So, a couple of weeks ago, I published a Guest Post that discussed the rising membership rates for Costco. I enjoyed reading everyone’s opinions and thoughts on the situation. But I never shared my views. So, I figured I should take the time to share my opinion as well!
As I’m sure everyone here has heard my now, Costco has made the decision to raise their membership rates in the US and Canada by 10%, which means the new fees will be $55.00 for Goldstar and Business membership and $110.00 for Executive membership. This change will go into effect on November 1, 2011. With the increase in membership fees, there will also be an increase in the maximum amount of the Executive Member 2% refund from $500.00 to $750.00. The increase in membership fees will impact a little over 22 million members, roughly half of which are Executive Members.
So, that’s the nuts and bolts of the change. While I can see Mike’s (original guest poster) opinion that this might be a warning sign of things to come with the changing CEO, I’m not sure I am totally sold on that. My first knee-jerk reaction was that it was the new CEO too. However, he isn’t actually taking over until January and Jim Sinegal is probably not likely to just let him do whatever he wants to the company he has built for decades, especially not before he steps down. Jim Sinegal is still the CEO and clearly he was present in any discussions and had a major hand in any decision to raise the rates. I think that it was probably just time to increase the rates a little bit. Considering that the last time they raised the membership rates was more than 5 years ago, in May 2006, you can’t help but think about all of the pricing and salary increases that have probably come about in that time period. I would certainly like to think that in five years, the people working in the membership and customer service departments at Costco have had a salary increase, or two, or three. I know that I would much prefer Costco to bump up the price of their membership fees by this little bit, than increase the profit margin on all of their products by 1 – 2%, which would end up costing everyone much more in the course of a year.
Mostly though, I’m just not upset by the 10% increase. I can easily save that extra $10.00 in just one single purchase. Just recently, I bought a grater, not a high dollar purchase really, but I saved £20.00, or $31.00, on that purchase by shopping at Costco instead of some other store. So, clearly, that would have covered the extra $10.00. And I save that much regularly on my purchases at Costco, without even trying that hard. If I buy something big like eyeglasses or contact lenses, I often save the whole price of my yearly membership fee in one swift purchase. That also doesn’t take into account, Dave purchasing glasses as well. Or, our 2% back that we get on any purchases made at Costco.
If the 10% increase seems too much for you to handle, then I would challenge you to do a little price comparison research to make sure that the prices at your other shopping options are as low as you think. Can you really get as good a deal at some other shopping outlet as you can at Costco? If you don’t pay close, and frequent, attention to the prices at various places, you can forget what the regular costs are and start thinking that they were cheaper, when in reality they aren’t. I used to do a yearly price comparison at Costco and a couple of other grocery stores in my area in Austin. I was often amazed at some of the differences, and pleasantly surprised by some of the similarities in prices, though that was less often. Though, overall, Costco did offer the biggest savings on the whole list of items. So, you have to take into account individual prices as well as the grand total for your shopping. Mostly my comparisons made me realize that Costco really does have better prices and better quality than the average grocery store.
And lastly, Costco would have to make one heck of a big jump in membership fees for me to even remotely consider shopping at Sam’s Club. Ugh. There are so many reasons why I don’t like shopping at Sam’s, so I won’t even go into all of that. But they’re not an alternative to Costco, in my opinion. I’d just go back to regular retail outlets and online sources than even step foot into a Sam’s Club again.
Costco currently has an 89% renewal rate for its memberships. It will certainly be interesting to see how this increase in fees changes that number. If it changes it at all. My guess is that it won’t really have much of an impact.