If you've been borrowing a friend or family member's card to score big savings at Costco (COST 0.52%), consider yourself warned.
The warehouse retailer is cracking down on shoppers abusing its membership policies, including using someone else's card to shop at its stores. The move comes shortly after Netflix (NFLX 0.11%) implemented a similar crackdown on password sharing for its streaming service after deciding that too many people were using it without paying.
Netflix had long tolerated that password sharing, believing that those users would eventually become paying subscribers. Costco, on the other hand, doesn't seem to have previously overlooked any abuse of its membership policies, though the company has noticed that as it's rolled out more self-checkout counters, more customers are taking advantage and borrowing cards from members to shop there.
To counter the freeloaders, Costco has stepped up enforcement by checking IDs at registers to make sure the name on the ID matches the name on the Costco card.
According to The Dallas Morning News, the company explained the move by saying: "We don't feel it's right that nonmembers receive the same benefits and pricing as our members. As we already ask for the membership card at checkout, we are now asking to see their membership card with their photo at our self-service checkout registers."
Image source: Costco.
The crackdown worked for Netflix. What about Costco?
After testing its new password-sharing rules in smaller markets, Netflix rolled out the new policy in the U.S., its biggest market, last month, and the results have been encouraging so far.
While the company hasn't officially reported any subscriber numbers, third-party data points to a surge in new sign-ups from the move. According to streaming analytics company Antenna, the company added more new subscriptions between May 25 and May 28 than in any four-day period since at least 2019, when the company first began tracking that data.
It's possible that Costco could also get a modest bump from its crackdown because like Netflix, its service is highly popular and has few good substitutes. The retailer has nearly 70 million member households and nearly 125 million cardholders as of May, and with its rock-bottom prices on quality merchandise, its deals are hard to match.
That shows why, like with Netflix, shoppers are borrowing memberships when they can. Additionally, inflationary pressures may be driving some to shop at Costco in order to save money on groceries, fuel, and other essentials. Costco only charges $60 a year for a membership, so it's likely that at least some of the shoppers being turned away for borrowing a card will sign up for a membership so they can shop at the store.
NASDAQ: COST
Key Data Points
Why it's a smart move
Costco isn't like most retailers. Instead of making money on the products it sells, Costco makes most of its profit from membership fees and sells goods at near cost.
In its most recent quarter, the company made $1.68 billion in operating income, $1.04 billion of which came from membership fees. In other words, Costco benefits more from new members signing up for memberships than it does from its members shopping in the store.
Like Netflix, Costco has also experienced a slowdown in growth lately. After a boom during the pandemic, the company said comparable sales adjusted for currency exchange and fuel prices were up just 3.5% in its most recent quarter and grew only 1.8% in the U.S., And, management has lamented slower sales of big-ticket, discretionary items like televisions.
Cracking down on card sharing won't boost the sales, but it could help lift profits, which is ultimately what matters to investors. At a time when consumers are looking to cut back on costs, it makes sense for Costco to take advantage of its reputation for low prices and grow its membership numbers while its services are in demand.
