If you want to shop at America's second largest retailer (behind Wal-Mart), you'll need something in addition to money: a membership card.
Costco (NASDAQ:COST) operates a subscription business model whereby it uses annual fees, rather than product markups, as its main source of profits.
That unusual approach is resonating with shoppers these days. Costco's sales are up 7% through the last nine months, compared to 2% at Wal-Mart. And there are thousands of Wal-Mart stores around the country, compared to just 500 Costco warehouses. So, just how many Americans are members of this exclusive club?
How many members
The answer isn't as simple as you might think. Yes, Costco announces its number of paid subscribers every quarter -- that figure stood at 44 million households as of the end of May. But the official number has two drawbacks. First, it includes international members. And second, it doesn't reflect the fact that each Costco subscription covers more than one person.
So, this will take a bit of estimating, but stick around -- it's worth it.
We know that over two-thirds of Costco's stores, 474 out of 672 warehouses, are located within the United States (71%, to be exact). That ratio matches precisely with the company's mix of domestic and international sales. Costco booked 28% of revenue from international markets last year and 72% here in the U.S. Apply that 72% proportion to the global member base and we get an estimate of 32 million paying U.S. members. Finally, we can safely double that number because each paid subscription comes with an additional household card.
By that count, there are around 64 million card-carrying Costco members in the country, translating to 26% of all adult Americans.
Why it matters
It's clearly good for business that the warehouse giant can claim a full quarter of the country as members. That hefty subscriber base is why Costco can book $100 billion of annual sales even though it has a relatively tiny store footprint.
But more impressive than the current number of members is the fact that the base is growing so quickly: Costco's global membership tally is up 35% in just the last five years:
That boost has helped annual membership fees surge from $1.5 billion to $2.5 billion over that time.
And Costco's domestic renewal rate has also logged several years of steady improvement. In fiscal 2010, 88% of Costco's U.S. members renewed their annual subscription. Last year that figure hit a record high 91% -- despite the fact that it's so easy to cancel a Costco membership.
Good news for investors
As a subscription club first and a retailer second, Costco's membership figures mean more to the business than traditional retailing metrics like sales growth and profit margin. Those stats are important, but they'll improve only as long as the company can deliver increasing value out of its annual membership subscription. Investors should be happy to know that's exactly what Costco is accomplishing, both in the U.S. and internationally.
Demitrios Kalogeropoulos owns shares of Apple and Costco Wholesale. The Motley Fool recommends Apple and Costco Wholesale. The Motley Fool owns shares of Apple and COST. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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