Costco may seem like a straightforward retailer, but it operates more like a subscription business, generating sticky recurring income and a growth engine that strengthens over time.
When most people think about Costco Wholesale (COST 0.35%), they envision oversized shopping carts, pallets of bulk goods, and weekend crowds hunting for bargains. This image is easy to latch onto: Costco is a big-box retailer, through and through.
However, this perspective overlooks a broader narrative. Costco isn’t merely selling groceries or paper towels; it’s selling access. The warehouse model operates more like a subscription business than a traditional store, a distinction that is crucial for investors.
Image source: Getty Images.
Membership at the Core
Everything Costco does starts with membership. Shoppers pay an annual fee to join, generating $5.3 billion in revenue for fiscal 2025 (year ended Aug. 31, 2025). Since the costs of running this membership are minimal, nearly all of that revenue goes straight to the bottom line.
In the fourth quarter of fiscal 2025, the company reported 81 million paid memberships (up 6.3% year over year), contributing to a 14% year-over-year growth in membership revenue. This growth rate was bolstered by a $5 and $10 increase in fees for its two types of paid memberships on Sept. 1, 2024.
The best part? Membership income remains remarkably steady, even after the fee increase. Renewal rates run at 90% globally, and are even higher in the U.S. and Canada. This kind of stickiness is what most businesses dream about.
It’s hard not to see parallels with streaming services or Amazon Prime. Once customers buy in, leaving feels like walking away from the value they’ve already paid for, making Costco’s membership base unusually resilient.
A Self-Reinforcing Model
Having a high-margin, recurring revenue source like Costco’s membership is advantageous. But memberships do more than generate profit; they power Costco’s entire strategy. Fee income provides the financial flexibility to keep prices low, attracting more shoppers and boosting sales volume. Higher volume enhances Costco’s leverage with suppliers, resulting in even better prices.
This creates a loop that strengthens over time. Unlike many retailers that rely on promotions or ads to drive traffic, Costco benefits from a system that encourages customers to return on their own. For investors, this means greater predictability and reduced dependence on fickle consumer behavior.
As Costco increases its comparable sales over time, it gains significant operating leverage through more efficient use of its fixed assets. This operating leverage flows directly into margins, which Costco reinvests to enhance customer value — again, with even lower prices.
In essence, there is a self-reinforcing virtuous cycle that makes Costco’s business model increasingly attractive.
Total Membership Numbers Positioned for Future Growth
Costco already boasts 145 million cardholders — with 81 million paid memberships, each entitled to two membership cards. Despite its scale, the company operates only 914 stores. As it opens new locations — typically 20 to 30 per year — these memberships will naturally grow over time.
International markets present the clearest growth opportunity. For instance, the opening of Costco’s first warehouse in Shanghai drew hours-long lines. Renewal rates in newer markets are already approaching North American levels, indicating that the model is effective across cultures. Each new warehouse not only adds sales but also generates recurring fee income that compounds year after year.
Digital initiatives also play a crucial role in driving membership growth. Services like e-commerce are more affordable for members than non-members, and members gain access to the full inventory. This makes it appealing for non-members to convert, allowing them to benefit from the full range of services Costco offers at a lower price.
What Does It Mean for Investors?
Costco may seem like a traditional warehouse chain at first glance, but it operates like a subscription-based business. Memberships create sticky, recurring revenue, fuel a self-reinforcing cycle of low prices and high traffic, and provide Costco with a solid foundation for continued growth both domestically and internationally.
Investors often value subscription businesses for their stability and potential for compounding returns. Costco deserves to be included in that conversation — not because it sells digital content, but because it offers something equally valuable: everyday savings that customers are eager to renew.
For long-term investors, this is the kind of business model worth paying attention to.
