Costco and Other Warehouse Clubs Are Still Cruising -- For Now

The warehouse club sector has done pretty well in the recession, but there is one thing to worry about, eventually: Its dependence on membership fees.

On the surface, all looks well. Setting aside gasoline sales, Costco’s comparable-store sales in the past quarter rose three percent. Gas is just a way of getting customers to drop in more often and at times other than weekends when warehouse clubs jam up. In a conference call, Costco said food and consumables rose while general merchandise slipped. November was slower than the quarter, with domestic comps up one percent, and international up six percent, which is a trend to watch.

BJ’s also is cruising at a pretty good clip in the downturn. Over the third quarter ended Nov. 1, comps were up 6.6 percent not counting gasoline. November stayed strong in terms of comps, which gained 6.2 percent.

Even if the advance was more modest, Sam’s Club comps increased by 1.4 percent in November after gaining 4.5 percent in the quarter ended Oct. 31. Quarterly operating income increased by 1.7 percent.

Consumers have clearly demonstrated that the kind of values club stores offer appeal to them in the current rugged economic conditions. Here’s the worry, though.

Membership fees aren’t inconsequential. Costco is pretty typical in charging $50, and membership fees rang up about two percent of Costco’s total revenues of about $23.1 billion in the last fiscal year. While a small percentage, that still represents $474 million Costco can invest in keeping prices low and quality high. The question is, how many consumers, pressured by joblessness or the fear thereof, will pay the membership fee? Warehouse club shopping has become routine for many Americans, but they may break the routine in the face of economic hardship. Offering incentives for membership renewal is something warehouse clubs might need to consider if the recession skulks deep into next year.