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Amazon is about to surpass Costco on one crucial measure

Business Insider logo Business Insider 4/26/2017 Kate Taylor

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Video by The Wall Street Journal

Amazon Prime is closing in on Costco as membership numbers soar.

There are now roughly 80 million Amazon Prime members in the US, as of March 2017, according Consumer Intelligence Research Partners estimates. That's a 37.9% increase from the 58 million members Amazon had at this time last year.

Costco, meanwhile, reported in March that it had 88.1 million total card holding members.

For a long time, analysts argued Costco was "Amazon-proof." In December 2015, Deutsche Bank's Paul Trussell wrote in a note to investors that Costco would remain unaffected by the e-commerce giant due in part to the budget retailer's membership model.

Now, however, Amazon's Prime membership is starting to eat into Costco's business.

Cowen & co © Provided by Business Insider Inc Cowen & co

The percentage of US households that only pay for Prime membership has more than doubled over the past four years, from 7.1% in 2013 to 16.2% in 2016, according to a note published by Cowen & Co. last September. In the same time span, the percentage households that only have a Costco membership have shrunk from 14.9% to 9.8%.

A basic Costco membership costs $55 annually, and allows customers to shop at the discount retailer's warehouse-style store, as well as on its website. That fee is going up to $US60 on June 1.

Amazon Prime membership costs $99 per year. While a recent comparison by Business Insider found that Costco's prices were significantly less expensive than Amazon's, Amazon Prime offers additional perks such as free two-day shipping on millions of items, a wider selection of brands and sizes, and free access to books, music, movies, and television shows.

"The risk is that as Amazon continues to improve Prime's value proposition and add more layers to the Prime service, US households could cancel subscriptions for one or both of the Warehouse clubs. At a minimum, the number of consumers opting to just use Costco and/or Sam's Club 'Only' is likely to continue to decline," Cowen wrote in the note.

Amazon has never publicly disclosed how many people are members of the Prime program. However, if estimates of explosive growth are correct, Costco has good reason to realise it is far from "Amazon-proof."

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