Costco’s enduring appeal in a tough economy highlights a significant shift in consumer behaviour, as middle-class shoppers prioritise value and savings over convenience.
While many retailers grapple with economic headwinds, Costco continues to thrive, boasting impressive membership growth and retention rates. The warehouse giant’s success signals a broader change in how consumers are approaching their spending habits. Dominick Miserandino, CEO of RTMNexus, suggests Costco’s strong sales figures are not just about inexpensive food court items but reflect a move away from the convenience of local shops towards the savings offered by warehouse shopping.
Membership figures remain robust. At the end of the second quarter, Costco reported 40.4 million paid executive memberships, a 9.5% increase year-on-year. Total paid members reached 82.1 million, up 4.8% from the previous year, with 147.2 million cardholders overall, marking a 4.7% increase.
The company’s renewal rates are also strong, with the U.S. and Canada renewal rate at 92.1%, slightly down from the previous quarter, and the worldwide rate holding steady at 89.7%.
These figures are particularly noteworthy considering Costco’s decision to increase membership fees in September 2024. Gold memberships rose by $5 to $65, while Executive memberships increased by $10 to $130. Contrary to expectations, this price hike appears to have strengthened the brand’s appeal. Data indicates that the increased "cost of commitment" may have discouraged casual shoppers, while encouraging more frequent visits from those who actively seek to maximise the value of their membership.
Customers are also spending more per visit. Worldwide, the average transaction value increased by 7.8%, including the impact of gas inflation and foreign exchange rates. Excluding these factors, the average transaction still rose by 4.6%.
The best-performing departments reflect a focus on essential goods. Foods and sundries saw low to mid-single-digit growth, with food, candy, and sundries performing particularly well. Fresh foods also experienced mid- to high-single-digit growth, driven by strong sales in the bakery and meat departments.
Beyond groceries, non-food items also performed well, with mid- to high-single-digit growth. Standout categories included jewellery, major appliances, and hardware. Ancillary businesses saw substantial growth of over 20%, with pharmacy, gas, and the food court leading the way. Gas sales were up significantly, driven by both higher prices per gallon and increased volume.
Costco’s financial performance is strong. Net sales for the first 31 weeks of the year reached $173.26 billion, a 9.1% increase from $158.87 billion in the previous year.
The chain has also benefited from higher gasoline sales volumes, driven by rising fuel prices.
Analysts suggest Costco’s success is mirrored by other retailers focused on value. Both Costco and Walmart are thriving by offering low prices, strong private-label brands, efficient supply chains, and growing digital capabilities. Membership fees provide Costco with a stable and high-margin revenue stream, allowing the company to maintain competitive pricing and foster customer loyalty.
Neil Saunders, Managing Director at GlobalData, emphasises that Costco’s business model revolves around providing exceptional value to members in exchange for a fee. This focus on membership renewal drives all of Costco’s strategic decisions.
Scott Benedict, Vice President of Partnerships at WhyteSpyder, agrees, stating that Costco prioritises delivering the lowest possible cost structure to its members, earning the majority of its profit through membership growth and renewal rather than maximising margins on individual items.
Sales Growth by Category
| Category | Growth Rate |
|---|---|
| Foods & Sundries | Low to Mid Single Digits |
| Fresh Foods | Mid to High Single Digits |
| Non-Foods | Mid to High Single Digits |
| Ancillary Business | Up Mid-20s |
