Walmart's (WMT -0.87%) Sam's Club has been a bright spot for the company in its recent quarterly results. For instance, the membership-based wholesale business saw its same-store sales increase 9.5% in the company's second quarter. This compared to same-store sales growth of 6.5% at Walmart's namesake stores in the U.S.
Now, Walmart's Sam's Club is going to get another boost as the powerful division flexes its pricing power. The membership wholesale retailer is reportedly raising its annual membership fees, according to a report from CNBC.
The move highlights one of the unique benefits of a membership-based grocer model over a typical grocer. And it begs the question: Could wholesale giant Costco (COST 0.59%) follow up with its own price increase, too?
A higher price for better service
Sam's Club Chief Member and Marketing Officer Ciara Anfield told CNBC that the decision for a price increase reflects the heavy investment Walmart has poured into Sam's Club. "We've made investments and we believe our proposition, our membership is now worth more," she said. Improvements in recent years include higher-quality merchandise, more private-label items, and technology investments that help with more convenient shopping like curbside pickup.
Membership fees for the club's base members will increase from $45 to $50 on Oct. 17. Sam's Club's "Plus" membership will similarly see its prices increase by 10%, from $100 to $110.
Costco is due for a price increase, too
Membership wholesale business Costco is similarly due for a price increase. Historically, the company has increased its price about every five and a half years, with its last increase in June 2017.
Costco management, however, has been adamant in its recent earnings calls about saying that they are not ready to raise the price of its membership fees. However, management hasn't ruled it out either. So a price increase could be coming at any moment.
While it's certainly possible that Costco announces a membership price increase soon, investors can't be certain it's on the horizon. Costco's management team is relentless about saving its members money. Indeed, management said in its recent earnings call that it even uses the higher gross profit from the higher prices at its gas business as an excuse to hold retail prices steady when it can. This same discipline toward maximizing membership value seeps into every area of the company's business, from the $1.50 quarter-pound hot dog and 20-ounce soda deal it hasn't changed in price since the 1980s to its $4.99 rotisserie chickens. With a culture like this, management likely won't increase the price of its membership until it's extremely confident that a price increase is justified.
Nevertheless, there is an undeniable precedent of the company raising its prices approximately every five and a half years. So while there is no guarantee Costco will boost its membership fees soon, it's more likely than not that the company will do so sometime before the middle of next year.