Every year, news outlets report with varying degrees of shocked glee on the best-selling product at Costco (NASDAQ:COST).
Even though the company does not break down its sales by individual products, a 2012 CNBC special on the chain noted that its biggest seller was something everybody needs -- toilet paper. That report has been cited over and over again. Partly that's because there's a little bit of humor to the idea that something everyone uses -- but rarely talks about -- accounted for $400 million in annual sales in the warehouse club's brand alone.
Now, in 2017, it's very likely that toilet paper remains Costco's best-selling product, but it's also easy to argue that it's not. The chain may sell hundreds of millions of dollars' worth of the much-needed bathroom product, but that pales in comparison to the $2.64 billion the company sold in memberships last year.
Memberships are key
The warehouse club brought in $2.64 billion in fees from selling memberships, according to its 2016 annual report. Even that is a relatively small amount of the total for a chain that had just over $116 billion in sales that year.
Membership sales revenue, however, is an important sign of the chain's overall health. The number has risen steadily each year, from $2.07 billion in 2012 to $2.28 billion in 2013, $2.42 billion in 2014, and $2.53 billion in 2015, before climbing to last year's $2.64 billion.
The chain makes most of its profit from selling memberships (about 75%), and more membership revenue means more members to drive product sales. In 2017, the warehouse club will also benefit from its first U.S. increase in membership cost in over five years.
Under the new pricing, which went into effect on June 1, a basic Gold Star membership has gone up by $5, to $60 per year. The higher-end Executive membership, which formerly cost $110 a year, will now cost $120, but holders will be able to get 2% cash back up to $1,000, instead of the previous $750 limit. The bottom-line impact of these increases will take nearly two years to hit, according to CFO Rich Galanti. During the second-quarter earnings call (registration required), Galanti explained, "The full P&L impact of these increases will be over a 23-month timeline, such that the last group of members to be billed at these new levels will be next May of 2018, with a booking, if you will, of those $5 and $10 increases being recorded over that month, and its succeeding 11 months, i.e., 23 months out."
Breaking down Costco sales
While the warehouse club does not break down its sales by item in its quarterly or annual reports, it does break them down by category.
Toilet paper is a soft-line good, and there's a lot of logic as to why it would be the chain's top-selling single product (aside from memberships). It's bulky, but not heavy, and it's something people would rather not run out of. It's an item that is relatively easy to buy in bulk, provided you have a place to store it.