Why Is Costco Members-Only?

Costco is well-known as the place to go if you want groceries in bulk. It also boasts nearly everything else you could ever need, including electronics, appliances, furniture, and more. However, most of the store is only open to folks with a membership card. Costco even started cracking down on people eating at its food court without a membership. But why does Costco require a membership in the first place? As it turns out, memberships are one of the reasons for the retailer's affordable prices. 

Memberships are an essential part of the store's financial structure because they act as a counterbalance for costs associated with aspects such as merchandise and employee wages. In 2023, Costco's membership grew to roughly 128 million members with 90% of previous cardholders renewing their existing cards. This translated into $4.6 billion in revenue for the company just from membership fees, per the company's 2023 annual report.

Alongside securing a reliable source of revenue for Costco, memberships also help cultivate customer loyalty. After paying for a membership, people are more likely to use it. And, judging by the 90% membership renewal rate for 2023, a lot of people are happy enough to stick with the brand. Another way memberships benefit Costco is that they help reduce theft because the store has more control over who enters. In fact, Costco's 2023 annual report touches upon this as a big reason why its losses are fewer than those of other stores.

Although Costco benefits from memberships by gaining revenue and lowering rates of theft, memberships also give customers a ton of perks. For example, because of its membership revenue, Costco can offer members bulk goods at affordable prices. It even loses money on some items, including its $4.99 rotisserie chicken. Similarly, a 2% back reward is granted on purchases for folks who opt to grab the executive membership. This reward is mailed to members at the end of the year and can be redeemed in-store for huge discounts. 

Outside of grocery shopping, members also gain access to bottled water delivery, home and auto insurance, and even the Costco Auto Program for car buying. Yes, a Costco membership can even help you buy a vehicle, not just giant delicious pies for less than the cost of some Starbucks lattes. Moreover, members can get discounts on prescriptions and eye care, even if they don't have insurance. And, if you buy any electronics or appliances from Costco, there's free tech support and home installation. Even if you don't take advantage of these membership benefits, there are tons of hacks you can use to save money at Costco. It's a win-win situation either way, and partly why Costco has become the third-biggest retailer in the world, only falling short of industry titans Walmart and Amazon.