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Why a Costco Fee Hike in 2023 May Not Be a Bad Thing

The Ascent 11/26/2022 Maurie Backman
One woman and two men wearing safety vests while unpacking a pallet of boxes in a warehouse. © Getty Images One woman and two men wearing safety vests while unpacking a pallet of boxes in a warehouse.

Many retailers have been hammered by inflation this year, as have consumers. And so to maintain their profit margins, retailers have taken to different tactics, like strategically raising prices.

Costco certainly hasn't been immune to inflation. It, too, is operating with tighter margins than usual due to the higher cost of procuring goods.

Now Costco has the option to offset some of its higher costs by raising its membership fees -- something it hasn't done since mid-2017. On a recent earnings call, the warehouse club giant specifically said that it would not immediately be raising membership costs. But that could change in 2023.

Not only is Costco due for a fee hike based on its usual cycle of implementing increases about every five years, but recently, its rival Sam's Club raised its fees. So it's not inconceivable that Costo will raise membership costs at some point during 2023.

At first, that might seem like a bad thing. But here's why it may not be so terrible.

The purpose behind Costco's membership fees

Does Costco make money on its membership fees? Absolutely. After all, the only cost associated with those fees is the physical card members have to show when entering their local stores. So all told, those membership fees are really pure profit for Costco.

But it's also those same fees that allow Costco to continue offering low prices on the goods it sells. In fact, Costco specifically uses its profits from those fees to offset other costs without having to rack up prices across the board. So if your membership fee ends up rising at some point in 2023, it may be the thing that spares you a higher credit card tab every time you do your shopping at Costco.

Let's also remember that if Costco does choose to raise its membership fees in the new year, we're probably talking about a modest increase. Right now, a basic Costco membership costs $60 a year, while an executive membership costs $120. If those fees increase in 2023, it's likely that they'll rise to $65 and $130, respectively.

Now at a time when so many expenses are elevated due to inflation, that might seem like a blow. But let's remember that we're probably talking about an extra $5 or $10 over an entire year. So in the grand scheme of expenses that are likely to rise in 2023, a Costco fee hike probably won't be the one that breaks the bank.

Don't sweat a membership fee hike

Costco likes to be known as a source of savings, so it may try to push off a fee hike as long as possible. As such, we may not see membership fees rise in 2023.

But even if they do, know that the extra $5 or $10 you'll probably end up paying could result in a world of savings on the essentials you buy for your household all year long. And when you think about it that way, it makes a fee hike easier to get on board with.

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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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