Costco: customer loyalty through memberships provides steady growth

World’s third biggest retailer Costco continues its steady growth (+16%) despite high comparison figures from last year. Costco’s business model shows its strength after the pandemic induced high growth.

Where many of its competitors have found it difficult to keep on growing on top of the high Covid era figures, Costco’s membership model has customer loyalty ingrained in it.

With very low churn from membership (around 90% renew membership every year), Costco is able majority of its customers acquired during Covid.

This is somewhat similar to the meal kit company HelloFresh.

Costco has always been a very much bricks and mortar driven business. Interestingly e-commerce has been growing slower than the stores, despite growing from a very low basis.

Traditionally Costco has kept its Gross margins low and the profits have been made by the membership model. Margins are stable, as they have been 12-13% for 15+ years already. However, there seems to be some decoupling of the Membership fees and Net income as the Net income has lately become bigger than the fees incurred.