Wall Street has some concerns about Costco's (COST -0.49%) business. The warehouse retailer is seeing a sharp demand pullback in consumer discretionary categories like electronics and home furnishings as shoppers have become more cautious in their spending.

On the bright side, Costco's shopper traffic levels are still rising, even if members are spending less money during each visit. But the retailer's customer satisfaction is also at an all-time high, as evidenced by its record renewal rate.

Let's take a closer look at this positive trend bolstering Costco's business in 2023.

The latest figures

In late May, Costco revealed that comparable-store sales in the U.S. rose just 2% in the quarter that ran through May 7. The company joined fellow retailers like Target in reporting much weaker demand for big-ticket discretionary categories such as jewelry and home furnishings. These niches contracted by 20% in Costco's e-commerce channel and by 17% in its warehouses.

But shoppers are still frequenting its stores. Customer traffic was up 5% across all of its markets and rose 3.5% in the core U.S. division.

"Traffic or shopping frequency remains pretty good," CFO Richard Galanti said in a conference call with analysts.

Still setting records

Costco's renewal rate is even better. A full 93% of members chose to renew their annual subscriptions in the U.S. market in fiscal Q3, matching the all-time high that the company set in the previous quarter. Combined with the rising traffic metric, this renewal rate shows that customers believe they are getting lots of value from their subscriptions.

This is important because Costco is primarily a membership club, not a retailer. Subscription fees power most of its annual earnings, and those charges grew to 2% of sales in fiscal Q3 from 1.9% of sales a year ago. Fee income is due for a big boost over the next few quarters, too, as Costco considers rolling out its next increase to the annual subscription charge.

Looking ahead

It will be easier to raise membership fees when traffic is strong and renewal rates are high, as they are right now. But investors shouldn't expect the higher fees to translate into much stronger earnings. Instead, Costco prefers to keep its operating income level at around 3% of sales while using any excess fees to lower prices and, in turn, drive higher sales.

Executives highlighted how this virtuous cycle helped Costco boost market share in a tough economic environment.

"We feel very good about our competitive position," Galanti said in late May.

Costco's business is tilted more toward the type of big-ticket transactions that consumers are avoiding right now than peers like Walmart. This factor might keep pressure on comps over the next few quarters relative to some of its rivals.

But the main driver of long-term sales growth -- namely, customer satisfaction -- is stronger than it has ever been. That's one big reason why shareholders can feel confident about Costco's earnings prospects during the current slowdown and through whatever economic environment develops in late 2023 and beyond.