Costco (NASDAQ:COST) usually hovers around a 90% member retention rate. It's easy to justify spending $60 for a Costco Gold Star membership, or even $120 for an Executive card, which comes with the promise of cash back; either membership feels like a passport to savings, an admission ticket that opens the door to a club full of values.
That's true, of course, but it's only part of the Costco story. Your membership can be a way to save money -- but it can also be a big waste of money. For many people, joining the warehouse club makes sense, but there are reasons why you should not renew your membership.
1. You just never go
I've had a Costco card in my wallet for the past few months, and I've used it exactly once. That's because even the closest location isn't all that close to where I live.
When I joined the club I assumed I'd find reasons to visit regularly. In reality, the promise of saving has not been enough to justify the roughly half hour drive, so, at least so far, my membership fee has mostly been wasted.
2. You're impulsive
The merchandise at Costco changes regularly. You might find a deal on winter coats on one visit, and a sale on pool accessories the next. If you're the type of person who buys a kayak because the price seems really good -- even though you don't live near a body of water -- then a membership may be a bad idea for you.
3. You're picky
Costco has a limited selection when it comes to food. It has a handful of kinds of cereal, for example, when a regular grocery store might have dozens of choices.
If you're very selective about the brands you buy, a warehouse club may not be right for you. Saving money at this type of store requires a bit of flexibility and being willing to buy whatever brand happens to be on the shelf.
4. You're a Prime member
Warehouse clubs offer good prices, but they're not all that much better than those offered by Amazon (NASDAQ:AMZN). If you already have an Amazon Prime membership, which offers unlimited free two-day shipping, it may not be worth it to spend the extra money to join Costco.
Yes, you might save a few pennies more, but you would be paying an extra membership fee for a smaller selection at a store where you have to buy in large quantities. That's probably not worth it for most people.
Check out the latest earnings call transcript for Costco.
Use it or lose it
Joining Costco offers more than just low prices. It's also fun (for some people) to see what the chain has on each visit. That's a form of entertainment that helps justify the cost of a membership for many people.
If you use your Costco membership on a monthly or better basis, it may be worth it even if the numbers don't quite work out (or you're OK with sometimes ending up with a tub of something you don't really need). Deciding to join or renew should factor in both the potential savings you will reap and the other benefits you get -- things like cheap meals in the food court, travel benefits, and other services. Once you understand the full picture, you may decide that the cost for "saving" money is actually too high.