What Is a Costco Membership Really Worth?

Costco (NASDAQ: COST  ) , Sam's Club of Wal-Mart  (NYSE: WMT  ) , and privately owned BJ's Wholesale offer over 1,475 membership-only warehouse club locations throughout the world. In contrast to much of the rest of the retail industry, Costco has continued to outperform while increasing its membership and net sales annually. This is despite the pressure from online retailers like Amazon.com (NASDAQ: AMZN  )  on the retail industry. Going forward, though, what is a Costco membership really worth?

What is a Costco membership really worth?
Costco's fiscal year 2014 first-quarter earnings report showed that net sales rose 5% to $24.47 billion as comp sales increased 3% overall. On a year-over-year basis, membership fees for the first quarter jumped to $549 million, up from $511 million in FY 2013's first quarter.

Despite the 7.3% increase in membership fees, these fees account for just 2.24% of sales for Costco. To better understand the real value of a Costco member and how the typical member measures up to a member of its biggest competitor, Sam's Club, look at the table below:

 

Costco

Sam's Club

Total Membership

72,500,000

47,000,000

2013 FY Net Sales

$102,870,000,000

$56,400,000,000

Net Sales Per Membership

$1,418.90

$1,200.00

Source: Costco and Wal-Mart's latest earnings reports and presentations.

The table shows that each Costco cardholder generates over $200 more in net sales annually, on average, than the typical Sam's Club member. However, the following table may be the most revealing as it shows that the average Costco member has become more valuable to the company.

 

Costco FY 2010

Costco FY 2013

Total Membership

58,000,000

72,500,000

Net Sales

$76,255,000,000

$102,870,000,000

Net Sales Per Membership

$1,314.74

$1,418.90

Source: Costco's earnings reports.

Not only is Costco leading Sam's Club in net sales per membership, it is beating its own result from FY 2010 by over $100 in net sales per member on an annual basis.

Two other factors to consider regarding Costco membership are renewal rates and membership levels. Overall renewal rates are at an all-time high of nearly 90% while Executive members (the most expensive membership level at $110 annually) represent 38% of all cardholders. More importantly, Executive membership has represented 38% of all cardholders since 2011.

Costco's membership magnet is named 'Gasoline'
On the surface, recent earnings showed that Costco's gasoline profit was slightly lower. However, gas stations have been key in driving customer frequency. Traffic last quarter was up 4.5%. By comparison, Sam's Club traffic was up just 2.4%.

During the recent conference call, CFO Richard Galanti stated that while gasoline profits fluctuate throughout the year, on a YOY basis gasoline is always profitable for the company. The average Costco gas station generates far more annual revenue than the typical gas station:

 

Costco Gasoline Stations

Rest of Gas Station Industry

Total Stations

414

121,446

Total Revenues

$11,200,000,000

$249,000,000,000

Revenue Per Gas Station

$27,053,140.10

$2,050,293.96

Source: Costco's earnings and gas station industry statistics .

Competition from Sam's Club, BJ's, and Amazon
Wal-Mart's recent earnings showed that the company continues to struggle with its profit margin. The outlook for Sam's Club is expected to range between flat and 2%. One of the problems Sam's Club has is its relationship with Wal-Mart. The Wal-Mart brand is known for its low prices, and to some extent, its quality. Customers that aren't fans of Wal-Mart may choose Costco instead of trying Sam's Club.

While BJ's Wholesale is ranked third behind Costco and Sam's Club, the chain only occupies 15 states. This puts the company at a huge disadvantage in this sector as it will likely lose ground to both Costco and Sam's Club in the future.

During the conference call, Costco acknowledged Amazon.com as a real competitor. Amazon.com continues to increase the number of products that are available in bulk on its website at competitive prices. Some products are even available for lower prices than what Costco charges. Amazon.com is also expanding its Amazon Fresh business that offers fresh foods.

However, Costco has a better competitive position versus Amazon.com than the majority of retailers. Until Amazon.com is able to offer one-hour photos, pharmacies, fresh foods in bulk, or gasoline, Costco's business model is safe.

Costco stores can get a lot bigger
Costco's ancillary businesses have been a staple of success for the company. Even though its food courts and photo centers are in nearly every Costco location, it only has 414 gas stations among the 649 warehouse locations it expects to have by the end of 2013.

Credit: Costco presentation.

Additionally, other ancillary businesses are expanding such as car washes and travel. Costco can choose to break even on its car-wash business in order to attract customers to the main warehouse. Furthermore, Costco's travel services can disrupt the nearly $600 billion leisure-travel industry within the US.

Bottom line
Glassdoor.com recently placed Costco 16th in its 2014 Best Places to Work rankings putting itself ahead of popular companies like Intel, Apple, and Starbucks. This may be the most telling part of the Costco story. If its own employees love working there, that could be the biggest reason why customers continue to join. In the end, the value of a Costco membership continues to increase because satisfied employees go a long way toward creating satisfied customers and driving net sales higher. This pattern is priceless.

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  • Report this Comment On December 21, 2013, at 12:29 PM, AjaxofTelamon wrote:

    Some thoughts:

    a. I am not sure we have an apples to apples comparison of Costco with Wal-Mart here because Sam's Club is a subsidiary of Wal-Mart and this is frankly confusing things.

    b. Net Sales for example for Wal-Mart for FY 2013 are US$466.1 billion Vs $76.3 billion for Costco. Your article shows that Costco's sales are double that of Sam's Club which even if true, in the big picture could be misleading.

    c. By the way, I do not have an interest in either Wal-Mart or Costco and personally do not care to pay a membership fee to anyone in order to shop - In my thinking for most people this is not worth it.

    d. As an aside, can we have "a Costco is a great company and a great stock" article without bashing Wal-Mart? To be honest, this looks like another "me too" article for Costco.

  • Report this Comment On December 21, 2013, at 12:37 PM, Mathman6577 wrote:

    I agree -- I had enough of the Walmart bashing. (I could come up with a list of things that is not flattering for Costco).

  • Report this Comment On December 21, 2013, at 1:24 PM, gjburton58 wrote:

    Truth is, a Costco membership is well worth $55 a year. Costco's basic membership is a better deal than Sam's Club Plus membership. You pay extra for coupons on items you may not even use. In most cases they hope you will purchase these items. I've found Costco's gas prices to be excellent, and a few cents of extra savings at the pump add up real quick in a year's time. Sam's Club plus membership was $100 a year. Costco mails you coupons you can use in the store, and in addition coupons to use online. I was a Sam's Club employee a while back, and the happiest day I had was when they fired me, because I didn't sell enough credit cards, and membership upgrades. The day my niece got her Costco membership, what they saved on 1 item paid for it. I only wish we had a Costco in our area. The closest one is over 5 hours away. You can actually enjoy shopping. It is fun. At least there is room to move around. Which reminds me, I have to renew my Costco membership!

  • Report this Comment On December 21, 2013, at 1:26 PM, TommyPeligro wrote:

    It the weekend. Yahoo's writers must moonlight here.

  • Report this Comment On December 21, 2013, at 1:41 PM, radily wrote:

    The day will be a sorry day when I have to pay money, just to get in the door to spend more money. I can show you hundreds of stores who have lower prices than does Cost Co. As for gasoline, Safeway Grocery store is anywhere from $0.50 to $2.00 a gallon cheaper and all you have to do is buy their products. But, that's whats wrong with this world. The majority of people are stupid. Look at who they voted into the office of the US president. - Richard

  • Report this Comment On December 21, 2013, at 1:53 PM, mikecart1 wrote:

    AjaxofTelamon,

    Thanks for reply. I separated the financials that were provided for Wal-Mart and focused on just the Sam's Club portion of the overall Wal-Mart company. IMO, this is the best comparison for Costco because there are just 3 major warehouse clubs in the country and BJs isn't a fair comparison.

    I think you have a point about memberships overall but the statistics show that more and more people are becoming members of these warehouse clubs. Sometimes perception is reality and if customers perceive they are getting a deal, then they will continue to join. It is similar to Black Friday and the perception that goes along with that event.

    I don't feel I necessarily bashed Wal-Mart or Sam's Club. I just used Sam's Club to put into perspective of the value of a Costco membership.

  • Report this Comment On December 21, 2013, at 1:59 PM, mikecart1 wrote:

    gjburton58,

    Thanks for reply and your experience/input with both companies.

    radily,

    Thanks for reply. While many grocery stores like Safeway offer gas perks and discounts, for some people, I think Costco offers convenience of cheaper gasoline without having to wait for rewards to build up.

    For others, Costco just offers other things like big electronic purchases at decent prices and other ancillary businesses that attract people to become members.

  • Report this Comment On December 21, 2013, at 2:14 PM, 2433 wrote:

    I used to have a Costco membership, but we moved.(still have one with-in 20 miles) I have since been able to find great deals other places. It seems that Costco shoppers are just sheep, buying whatever Costco tells them is the best deal.

    I was with a friend as she raced in line, and waited 10 min. to rush and fill her gas tank..hurry now people are waiting. All for 40 cent savings on 11 gallon tank. No Thanks.

    Costco wants you follow the program, and not think for yourself, and lots of people like that. It's just not for me anymore.

  • Report this Comment On December 21, 2013, at 2:41 PM, Oneolddude wrote:

    Where I live both Costco and Sams Club have been infiltrated by millions of shoppers that have moved here from south of the border. I am not against them shopping there. Now, if they would just leave their children home when they do. I no longer have a club card. There is a place that you can get just as good value as these to places and it is free to shop there.

    I shop at Smart and Final.

  • Report this Comment On December 21, 2013, at 3:34 PM, johnscreeden wrote:

    Actually, If you do some simple math you will find that the Costco membership is a good deal. I have an Executive Membership tied in with an American Express Costco Card. Between the 3% discount and the Costco rewards, the card pays for itself each year with a little left over for me. We only get gas at Costco (it is close) so we save all around. We only buy what we need and after much price comparing we find Costco to be a good value for most things.

  • Report this Comment On December 21, 2013, at 3:34 PM, Ronmc2 wrote:

    Another veiled effort to bash Walmart during the Holiday Season, under the guise of a Warehouse Comparison, by Spinning Liberal Facts(Half-Truths, i.e. Facts with an Agenda). Costco "Traffic last quarter was up 4.5%.", but comparing 2010 to 2013, it is up 2.67% per Year.

    Since the writer insists on the Costco/Walmart comparison, Walmart hires Seniors & high school dropouts, but Costco REFUSES. So while Some Walmart employees are on Gov't Assistance(Like Seniors, who ALREADY qualify, but they're included in the Stats), Costco Refused Applicants are still on Full Welfare(but that can't be quantified). So who is the REAL Bad Guy?

    Why not a comparison of Sam's & Liberal Media Darling Target? Target sells the Same % of Chinese Goods, Same Payscale, and ALSO NonUnion like Walmart. But that wouldn't further the Liberal Agenda.

  • Report this Comment On December 21, 2013, at 4:28 PM, Mathman6577 wrote:

    @Ronmc2: The left-wing usually never writes anything positive about Walmart because of the company's anti-union policies and tends to write positive things about Costco because its management and board members usually donate to left-wing candidates.

  • Report this Comment On December 21, 2013, at 5:42 PM, NoahBaade wrote:

    The question that the headline poses isn't answered in the article. To do so, someone would need to identify the annual cost of items 'typically' bought at Costo & compare them to their cost elsewhere. If the savings are more than the annual membership fee, membership is worth it; if not, it isn't.

  • Report this Comment On December 21, 2013, at 5:54 PM, HDphoto wrote:

    I am single and I don't have a Costco card or a Sam's Club card. But I have shopped Costco years ago with my own card and the last year with a neighbor friend who is a member. They really do have some great money saving prices and deals that I can see would pay for the card for even a small family. I think I will get a Costco card in 2014 and it will pay for itself the week I get it because one deal I have found is that the automobile insurance through Costco is much less for me than anywhere else. They even gave a $100 credit towards Costco purchases when you switch to their auto insurance. So, right there, the Costco card would save me about $50, PLUS the lower premiums I would get for my car insurance. So, to those who say the Costco card is not worth it, I can see some of your points, but you really need to do a little more investigation and go into a Costco, and also look at the online Costco specials, to really check prices and see the many deals that are available that would save that $55 membership fee. (I think you can even get into a Costco to buy things at the pharmacy with out a Costco card.) Eye exams and glasses can also be a great savings through Costco. I especially like some of the high quality food products that can't be found easily in regular grocery stores. I have asked a few Costco employees how they like working at Cosco and so far the they all tell me they really love it! One guy's story almost had me going to the office then and there to fill out an application! (I had enough work already, but I would consider it if I needed another job!)

    I also wonder (just sayin!) if you invested $2000 in Costco stock today, and collected the dividend and had an appreciation in the stock price say over the next 7 years, what would that be worth towards any member fees and also towards a purchase or two... after the 7 year investment?

  • Report this Comment On December 21, 2013, at 9:55 PM, Carmen wrote:

    I refuse to pay a membership fee to shop and get "good deals" and stand in line at the register. I'll just shop at my local grocery store, where I very rarely have to stand in line and if I do, it's usually not more than a couple of minutes, plus I'm not supporting some monster big box store, but a mom and pop store. I have a friend that has a Costco card and I would occasionally go with her, as long as you know what the cost is at the average store, Costco may or may not be the cheapest.

    As for Sam's Club, I absolutely refuse to have anything to do with anything owned by the Waltons.

  • Report this Comment On December 21, 2013, at 10:02 PM, RLLH wrote:

    Currently we are Sam's Club members because it is an hour closer than Costco. We were VERY happy when we read Costco was building a new store close by. Sam's Club employees seem very unhappy to be working there, and it shows. Costco is a whole different world than Sam's Club. One we hope to soon be part of.

  • Report this Comment On December 21, 2013, at 10:40 PM, billykruze wrote:

    I have been member of Price Club Signal Hill ever since It open its door, I remember membership was only $25.00 thru GTE Co. and it was a promotion. Their are original employees still working for the warehouse. The best thing their Hot Dog is still $1.50.00 after all these years.

  • Report this Comment On December 21, 2013, at 11:16 PM, EmpiricL wrote:

    I'm curious why people get so emotional about these club memberships when the only things that matter to me are availability, convenience, cost and value. I shop many stores in my area as well as online, and the best deal for me gets my business. Many times that's Costco; many times it's not. That takes into account Costco's annual membership fee. For my needs over the past year, items I've done best with at Costco include gas (most of the time), alkaline batteries, dog treats, certain cleaning supplies, lobster tails, cashews, maple syrup, pancake batter, spaghetti sauce, grated Parmesan cheese, olives, many over-the-counter meds, some paper goods, pet heartworm medication, certain electronics (TVs in particular), sunglasses, power toothbrush refills, drinking water filters.

    A lot of stuff like large packs of grocery items are no good for me because they'll spoil before I use them up. Availability can be a problem because they will delete items from their stock list without warning. The latest casualty was their most popular variety of Orville Redenbacher popcorn.

    I can do just as well or better pricewise at other local outlets for these items: tires, quality meats, produce, dairy, beer, wine and liquor, some refrigerated and frozen prepared foods, office products. Online has the best prices for books and computers.

    The lesson? Don't get your panties in a twist loving or hating anyplace you shop. Do the numbers and comparison shop to get what you really want at the very best price.

  • Report this Comment On December 21, 2013, at 11:24 PM, rlwmarine wrote:

    Costco hires the disabled, often as ingress/egress checkers, I'm averaging 20cents a gallon on regular gas here in the Nashville, TN area.

  • Report this Comment On December 21, 2013, at 11:27 PM, Afterberth wrote:

    I currently have both Costco and SAMs memberships (for the past 5 yrs) but I won't be renewing SAMs. Costco is just a much nicer store with better quality items and their return policy and extended warranties are much better than what I've experienced at SAMs.

  • Report this Comment On December 22, 2013, at 2:09 AM, flipgsx wrote:

    Someone in this discussion isn't sure if apples to apples are being compared here because he's clearly looking at Walmart's numbers. If course that number of sales will be much higher. Everyone knows that Walmart is the #1 retailer in the U.S. But they also have a wholesale part of their business "Sam's Club" (apple) and they are comparing them to Costco (the other apple) Costco does not have a retail market. That would be like trying to compare 7th against the whole Coca Cola company instead of comparing to only Sprite which is a "subsidiary" of Coke. You need to be able to compare your business to the same concept of business. It seems that the writer had done the work for you in order to compare apples to apples.

    For those of you that day they are tied of the "Walmart" bashing. I don't here you defending them either. Yes no company is perfect. You can always find something bad about any company. You can always find better deals. But it's really hard to find the same quality product that Costco offers at its prices. Not to mention having all those deals within the convenience in one place. I had both Sam's and Costco's memberships. I dropped Sam's after the first year due to their poor service and messy stores. My membership pays for itself. They must be doing something right.

    As far as Walmart being anti Union, that is true although Costco's original Price Club stores are unionized. Costco has no such anti Union policy. It would be up to the employees of they wanted a union. Obviously Costco treats theirs their employees well enough that they don't want a union. Have you are how much money an employee pays in Union dues? Is outrageous.

    And I don't know about you, but if I have a company and want it to grow, why in the world would i hire a high school drop out? And I know it's not true that they don't hire you because you are on welfare. That statement is totally false.

  • Report this Comment On December 22, 2013, at 5:08 AM, Bigwave2003 wrote:

    I don't know the politics of the writer or Costco, but I know people posting here who throw around terms like "liberal media" and "left wing" and have to say something negative about "Obama" in the middle of a conversation about warehouse shopping clubs -- those people are pushing a very obvious political agenda.

    Walking through WalMart or Sam's Club is a fright show. It starts with the folks living in their recreational vehicles and cars in the parking lot to the confused employees to the down-on-their-luck customers.

  • Report this Comment On December 22, 2013, at 8:25 AM, hjwilson wrote:

    This is an interesting article, however, to make it just a little bit more on the true side side you need to take out the number of members the are employees of both wal-mart and costco.

    then you should look at the income range of those that shop at the different companies.

    this would give you a better idea of just who is shopping where.

  • Report this Comment On December 22, 2013, at 6:29 PM, dgotshalk wrote:

    The Reason Costco does well is its unique non- competitive purchasing strategy. Their buyers are trained to shop the hotest selling items from any retail location in the world. Go to the supplier of that item, no matter how exclusive the brand and create one of the following: 1. an item that might be close enough cosmetically to attract but not close enough for other retailers to complain. Offer a purchase that is very profitable and meaningful but not competitive with other retailers of that brand. When you shop Costco a purchaser sees items that are the pre sold brand but not an item that can be purchased elsewhere. When that item can not be purchased in that manner they purchase it unbranded or with their own Kirkland Brand in a manner that the supplier knows will not destroy the value of their trademarked brand. It takes creativity, detail, research, and the purchasing power that Costco gets better and better at as time goes by. Target, Kohls, Walmart, and other similar retailers are not in a position to copy that strategy because their key merchandising strategy emphasis is on assortment. Costco's strategy is on key items. Sharp consumers have recongnized that every item, whether bundled or not, that Costco sells is fair value priced 100% of the time.

    Sale signs are almost non existant. The five time cost retail common in most regular assortment department stores, to enable 25% to 50% off everyday sales, are non existant. Its a much different, much less competitive environment.

    a fair value or better.

  • Report this Comment On December 22, 2013, at 6:31 PM, leftybolero wrote:

    Joining Costco is your choice, for whatever reason. Our store does not have gas pumps, and our yearly refund reward is only about $6-8$. But you can return products with no problems. And frankly, the people there work their asses off at the registers. Sales in the Billions? A good business model! Decide, your choice!

  • Report this Comment On December 23, 2013, at 7:54 AM, laserlvl wrote:

    There is another major difference missing from this article. Costco pays its hourly workers an average of just over $20 an hour, compared to just under $13 at competitor Sams Club. Costco workers get 40 hrs per week and health benefits. Sams workers get 35-40 hrs per week and no health care, and they are a burden on the local welfare system.

    Costco proves that you can treat your employees with respect and still make money.

  • Report this Comment On December 23, 2013, at 7:19 PM, cmalek wrote:

    The article shows what Costco membership is really worth to the stockholders and to the company, NOT to the members.

    I have shopped Costco, Sam's and BJ's and have found that, for our family, BJ's offers the best value when all factors are considered. Whether the employees are unionized or not, is of no interest to me. Let the activists and the bleeding-hearts worry about that. My main concern is getting the lowest prices on the items I buy.

  • Report this Comment On December 23, 2013, at 7:31 PM, bikeboatski wrote:

    To some who say they've had enough of Walmart bashing: Well you better not listen then because there is a lot there to bash! They were a good company when they were young and moving up under Sam Walton but, once they'd achieved market share and put so many small time operators out of business, they got smug and started resting on their laurels. At this point I for one try to find an alternative when I think about going to Walmart. They're so big that I don't think they'll fade quick but fade they will without some major changes.

  • Report this Comment On December 23, 2013, at 9:12 PM, somethingnew wrote:

    I've had a Costco membership for exactly a year now that was a Christmas present and I can say the only real value I see in having a membership is their great prices on gas. I drive about 300 miles a week for my job so this is a great incentive otherwise I wouldn't renew my membership. It is well well worth the $55 a year for me. On the other hand their store is another story. I have went into Costco numerous times mainly to use the bathroom or get free samples and the times I've roamed around the store and calculated the prices on their items on my way to get the free samples have convinced me you can get those same products and near the same quality elsewhere if you go with generics. I do almost all of my grocery shopping at Walmart and Aldis and have bought a grocery item only twice at Costco since I've had my membership and both times I could have got it for the same price or cheaper somewhere else but I got it for convenience because I was there. That's not to say someone that has 5 kids and likes to shop the better brands might not gain value from their grocery items but me being single -I just can't see the value. I also don't like the atmosphere inside Costco -too many people crowding up the aisles with those humongous grocery carts packed with giant flat screens and jumbo boxes of dog food. When I have browsed the store I feel like I'm in a giant video game where my object is to get through a giant maze and dodge kids and the elderly. It's not a very pleasant experience for me. As bad as Walmart is with their ailes, they're nothing compared to Costco. The one other thing I do like about Costco though is their cheap $2 deli pizza which because I'm always on the go around town makes a great to-go food when I'm in a pinch for time. That alone would not be enough though to renew my membership. Only the gas is worth it for me to renew it.

  • Report this Comment On December 26, 2013, at 12:56 PM, Redshield wrote:

    If you take the time and go into the different clubs the answers are in front you.

    For years we have had both a Costco memberships and BJ's Memberships. Both are warehouse clubs but they are quite different in many ways. The foot print of the Costco WHS is larger than a BJ's. At Costco the lighting along with the presentation of product is fine tuned compared to BJ's. Both are warehouse clubs but their sight lines throughout the store are different. It seems like the house keeping is an octane higher at Costco.

    Next time you walk into a Costco look around at what you see vs at a BJ's WHS CLUB. Keep in mind that the average consumer takes 8-12 feet for their eyes to adjust from the change going into the store . When you compare how BJ's lays out their threshold verses how Costco does it, this should be a prelude for your understanding why Costco does the numbers.

    As for perception Costco hasn't lost it's sizzle factor throughout the store. A previous blog mentioned that they still maintain $1.50 for a hotdog and drink which is such a give away but it's a brilliant tactic because that's the last purchase the consumer makes before leaving the store.

    Were is the cheapest place to buy a quality hearing aid or pair of glasses? Costco. When it comes to food Costco prices run about a couple of percents lower than BJ's, but BJ's has a larger selection.

    In my opinion the numbers tell the story and there is no substitute for not doing your homework, so make the trip to the different clubs and figure it out for yourself!

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