The warehouse club shared some ideas that might be helpful to members and people considering joining the warehouse club.
Costco members power your business. In reality, the company makes most of its profits from selling memberships, so its core business model revolves around signing up members and doing whatever it takes to retain them.
That’s actually some Costco (COST) – Get a free reportit does it spectacularly well. The company is not only constantly adding members, but retaining them at a remarkable rate. CFO Richard Galanti discussed membership and retention during the warehouse club meeting. first quarter earnings call.
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“In terms of renewal rates, at the end of the first quarter, our renewal rates in the US and Canada were 92.5% compared to 92.4% a quarter ago. And the worldwide rate was as high as end of this quarter as at the end of the previous quarter, the same level of 90.4%. We ended the first quarter with 66.9 million paying household members and 120.9 million cardholders, both 7% more than last year,” he shared.
Galanti noted that Costco added 22 new warehouses globally over the past 12 months, accounting for 3% of the increase. However, the big story remains the growth in the sale of executive memberships.
“At the end of the first quarter, paid executive memberships were at 30 million, an increase of 904,000 over the 12 weeks or 75,000 per week over the first quarter,” he said. “Executive members now represent 45% of our paying membership and just under 73% of global sales.”
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Executive members drive Costco business
Executive members pay $120, double the Gold Star base membership rate for 2% cash back on most Costco spend up to $1,000. The chain wants people to join as executive members or upgrade to be one and Galanti explained why.
“We know that an executive member buys more and buys more often in a year than a Gold Star member. We know that one of those members with a credit card, co-branded credit card, buys even more frequently and spends more. And they do it all three, they’re an executive member with a card instead of a regular member, that’s the big kahuna here,” he shared.
Basically, executive members have the deepest commitment to the warehouse club and that translates into continued sales and loyalty.
“So, I think we’ve seen those trends in the last couple of years, frankly. And what’s helped in the last year is the fact that, again, just our new member signups have been higher than they’ve been.” it has been historically in recent years compared to last year, last year or two. And I think we think that’s more due to COVID, and we were in a good place to buy,” the CFO added.
Costco sees good news for members
Galanti shared that Costco buys from its biggest rivals at least once a week to make sure their prices remain competitive. That sometimes means the chain has been eating some of the price increases caused by inflation to match or beat prices at Walmart. (WMT) – Get a free reportAmazon (AMZN) – Get a free reportand objective (TGT) – Get a free report.
The CFO, however, shared some positive pricing news.
“In the first quarter, we estimate the equivalent year-on-year inflation number to be in the 6-7% range. Food and sundries are still up more than non-food items, but overall a slightly better level than a quarter ago for the company,” he said.
Galanti also noted that prices were falling in another key category.
“Commodity costs are mostly going down, whether it’s cornmeal, sugar and butter or even some things like steel. Some things have gone up, but overall, we’re seeing a little bit of a trend, but we’ll keep it posted.” he added.
