than competitors. The company revealed it intends to direct the extra funds from the fee increase to its bottom line, a catalyst for growth.
Share prices increased by 2% on July 10 following the announcement but fell 3% the following day, indicating a mixed market reaction.
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