Costco takes a slow and steady approach to running its business. Because keeping its members happy drives its success, the chain’s leaders watch its membership numbers, and if renewals and new signups stay steady, they can keep making small adjustments to keep things on course.
The chain’s model is very simple.
“Costco’s success lies in its membership-based business model, which generates a reliable revenue stream and fosters strong customer loyalty. Members pay an annual fee to access Costco’s warehouses, where they can purchase goods at significant discounts. This model not only ensures a steady inflow of revenues but also creates a sense of exclusivity and value among its members,” according to Zacks.com.
Membership fees produce a steady source of revenue for the chain, allowing it to lock in profits while offering a smaller markup on many items compared to its traditional retail rivals.
“Costco relies on membership fees to drive most of its revenue and help keep merchandise prices low,” CNBC reported.
It’s a model that clearly works as the chain has continued to grow its membership while also posting three records in the first quarter, CFO Gary Millerchip said during the Q1 earnings call.
The struggling U.S. economy has been good for Costco.
High prices and an economic slowdown work to Costco’s advantage, Krieg Tidemann, an assistant professor of economics at Niagara University, told Cheapism.
“More households may be induced to purchase a Costco membership and purchase most of their goods from the retailer, especially if prices remain high and pose considerable financial strain on consumers’ disposable income and savings,” Tidemann said.
The chain has seen its sales climb.
“Net sales for the first quarter increased 8.2%, to $65.98 billion from $60.99 billion last year,” it shared in its first-quarter earnings release.
Millerchip also shared some information that highlights how well the chain has been performing.
“Before we take a closer look at core merchandising results for Q1, here are a few fun facts about the holiday selling season so far,” he said during the earnings call.
Costco’s U.S. food court set a daily record on Halloween, selling 358,000 whole pizzas, an increase of 31% versus last year.
Black Friday was a record-breaking day for Costco’s U.S. e-business, generating over $250 million in nonfood orders.
The warehouse club’s U.S. bakery also set a record in the three days leading up to Thanksgiving, selling 4.5 million pies. That’s over 7,000 pies per warehouse over a three-day period.
“Excluding the membership fee increase and FX, membership income grew 7.3% year over year. This was driven by continued growth in our membership base and increased upgrades from Gold Star to Executive Membership,” Millerchip said during the call.
The company continues to show success at growing its $130 Executive memberships. Those memberships cost twice as much as the traditional Gold Star membership, but come with 2% cash back on most purchases up to $1,250.
“At Q1 end, we had 39.7 million paid executive memberships, up 9.1% versus last year. We ended the quarter with 81.4 million total paid members, up 5.2% versus last year and 105.9 million cardholders, up 5.1% year over year. In terms of renewal rates, at Q1 end, our US and Canada renewal rate was 92.2%. And the worldwide rate came in at 89.7%,” he added.
Those numbers represent a slight decline in the worldwide renewal rate.
“This slight decline was due to the factors we discussed last quarter and reflects new online members growing as a percentage of our total base renewing at a slightly lower rate than warehouse sign-ups,” Millerchip said.
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He also noted that the decline was less than anticipated due to some early success with targeted communications to expiring members.
“Our goal is to continue to improve renewal rates by improving engagement with members who signed up digitally. Although for the reasons previously shared, we may still see a slight decline in the overall renewal rate over the next few quarters,” the CFO added.
Bernstein analysts named Amazon, Walmart, and Costco as “best positioned to ride a macro storm” due in part to the revenue they generate from “membership lock-in,” Investopedia reported.
Their focus on value and consumer staples could also help them take market share if macro conditions worsen, Bernstein added.
As a former, and likely future, Costco member (based on moving back next summer to an area that has a Costco), I’m a believer in the idea that the chain benefits from a struggling economy.
Even though we’re doing fine in my houseold, in a time of economic caution, I think’s it’s likely I will use Costco for more purchases, especially bigger-ticket items.
Costco’s margins, however, could dip based on consumer needs.
Motley Fool Senior Analyst Bill Mann told Cheapism that during the worst of the 2008-2009 financial crisis, Costco’s revenues and profitability dropped.
“These drops happened in a period of time when guest visits remained strong, but the mix of products skewed more toward food and away from big-ticket items, and as a result overall revenue per visit dropped,” Mann said, adding that those “same conditions are most likely in place today.”
Related: Costco makes shopping smoother for members
This story was originally published by TheStreet on Dec 26, 2025, where it first appeared in the Retail section. Add TheStreet as a Preferred Source by clicking here.
