If you thought artificial intelligence (AI) has a sizable addressable market, take a gander at the retail industry. Based on estimates from Mordor Intelligence, the global retail industry will grow from an estimated $27.3 trillion this year to about $36.9 trillion by the turn of the decade.
With an addressable market this massive, it should come as no surprise that retail is one of the most competitive industries on the planet. However, there are a handful of retail standouts, including e-commerce giant Amazon, superstore chain Walmart, and of course warehouse club Costco Wholesale (COST +1.59%).
While Amazon and Walmart have (mostly) grown their respective businesses traditionally, Costco is the oddball of the bunch. It's known for its quirky deals, such as the $1.50 hot-dog combo for members, generous return policy, and its penchant for selling one-of-a-kind and unexpected items, such as gold bars and luxury jewelry.
Image source: Costco.
Costco's 79.6 million paying members, as of the end of the fiscal third quarter (May 11, 2025), have come to expect these perks and surprises. But a new rule is a complete game-changer for many of its paying cardholders.
Costco's executive members just earned a lucrative new perk
To shop in one of Costco's more than 900 warehouse locations, you'll need a membership. Approximately 42 million of its paid membership are gold star and business level, which each carry a $65 annual cost. The remaining 37.6 million are executive level, which carries twice the annual cost ($130), but also lays on the perks.
According to Costco, its executive members can earn up to 2% back on most purchases totaling up to $1,250 annually, as well as receive a monthly credit of $10 for eligible delivery orders topping $150. Executive cardholders may also qualify for discounts on Costco travel packages.
The reason the company caters to this group is because they're responsible for the bulk of net sales. Despite accounting for "just" 47% of total memberships, executive cardholders were responsible for approximately 73% of sales during the fiscal third quarter. Keeping these folks happy and sustaining annual renewal rates above 90% is key to Costco's success.
But a newly announced perk for executive members, which was unveiled in June but only fully implemented earlier this week, is bound to turn heads.
On June 11, Costco revealed plans to allow its executive cardholders exclusive shopping hours seven days a week in its more than 600 U.S. warehouses. On weekdays and Sundays, only executive members will be allowed to enter its warehouses from 9 a.m. to 10 a.m., with this exclusive shopping window narrowed to 30 minutes (9 a.m. to 9:30 a.m.) on Saturdays. Though this policy technically went into effect at the end of June, there had been a two-month grace period where gold star and business members were allowed in. This isn't the case any longer.
While some non-executive members have expressed frustration with this new policy, it's a smart move by Costco to put the proverbial carrot at the end of the stick and encourage existing gold star and business members to upgrade.
Image source: Getty Images.
Membership fees are a key ingredient to Costco's competitive edge
Though membership fees aren't the only factor responsible for making Costco such a successful growth stock and phenomenal multidecade investment, they play an undeniably important role.
Groceries act as the primary lure responsible for getting people into Costco's warehouses. However, food and beverages traditionally sport razor-thin margins. Since membership fees flow almost entirely to Costco's bottom line, they can be used as something of a buffer to offset the minuscule margins tied to groceries.
Arguably even more important, membership fees afford Costco a pricing buffer. Management understands fully that members of all levels expect various perks, including prices on most groceries that'll undercut traditional mom and pop shops and national grocery chains. The membership fees Costco receives are one of the reasons it can keep prices on basic need goods so comparatively low. It's something of a repeating cycle that works in the company's favor.
Costco Wholesale's size shouldn't be overlooked, either. When a company has deep pockets, it's often able to buy products in bulk, which reduces the per-unit cost for each item. These lower costs can then be passed along to its members as a key perk to shopping in its warehouses.
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Even though cardholders are likely heading to Costco for groceries and other household necessities, it only takes a handful of higher-margin discretionary purchases for the company to benefit. It also doesn't hurt when members buy Costco's private-label brand, Kirkland Signature, which tends to boast premium margins, relative to comparable products.
There's no denying this formula works. Just over 90% of its worldwide customers renewed their memberships, based on fiscal third-quarter data, with an even higher 92.7% renewal rate in the U.S. and Canada. It also boasts exceptional membership pricing power, with the number of paid memberships growing following a fee increase on Sept. 1, 2024.
There's a reason investors have been paying a traditionally head-scratching (for a retail company) forward-year earnings multiple of 47 to buy shares of Costco stock. Given its array of competitive advantages, and the exceptional loyalty of its shoppers, there's a good likelihood this new perk is going to mint even more executive level cardholders in the quarters that lie ahead.
