Costco Wholesale customers greeted the news Wednesday of a 10 percent membership-fee hike with the aplomb of people who know what they've gotten into.
Costco Wholesale customers greeted the news Wednesday of a 10 percent membership-fee hike with the aplomb of people who know what they’ve gotten into.
Looking up from a red London Fog coat she was eyeing for her 4-year-old godson, Camile Cannady, of West Seattle, said, “Everything is going up. It’s not really a surprise.”
She figures the coat, priced at $22.99 at Costco, would cost at least $50 in a department store.
Cannady and others at Costco’s store on Fourth Avenue South said they will stick with the warehouse chain after Jan. 1, when the annual fee for renewing members will climb $5 to $55 for individual, business and business add-on members in the United States. In Canada, Costco already raised the individual and business add-on fees to $55, and now the regular business fee will go up as well.
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The fee for executive members will jump $10 to $110 in the United States and Canada, and the maximum 2 percent reward tied to that membership will increase from $500 to $750.
The changes will affect a little more than 22 million members, about half of them executive members. Costco has more than 33 million members worldwide. About a third of them are executive members, and they represent two-thirds of the chain’s sales.
“It’s a sign of really hard times all around,” Cannady said. “I see a lot of companies trying to raise prices to keep up.”
Indeed, Costco competitor BJ’s Wholesale raised its membership fee by $5 to $50 in January. And Bank of America just announced a $5 monthly debit-card fee.
For Costco, the fee hike is mostly a sign that five years have passed since its last increase.
The chain charged $25 a year for membership in 1983, when it opened its first warehouse near the current building on Fourth Avenue South. It has raised that fee by $5 every five years or so. Costco has not raised its executive membership fee since that program began in 1997.
“Doing it now does not imply that we believe the economy” has bounced back, Chief Financial Officer Richard Galanti said during a conference call with analysts Wednesday morning. “Things aren’t getting better fast out there.”
Costco released news of the fee increase, which begins Nov. 1 for new members, at the same time it announced a profit of $478 million, or $1.08 per share, for the fourth quarter ended Aug. 28. That’s up 11 percent from a year earlier, and two cents short of analysts’ estimates.
The quarter included an inventory charge of 4 cents a share, because of a requirement that the company revalue inventory if prices substantially rise or fall.
The Issaquah-based chain’s stock fell $1.40 to $80.25 on Wednesday.
Galanti said Costco does not expect a major drop in membership because of the fee increases.
“Historically, we have very little falloff from it,” he said. “We don’t take it lightly…. Every time we do it, we look at ourselves in the mirror and feel that we have continued to enhance the value of that membership by a lot more than that. Maybe we’re fooling ourselves, but we don’t think so.”
Revenue rose 17 percent to $28.2 billion, including an 11 percent boost in membership fee revenue. Costco’s membership renewal rates are above 89 percent in the United States and 86 percent worldwide.
Sales at warehouses open at least a year climbed 12 percent during the fourth quarter. Without the impact of inflation in gas prices and strengthening foreign currencies, revenue at those locations increased 7 percent.
Galanti said Costco’s average sales volume was $146 million a store in fiscal 2011, up from $139 million the year before.
For the year, Costco’s earnings climbed 12 percent to $1.5 billion, or $3.30 per share. That includes an inventory charge of 12 cents a share. Annual revenue rose 14 percent to $88.9 billion.
Costco operates 592 warehouses, including 429 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, nine in Japan, eight in Taiwan, seven in Korea and three in Australia.
It opened 20 net new stores in the fiscal year just ended, including 13 in the United States, three in Canada and two each in Taiwan and Australia.
For the coming fiscal year, it expects to open 20 more new stores, about half of them in the United States. It also plans to reopen a store damaged by the devastating earthquake in Japan.
Nita Dickerson, of Vashon Island, bumped her membership up to the executive level a few years ago, when her family bought a queen-sized mattress and a flat-screen television.
Now she will consider whether the regular $55 membership is enough, “not just because they’re raising the fees, but because I’m trying to re-evaluate everything in our household to save.”
Carl Lovsted, of Mercer Island, who shares an executive membership with his daughter, has shopped at Costco since it first opened and has owned its stock since it went public.
He loves the variety, the prices and the way it treats employees.
“What isn’t going up?” he said of the 10 percent fee bump. “I wouldn’t like it if I saw the CEO was now going to make $13 million, but if they’re taking care of employees and customers, then I don’t object.”
Melissa Allison: 206-464-3312 or firstname.lastname@example.org
Melissa Allison: 206-464-3312 or email@example.com