According to the Zhītōng Cáijīng APP, Costco (COST.US), the world's largest chain of membership warehouses, announced on Wednesday that it will increase its membership fees in the United States and Canada by $5 from September 1, with annual fees increasing from $60 to $65. Its higher-level plan, the 'Black Diamond Card Member', will see annual fees rise from $120 to $130.
Costco said the fee increase will affect about 52 million members, with Black Diamond Card members accounting for slightly more than half.
Boosted by this news, Costco's stock price rose more than 2% after trading Wednesday. As of Wednesday's close, the stock has risen 34% this year, outpacing the S&P 500 index.
This marks the first time that Costco has raised its membership fees since June 2017. Investors and analysts have long been waiting for the company to increase its membership prices.
On average, the company raises rates about once every five and a half years, which means Costco was originally expected to raise rates at the end of 2022 or the beginning of 2023.
However, Costco had not raised fees before this. CEO Craig Jelinek had previously stated in an interview that now is not the right time for consumers to deal with high inflation. Richard Galanti, the company's chief financial officer, had also made similar comments in previous earnings conference calls.
Costco relies on membership fees to drive most of its revenue and help keep its commodity prices low. Its competitor Walmart's (WMT.US) Sam's Club raised its membership fees for the first time in nine years in 2022. However, even after the price increase, Sam's Club's memberships are still cheaper, with an annual fee of $50 for basic members and $110 for the higher-level 'Plus' members. At BJ's Wholesale Club Holdings (BJ.US), club members and premium members pay annual fees of $55 and $110, respectively.
Jennifer Bartashus, an analyst at Bloomberg Intelligence, wrote in a report on Wednesday that the price increase was expected, but based on Costco's usual five-year rhythm, it should have happened earlier.
"Due to consumer concerns about inflation and economic prospects, the company has postponed price increases, but those concerns have eased," Bartashus added, predicting that follow-up rates will remain stable after the price hike.
In recent years, American consumers have faced soaring prices across the economy, although the rate of increase has started to slow. Retailers expect inflation to return to more normal low-single-digit levels this year and report declines in some areas, including general commodities.
Considering Costco's membership model, its customer base tends to be wealthier and relatively less affected by the overall industry's sales growth and discretionary spending decline. The company said on Wednesday that US comparable sales excluding gasoline rose 6.3% in June.