Business Insider has a piece about Costco’s decision to begin enforcing its membership policies, and how it reflects the fact that “wholesale clubs like Costco have more in common with Netflix than Walmart.”
Here’s the context:
“It’s no secret that people buy a staggering amount of stuff at Costco, which saw sales of nearly $223 billion last year.
“What’s less obvious is that Costco really doesn’t keep that much money in terms of profit from the stuff it sells, when compared with typical retailers.
“Last year’s average merchandise markup, or gross margin percentage, was just around 10.5% – far less than the 25%-50% commonly estimated for businesses that sell similar products … Meanwhile, membership fees are about as close to pure profit as a company can get, and Costco raked in over $4.2 billion in fees from 54 million households and 11.8 million businesses. (Costco allows just two authorized cardholders per membership.)
“That means roughly half of Costco’s 2022 profits can be attributed to the fees, unlike other big box stores like Walmart or Target, which make the vast majority of their profits from selling things.”
KC’s View:
The other thing about membership is that once you’ve paid for it, you have a vested interest in getting the most out of it. The more you go to Costco, the more you spread out the membership fee costs. It is just like Amazon Prime – people who have it spend more on Amazon because it makes sense to do so economically.
I have no problem with Costco enforcing membership rules. If you sign up, you agree to play by their rules. The only problem is when, like Netflix, you change the rules. That’s less cool.
(In all fairness, when Netflix changed its rules and started limiting password sharing, its new subscription numbers soared. So there’s that.)
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