Costco's Membership Crackdown: A Netflix Moment?

Costco has recently intensified the enforcement of its membership policy, introducing new scanners at entrances and ID checks at self-checkout stations. This strategic shift comes as the company's profitability is heavily reliant on membership fees, which are nearly pure profit, rather than the modest markups on merchandise. While net sales approached $270 billion last fiscal year, the average gross margin was only around 11%, significantly lower than competitors.

Last year, Costco collected over $5.3 billion in membership fees from millions of households and businesses, with remarkably high renewal rates exceeding 89% globally. This substantial income stream accounts for over half of the company's total profits. Consequently, cracking down on unauthorized card sharing has become a vital strategy to bolster revenue and financial stability.

This approach draws parallels to Netflix's recent password-sharing crackdown, a move that proved highly successful in driving new sign-ups. Both companies, facing rising costs, are leveraging their business models—selling access rather than just content or goods—to convert non-paying users into paying subscribers. Costco's efforts are already yielding results, contributing to fee hikes and the introduction of new membership perks.