Costco cracks down on membership sharing

The success of Costco’s business model relies on rigor. The wholesaler, using a membership system, strictly monitors inputs and outputs and double-checks customer receipts.

But for friends and relatives of members, there was a well-known hack to score Costco’s low prices without paying an annual fee: the self-checkout lanes. Some users found that they could borrow a membership card, or a member’s QR code from the Costco app, and avoid the identification requirements of the regular checkout lanes.

That solution is coming to an end. The company said in an emailed statement on Wednesday that it had noticed non-member shoppers using someone else̵[ads1]7;s membership card, which Costco policy says is non-transferable, in the self-checkout areas.

“We now ask to see your membership card with your photo at our self-service checkout registers,” the company explained, adding: “If your membership card does not have a photo, we ask for photo ID.”

Costco is beloved by consumers for its $1.50 hot dog-and-soda combo, towering rows of affordable bulk items and its signature Kirkland brand products — everything from linens to liquor. A regular membership costs $60 a year, and an executive card costs $120 a year.

Katie Thomas, who heads the Kearney Consumer Institute, a management consulting firm, said it was a “not unreasonable hack” for occasional customers to borrow a friend’s Costco card or QR code, adding that she believed it could lead to new paid memberships . Thomas said she herself was recently scolded by a Costco for using her mother’s membership card, even though she said she was also a member.

Costco said in its statement that it was “able to keep our prices as low as possible because our membership fees help offset our operating expenses, which makes our membership fee and structure important to us.”

The retail market has grown tighter, said Neil Saunders, managing director of retail consultancy GlobalData, who speculated that reasons for the decline at Costco may include increasing pressure on corporate margins and rising costs of raw materials, labor and overhead for wholesalers.

“They probably turned a blind eye while growth and everything looked rosy,” he said, but is tightening in a tougher economic environment.

Although Costco faced supply constraints and labor shortages during the pandemic, it reported strong operating results for 2022 in an annual report that also boasted new items including “BBQ pellets, women’s jeans, reformulated dog food, sauté pans, fresh mini cakes and chicken yakisoba.”

The company also reported that it had nearly 119 million cardholders last year. Revenue from those membership fees was $4.2 billion in 2022, up 9 percent from 2021. Costco’s net income was $5.8 billion last year, the company reported, up from $5 billion in 2021.

“You see the importance of the membership model,” Mr. Saunders said.

The membership renewal rate was around 90 percent worldwide in 2022, the company said. Costco hasn’t raised the cost of its membership since 2017, but executives indicated in a recent earnings call that costs could increase.

Thomas pointed out the clear parallel to Netflix, which announced last month that it would begin kicking people off the service if they used someone’s account for more than 30 days while in another location, attributing the action to changing economic forces and increased competition .

Costco said Wednesday, “We do not feel it is right that non-members receive the same benefits and prices as our members.

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