Costco to hike membership fees, UBS warns

AUSSIES have fallen in love with Costco, but shoppers have been warned they could soon be coughing up more for their membership fees.

COSTCO shoppers could soon be forking out more for their bargains.

Analysts in the US have predicted that the discount retailer will raise its annual fees by around 10 per cent next year to combat slowing revenue growth.

In a note on Friday, New York-based UBS analyst Michael Lasser said while he couldn’t say for sure whether it would happen, he was projecting solid growth for Costco in the coming year, partly off the back of the expected hike.

“The conditions are in place for Costco to bump up its membership fee early next year,” Lasser wrote. Lasser is predicting the wholesale chain will take its basic membership from $US55 to $US60 and its executive membership from $US110 to $US120.

In the 31 weeks to April 3, Costco reported net global sales of $US68.96 billion ($89.44 billion), an increase of just two per cent from $US67.59 billion ($87.67 billion) during the same period last year.

Costco charges customers a membership fee for access to its warehouse stores, several times the size of a regular supermarket, which sell everything from fresh food to electronics and even petrol.

In the 2015 financial year, Costco made $US2.53 billion ($3.28 billion) from membership fees, representing about 70 per cent of its operating income. In the same period, it increased its membership numbers by six per cent to more than 81 million.

In other words, Costco’s membership fees are almost pure profit.

According to the financial website Motley Fool, Costco has increased its basic membership by $US5 three times in the past 16 years. In 2000, it increased its fee from $US40 to $US45, in 2006 it increased it to $US50, and in 2011 it went up to $US55.

In Australia, Costco has an estimated 150,000 members. Membership fees here haven’t changed since the retailer launched in 2009 — $60 for the Gold Star Membership and $55 for the Business Membership.

Costco Australia hasn’t raised its fees since 2009. Picture: Chris Eastman

An estimated 150,000 Australians have signed up. Picture: Chris Eastman

A Costco Australia spokeswoman couldn’t confirm whether there were any plans to increase fees. “It hasn’t changed since 2009,” she said.

Speaking to The Huffington Post on Friday, Costco executive vice president and chief financial officer Richard Galanti, who spoke to UBS’ Lasser for his report, would not confirm any fee hikes.

“We have not announced if, or when, we would increase our annual membership fee,” he said. “Historically, it has been increased about every five or six years. I would guess that many equity analysts following our company might assume that same pattern.”

Costco currently has eight warehouse stores across Australia and is planning to open three new locations this year — one in Marsden Park in Sydney, another in Brisbane, and another in the Victorian suburb of Epping.

Australian managing director Patrick Noone said next on the list would be “second-tier cities” such as Newcastle, Wollongong and Darwin.

Last financial year, Costco Australia hit $1.324 billion in sales — a massive increase from $878.51 million in the previous year — to take hold of around 1.5 per cent of Australia’s $90 billion grocery sector.

Market research firm IBISWorld predicts Costco’s market share will increase over the next five years as new stores open and consumers warm to the membership model and become aware of the diverse range of low-cost products.

“Membership requirements help to ensure customer loyalty and are likely to assist with continued growth,” IBISWorld analyst Brooke Tonkin said in October.

“Costco has the ability to increase competition for discount stores such as Aldi and for wholesalers through the Costco business membership and its highly competitive prices.”

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