The kinds of customers who would shop at warehouse clubs generally would have no issues spending about $60/year on a membership, and these warehouse club chains generally choose locations where there is no shortage of customers

If they didn't charge for memberships, prices would have to be adjusted elsewhere to make profit for the company.

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Well their method is gaining money from the memberships as a way to lower the prices of the goods for sale slightly. They definitely want more customers but they want them to be able to pay for the membership. It also gives them an “exclusive” feeling which can help to boost sales.

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Planet fitness model before planet fitness did it. Many people will pay the membership and only shop there a handful of times throughout the year. They are able to offset prices and costs further because of this.

They don't restrict anybody. BUT, you do need to sign up for a membership, which costs a little money. In reality most people make that back in gas savings , $1.50 hot dogs and $5 rotisserie chickens.

Aside from the benefits people have already mentioned, in the current climate, having people not able to anonymously come into your store and steal things is a great benefit for them. I would imagine their theft rate is at least an order of magnitude below other big box stores. They treat their employees and customers well, and because of that the customers and employees treat them well in return.

They don't.

You pay the money, you get the membership. They don't restrict it to certain people.

I mean, I guess you could say that people who can and will pay $60 a year for a membership are a "certain kind" but that's only $5 a month so it's not exactly exclusive.

One reason for memberships is that if they catch you shoplifting or abusing the return system, they can revoke your membership. This helps keep costs lower.

Yeah, and when you factor in that people can pool their money as well, that's even better.

Exactly. Costco gross profit margin is 13% compared to Walmart (not Sam’s Club) is around 24%.

By charging a membership fee you recoup some of that lost margin and encourage repeat business as customers look to recoup their membership fees through membership rewards.

Costco's entire business model is based off of making money off of selling memberships. Their margins on selling stuff is extremely low.

This explains it.

https://www.fool.com/investing/2019/02/13/how-costco-actually-makes-money.aspx

They only restrict it to all people who are willing to pay $60/yr...

Basically, their entire business model is effectively selling goods at cost and making their profits from the membership fees.

Are there people who don't shop there because they don't want to pay the fee? Sure... but those who do pay the fee are more brand loyal and shop there more. There are efficiencies from selling more stuff to fewer people than trying to serve more people.

There could be a psychological element to it.

Some people might say to themselves "if I am going to buy a membership, I better use it." As result, they buy more stuff at Costco than they would at a normal store.

So yeah, Costco certainly has fewer customers, but the customers they do have are more likely to spend more money.

> You pay the money, you get the membership. They don’t restrict it to certain people.

You say that but you take one shit — ok ok — two shits in the rotisserie chicken station and all of a sudden you’re “no longer welcome at Costco” and “under arrest” and “deported from Canada.”

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> a psychological element

people thinking they found a hack to get things cheaper by being member of an "exclusive" club

I'm not going to lie, I am a complete Costco mark, ha.

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Hope they sent you via bus to Florida and dropped you off outside the Governor's house there.

u/MikeTorsson, can you clarify your question? Restrict in what way? Everyone commenting here assumes you mean that because they charge a membership fee, Costco is restricting membership to those who can afford that. Is that what you mean?

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I’m not sure if they still have restrictions but in case anyone didn’t know it did used to be restricted. I got my membership because my parents had one. They got one because my dad worked for the county. You could also qualify if you owned a business or worked for a business that had a membership. There used to be some hoops to jump through that were always pretty easy to jump through. Possibly to make it seem even more exclusive. I don’t know if they still do that though.

There isn't any screening process. You either pay the membership fee or don't.

The purpose of the membership is to make you feel compelled to spend money there as opposed to other stores.

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I don’t know if not charging for memberships would cause a price increase (at least directly to make up for membership revenue)

I think instead it’s a more binding loyalty program. Most people will only get a membership to one warehouse club. So once they have someone locked in a membership, they are very unlikely to shop elsewhere. Customers will be more likely to shop exclusively at their store. And getting people in the door is half the battle for grocery stores. They can then hope to pump up tabs with enticing impulse buys and high margin items