Dive Brief:

• Despite months of preparation for its switch from American Express to Citi Visa for its store-branded credit card, Costco is facing a backlash from members who haven’t received the new card or who can’t activate it if they have, leaving them unable to use their card since the switch became official on Monday.

• While it appears Citi is to blame for not distributing the new cards in a timely manner and delivering poor customer service as Costco members call in for more information, it’s Costco that’s suffering the public relations hit and absorbing the brunt of customer outrage.

• The Costco Anywhere Visa Card by Citi was designed to accrue better awards for Costco members while also saving the wholesale club millions annually on lower fees. 

Dive Insight:

In its most recent quarter, Costco failed to report quarterly U.S. same-store sales growth for the first time in six years, hit by low fuel prices and unseasonably cold spring weather. But sales of memberships are still growing, and the retailer continues to lead in customer satisfaction, largely attributed to its no-frills but clean and organized stores, appealing merchandising and excellent customer service, provided by well-paid employees.

Citi’s handling of the Costco card switch is staining that customer service reputation, however, and it's leaving the retailer's members livid. 

UBS analyst Michael Lasser last month said he anticipates that Costco would likely raise its annual membership fee next year. Lasser said the warehouse retailer could increase its basic annual Gold Star Membership to $60 from $55 and its Executive Membership annual fee to $120 from $110. But that fee hike could be difficult to navigate now, given that Costco must scramble simply to fix the Citi card fiasco and keep members from leaving.

It also doesn’t help Costco that there are some other Visa cards currently offering special deals that actually beat its new card's terms.

"I'm thinking that in spite of having many months to work out the distribution of new cards, Citi has committed a 'fail,'" a Costco member who hadn't yet received a replacement card told Business Insider in an email, calling the situation a "debacle" and adding "Costco may live to regret cutting off AmEx.”