Costco’s New Membership Rule: How It Could Spark Major Changes for Shoppers

According to The Street, If you’re shopping alone with your partner’s Costco membership card, chances are you won’t make it past the entrance. Costco (COST) has recently implemented a stricter policy to prevent non-members from entering. The warehouse giant is introducing a new system designed to stop unauthorized use of membership cards.

According to an August statement from Costco, “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.” With these stricter measures, shoppers must have their own membership or be accompanied by a member to gain access.

Costco’s Iconic Meal Deal Remains a Member Favorite

The famous $1.50 hotdog and soda combo has long symbolized Costco’s dedication to value. Despite rising inflation, Costco has managed to keep this meal deal and other private-label products at low prices, solidifying customer loyalty. As Reddit user /YourElfx posted, “I am looking for someone in London with a Costco membership to meet me outside the Wembley branch… Just the hotdog.”

Beyond the affordable meal deal, Costco’s strategy of holding prices steady is crucial in retaining members and driving loyalty, especially in uncertain economic times.

Membership Fees Fuel Costco’s Financial Strength

Last month, Costco reported a better-than-expected earnings outcome for its fiscal fourth quarter. The company posted earnings of $5.29 per share for the quarter ending September 1, surpassing the forecast of $5.08. However, total revenue came in at $79.7 billion, slightly below the anticipated $79.9 billion.

Same-store sales, a vital retail indicator, increased by 5.4% year-over-year but missed the projected 5.7% growth. Membership fees, a major revenue source for Costco, reached $4.8 billion in fiscal 2024, contributing roughly 65% of its net income for the year. The recent September 1 fee hike is Costco’s first since 2017, adding only modestly to this revenue stream but indicating potential for future growth.

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Younger Members Drive Costco’s Growing Customer Base

Costco’s membership is trending younger, which bodes well for sustainable long-term growth. Chief Financial Officer Richard Galanti noted that Costco’s fourth quarter ended with 76.2 million paid household members, up 7.3% from the previous year. Additionally, about 50% of new members in fiscal year 2024 were under 40, reflecting a shift in the retailer’s customer demographics since the pandemic.

Card Scanner Rollout: A Boost for Membership Growth?

The crackdown on membership sharing has bolstered membership counts, according to Morgan Stanley channel checks, which show Costco locations experiencing low-double-digit membership growth since introducing card scanners. This rise is attributed to the conversion of non-paying customers into paid members, much like the effect seen when Netflix began curbing password sharing in 2023. Netflix’s strategy led to a surge in new subscriptions, with total paying members growing from 231 million in December 2022 to 283 million.

Morgan Stanley maintains an overweight rating on Costco shares, with a target price of $950. Costco stock, which closed at $899.17 on October 23, has risen 36% year-to-date.