- Costco is cracking down on shoppers that borrow a friend of family's membership card at checkout.
- The crackdown comes just a few weeks after Netflix started to nudge password sharers to start paying for its service.
- Wall Street is upbeat about the change, with one analyst telling Insider that the crackdown should help boost Costco's growth.
The gig is up for moochers, and Wall Street is thrilled.
First it was Netflix, which has started to nudge more than 100 million customers to pay up for its service after years of sharing passwords with family members, friends, and ex-boyfriends and girlfriends. Netflix stock has jumped more than 20% since its password sharing crackdown began in the US in late-May.
Now, Costco is embarking on its own crackdown on shoppers that borrow membership cards from friends or family and use them in the self-checkout aisle of the wholesale retail club.
Costco requires its shoppers to pay an annual membership fee of at least $60 for the privilege to shop in its store and enjoy wholesale savings, and each shopper has to present their membership ID both upon entry into the store and at checkout.
Most Costco ID's include a photo of the member, which cashier's check to ensure that the customer holding the card is in fact the member listed on the card. But the rise of self-checkout aisles at Costco provided a convenient way for shoppers to borrow a membership card from a friend or family member and check-out themselves.
Costco has taken notice and is starting to crackdown on the membership sharing scheme.
"Our membership policy states that our membership cards are not transferable and since expanding our self-service checkout, we've noticed that non-member shoppers have been using membership cards that do not belong to them," Costco said in a statement. "We don't feel it's right that nonmembers receive the same benefits and pricing as our members."
The retailer said it will now ask shoppers at self-service checkout registers to show their membership card to a store associate, and that if the membership card does not have a photo, they will be tasked with showing a secondary photo ID that matches with the name on the membership card.
The new practice of better enforcing its long-standing policy that membership cards are not transferable could ultimately drive an increase in membership signups for those who enjoy shopping at Costco but have been borrowing a membership card from someone else.
And a boost in members at Costco goes straight to its bottom line, as the retailer's annual membership fee drives profits at the company.
"You have to remember that Costco derives most of its operating profits from membership revenue rather than the sale of merchandise and services. This strategy enables Costco to maintain low prices by compensating for potentially lower profit margins on merchandise/services through the high-profit margins associated with membership income. As a result, growing and retaining its membership base is arguably more important than the merchandise it sells in its stores," CFRA Research senior equity analyst Arun Sundaram told Insider.
"This is a strategic move that can have a net positive impact on the bottom line... By cracking down on membership sharing, Costco strives to generate incremental membership growth, further building upon the robust growth observed since the onset of the pandemic. This strategic move allows Costco to increase its membership revenue without necessarily raising its annual membership fee," Sundaram said.
Sundaram added that Costco hasn't increased its membership prices since June 2017, and that he expects an increase towards the end of this year or during the first half of 2024.
So far, Wall Street is receptive of Costco's recent crackdown, with the stock up about 2% since the policy crackdown was revealed on Tuesday.