Costco dinged by slowed membership growth, credit-card switch

Dive Brief:

Costco Wholesale Corp. Tuesday reported a decrease in Q3 in earnings and slowing revenue from membership fees. Shares fell 5.4% Wednesday. The loss of credit-card fees reduced the company's quarterly earnings by $15 million, or 2 cents a share, and Costco CFO Richard Galanti said the hit could continue into Q4.
Costco is feeling a pinch from its breakup with American Express Co., which Costco dropped after 16 years in favor of Visa for its co-branded card. There’s now a gap, with no more Amex cards being signed up at Costco, and no Visa cards to be signed up until March next year, and Costco is losing out on the finders’ fees it enjoys each time a shopper signs up for its store card.
The wholesale retailer also reported that its membership base had grown more slowly than it had in several quarters, with Q3 membership fees of $593 million falling short of the $621 million expected by analyst firm Cowen & Co. That 1.9% membership growth pales to the retailer’s range of 4.5% to 7.7% in the past four fiscal years, according to Fortune.

Dive Insight:

Costco’s loss of credit-card fees should be corrected once its co-branded Visa card comes online next year, but its slow growth of memberships may be more worrying.

It’s hard to know if the result is a blip or the beginning of a trend. And if it’s a trend, is it at all related to the launch of Jet, which has dropped its own membership model but is offering many of the same household goods as Costco, or the huge growth and stickiness of Amazon’s Prime program?

The retailer is well aware of the importance of its membership model.

“Membership loyalty and growth are essential to our business model,” according to its recent annual repot. “The extent to which we achieve growth in our membership base, increase the penetration of our Executive members, and sustain high renewal rates materially influences our profitability.”

And it’s a big reason Deutsche Bank retail analyst Paul Trussell deemed the retailer “Amazon-proof” just last week.

It may take another quarter or two to see if that really is true.