Friday, 25 October 2024
by BD Banks
If you’re shopping alone with your partner’s Costco membership card, you probably can’t even enter the store, as Costco now has a stricter policy.
Costco (COST) is tightening entry rules to prevent non-members from sneaking in. The warehouse is rolling out a new system to stop people from using others’ membership cards.
“Over the coming months, membership scanning devices will be used at the entrance door of your local warehouse. Once deployed, prior to entering, all members must scan their physical or digital membership card by placing the barcode or QR Code against the scanner,” Costco said in a statement in August.
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With stricter enforcement, shoppers must have their own membership or be accompanied by a paying member to gain access.
“I am looking for someone in London with Costco membership to meet me outside the Wembley branch,” Reddit user /YourElfx posted, “I am not interested in anything else. Just the hotdog.”
But being a Costco member is not just about the $1.50 meal deal. The iconic hotdog and soda combo has become a symbol of value, representing Costco’s commitment to low prices in the face of rising inflation. The company has managed to cut prices on several of its private-label products in recent months.
Holding the line on prices is key to keeping members loyal, making membership retention a vital part of Costco’s success.
Image source: Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images
Last month, Costco reported an earnings beat for its fiscal fourth quarter. The company posted earnings of $5.29 per share for the quarter ending Sept. 1, exceeding analysts’ expectations of $5.08. However, revenue totaled $79.7 billion, falling short of the $79.9 billion consensus estimate.
Related: Costco makes major change to stop membership sharing
Same-store sales, a critical retailer metric, rose 5.4% year-over-year but missed the projected 5.7% growth. This measure reflects the performance of stores that have been open for over a year.
Membership fees are a major contributor to Costco’s profits, and the company uses the income to offset expenses and keep prices low.
In fiscal 2024, Costco’s membership fee revenue reached $4.8 billion, accounting for about 65% of the company’s net income in the year.
The company raised its membership fees starting Sept.1, its first hike since 2017. However, the new fee structure contributed only a small amount to the increase.
Costco is seeing more younger customers, a sign of sustainable profit growth from membership fees.
“We ended Q4 with 76.2 million paid household members, up 7.3% versus last year and 136.8 million cardholders, up 7% year over year. About half of new member sign-ups in fiscal year 2024 were under 40 years of age,” Millerchip said. “This percentage has been growing since Covid and has lowered the average age of our members over the last few years.”
Morgan Stanley channel checks show Costco membership counts are rising by low-double-digits at select locations following the introduction of card scanners.
This increase is driven by strong conversion rates among previously non-paying customers.
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The firm hasn’t adjusted its estimates yet but sees faster membership growth as a potential upside, thefly.com reported. It also compares the rollout of card scanners to Netflix’s password-sharing crackdown, which significantly boosted subscriptions.
Netflix began cracking down on membership sharing in May 2023. The move resulted in a huge influx of new members. After anemic membership growth in 2022, the total number of paying members has climbed to 283 million from 231 million in December 2022.
Whether Costco sees a similar bump remains to be seen.
Nevertheless, Morgan Stanley maintains an overweight rating on Costco shares with a $950 price target.
Costco closed at $899.17 on Oct 23. The stock is up 36% year-to-date.
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