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Costco is raising membership fees. Don’t worry, hot dogs cost the same.

Costco shoppers will see their membership fees go up for the first time since 2017, the company said Wednesday, betting the move will boost profits without turning off its loyal customer base.

Starting Sept. 1, Costco Gold Star, Business and Business add-on members in the United States and Canada must pay $65 for annual memberships, up from $60.

Executive members will have to pay $130, a $10-per-year increase. The move will affect 52 million members, “a little over half of which are Executive,” Costco said in a news release. Executive members are offered up to $1,000 in rewards for their purchases. The maximum rewards will increase to $1,250 with the fee hike, the company said.

The fee increase comes despite Costco defending its image as a place to find low-priced bulk goods in an economy struggling with inflation. On an earnings call in late May, Gary Millerchip, the company’s chief financial officer, told investors that Costco’s hotdog-soda combo would continue to be sold at $1.50 — a price that hasn’t changed since the 1980s — a move that won widespread acclaim.

Millerchip also said on the May call that he was not ruling out a membership fee increase, adding that Costco considers raising membership fees every five years or so.

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“Despite inflation, Costco has kept prices low,” said Felipe Caro, a professor at the UCLA Anderson School of Management. “But the membership fee eventually had to go up, and it makes sense to do it now when customers really notice its value. Costco’s stock price went up after the announcement, so the market agrees that it was the right decision at the right time.”

Costco’s shares rose more than 2.5 percent after the announcement.

The company posted net income of $1.68 billion in the 12-week period ending May 12. That figure incorporates the $1.12 billion in membership fees it took in during the quarter. Costco earned nearly $4.6 billion in annual membership fees in the fiscal year that ended in early September, an 8 percent increase from the previous year.

However, the extra fees could hurt Costco’s ability to attract new customers and retain relatively newer members who may not be as loyal as longtime customers, according to Dinesh Gauri, a professor of marketing at the University of Arkansas.

“I do not think they have provided any other offering or new services … to shoppers to justify the fees increase,” he said. Shoppers who are not loyal or who joined recently may consider buying at rivals such as Sam’s Club, Gauri added.

Sam’s Club, a wholesaler like Costco, raised membership fees in 2022. It now charges $50 for a basic membership and $110 for a Plus membership, up from $45 and $100, respectively.

Customers could also switch to rivals that do not require memberships, such as Target and Kroger, according to Gauri. These companies have “stepped up their game” in recent years, he added, while offering what he views as stronger pickup and delivery options than Costco.

“If anyone does not need membership, they may not miss much,” he said.

Source: washingtonpost.com

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