Costco (COST 1.01%) has become the most successful warehouse retailer, enjoying higher comparable sales growth and member growth than rivals and peers. The company also maintains extremely high member loyalty with renewal rates consistently in the ballpark of 90%. Costco has done so by putting the customer at the center of everything it does, while also paying employees above-market rates for the retail industry to attract the best talent.
Costco offers Gold Star and Business memberships. Gold Star memberships are for individuals, while Business memberships are for businesses. Both categories are able to upgrade to Executive memberships that offer rewards on qualified purchases. Business memberships are able to add additional cardholders, and all paid memberships receive a free household card. This is why total cardholders are greater than paid memberships.
As of the most recent quarter, Costco had 44.6 million paid members and 81.3 million total cardholders.
Here's a breakdown of Costco's membership since early fiscal 2013.
|
Fiscal Quarter |
Paid Members |
Total Cardholders |
|---|---|---|
|
Q2 '13 |
37.9 |
69.1 |
|
Q3 '13 |
38.3 |
69.9 |
|
Q4 '13 |
39 |
71.2 |
|
Q1 '14 |
39.8 |
72.5 |
|
Q2 '14 |
40.3 |
73.4 |
|
Q3 '14 |
40.9 |
74.6 |
|
Q4 '14 |
42 |
76.4 |
|
Q1 '15 |
42.5 |
77.5 |
|
Q2 '15 |
43.2 |
78.7 |
|
Q3 '15 |
43.7 |
79.6 |
|
Q4 '15 |
44.6 |
81.3 |
Source: SEC filings. Member figures in millions.
The warehouse retailer's fundamental business model absolutely hinges on customer satisfaction. Membership fees comprise the majority of Costco's operating income, so those annual fees are really where Costco makes its money. The gross profit that Costco generates on goods and services mostly just pays for its operating expenses, and the company's modest markups and affordable prices are precisely how it delivers value to its members to keep them happy and renewing every year.
