Costco has been experiencing strong sales, but its membership growth has fallen below historical averages, with total paid membership growth slowing to 4.8% by the end of the second quarter of fiscal 2026. This decline is attributed to a drop in renewal rates, which fell 30 basis points in the third quarter of fiscal 2025 and another 40 basis points in the following quarter.
Although renewal rates have stabilized recently, the core U.S. renewal rate stands at 92%, while the global rate is just under 90%. Analysts emphasize that the recurring membership fee income is crucial for Costco's valuation, which currently trades at 50 times projected 2026 earnings, significantly higher than Walmart's 40 times.
The shift towards digitally acquired members, particularly younger consumers, has contributed to the slowdown, as these members tend to renew less frequently. Despite the challenges, executive membership growth has accelerated to 9% in the last two quarters, indicating strong customer loyalty among this tier, which generates a substantial portion of membership fee revenue.
Analysts remain optimistic about Costco's proactive management strategies, including auto-renewals and targeted engagement efforts, which have helped stabilize membership metrics. Additionally, rising gas prices may enhance the perceived value of Costco memberships, as consumers seek savings.
Overall, while membership growth is a concern, Costco's strong sales performance and strategic initiatives may mitigate potential impacts on its valuation and market position