Costco (COST) - Get Free Report has a very simple business model. It sells memberships in exchange for offering members a low-cost, no-frills shopping experience.
People pay in order to access the chain's warehouses. Those membership fees provide a significant portion of the chain's profits, allowing Costco to sell its limited selection of merchandise at a lower markup than its rivals.
Membership, however, is the key piece of the puzzle. The warehouse club works hard to offer its members excellent value so that they continue their membership year after year. That's something that Costco has been very effective at.
"In terms of renewal rates, at first quarter-end, our U.S. and Canada renewal rates were 92.5% compared to 92.4% a quarter ago," CFO Richard Galanti said during the warehouse club's first-quarter earnings call. "And worldwide rate came in both at this quarter-end and the previous quarter-end, the same level at 90.4%."
Those are stunning numbers for a company that relies on memberships. It's a unique business model compared to most retailers and it's one that relies on one clear rule.
You Can't Shop at Costco Without a Membership
Costco's business is selling memberships. That means that the company does not allow non-members to shop in its stores. You can enter a Costco without a membership card, but you are not supposed to be able to check out if you don't have one.
That's something that the company has been taking strong efforts to be protective of.
A video was recently posted to TikTok of a woman who attempted to check out at Costco using her mother's card. Technically, that's not allowed as people living in the same household must each have their own card and family members who don't share an address must get their own memberships.
"The video includes an on-screen caption, 'When you use your mom’s Costco card and it declines for ‘fraudulent activity.'' The video pans over a full cart of Costco items, a self-checkout station with a digital sign reading, 'Please wait, help is on the way,' and someone -- presumably the creator—giving a thumbs-up that is most certainly sarcastic," The Daily Dot shared.
A number of commenters on the video shared similar experiences where Costco detained people for attempting to use Costco membership cards that were not in their name.
Costco Can Revoke Your Membership
Costco reserves the right to revoke your membership if you attempt to loan your card to someone else. The company spells out its policies on its website.
"You will be required to show your membership card when entering any Costco warehouse and when checking out at a payment register. Bar codes, photos, or other copies are not acceptable," the company shared, noting that "memberships are not transferrable.
Members are allowed to bring guests into Costco's warehouses, but those rules are very restrictive.
"Members are welcome to bring children and up to two guests into the warehouse; members are responsible for their children and guests. Children should not be left unattended. Only Costco members may purchase items," the company posted.
Basically, Costco wants to protect its membership model. There's nothing stopping members from making purchases on behalf of guests that are with them, but a guest cannot checkout on their own without a membership card carrying their name.
Detaining someone using their mother's card may seem a little harsh, but that's really just Costco enforcing the business model that allows it to offer members low prices.
Put simply, Costco does not allow you to loan out your membership card, and doing so could put you and the person illegally using your card in jeopardy. For the member, that could mean having your membership revoked while the person "borrowing" the card runs the risk of being detained.