Key Takeaways
- Membership fees represent a formidable, high-margin source of recurring revenue for both Costco and Walmart, providing a crucial buffer against the low-margin volatility of general merchandise retail.
- Costco’s model is one of transparent simplicity, generating $4.58 billion in its 2023 fiscal year from a single, highly loyal membership base with renewal rates consistently above 90%.
- Walmart’s approach is a more complex, two-pronged strategy combining the established Sam’s Club warehouse model with the rapidly expanding, but officially undisclosed, Walmart+ digital subscription service.
- The direct revenue is only part of the equation; the true strategic value lies in the customer lock-in, enhanced data collection, and the demonstrably higher spending frequency and basket size of members.
- While a potential fee increase remains a powerful, well-telegraphed catalyst for Costco, Walmart’s larger long-term opportunity may rest on its ability to convert its immense physical retail footprint into a sticky, integrated digital ecosystem rivalling Amazon Prime.
The concept of a retailer charging customers for the privilege of shopping is hardly new, yet its modern incarnation has become a quiet colossus of profitability. For warehouse club giants Costco and Walmart, membership fees are not merely an ancillary revenue stream; they are a core strategic pillar generating billions in high-margin, predictable income. This annuity-like cash flow offers a powerful defence against the inflationary pressures and supply chain disruptions that perpetually challenge the retail sector, creating an economic moat built on loyalty and perceived value.
While often compared, the membership strategies of Costco and Walmart are diverging. Costco continues to perfect a transparent, purist model that is the bedrock of its entire business. Walmart, meanwhile, is pursuing a more complex, bifurcated approach, pairing its legacy Sam’s Club with the burgeoning Walmart+ subscription, a direct challenge to the broader digital ecosystem of Amazon. Understanding the nuances of these two models offers a sharp insight into the future of retail resilience.
Deconstructing the Membership Annuity
In a world of wafer-thin retail margins, membership revenue is exceptionally valuable. Unlike the sale of a television or a pallet of soft drinks, the gross margin on a membership fee is nearly 100%. This income flows directly to the bottom line, funding operations, subsidising prices on goods to drive traffic, and ultimately rewarding shareholders. A look at the most recent, fully reported numbers reveals the scale of these operations, though it also highlights a critical difference in corporate transparency.
The figures below use the latest full-year reported data for each company and reliable third-party estimates where official numbers are not disclosed. All financial figures are presented in U.S. dollars, the reporting currency for both entities.
| Metric | Costco Wholesale | Walmart Inc. |
|---|---|---|
| Primary Membership Programme(s) | Costco Membership | Sam’s Club & Walmart+ |
| Membership Fee Revenue | $4.58 billion (FY 2023)1 | ~$7.5 billion (Estimated) |
| • Sam’s Club Component | N/A | $1.75 billion (FY 2024, ‘Membership and other income’)2 |
| • Walmart+ Component | N/A | ~$5.7 billion (Estimated)3 |
| Paid Member Households | 73.4 million (as of Q2 2024)4 | Undisclosed (Sam’s Club + Walmart+) |
| Membership Renewal Rate | 92.9% (U.S. & Canada, Q2 2024)4 | Undisclosed |
A Tale of Two Strategies: Purity vs. Scale
Costco’s Fortress of Loyalty
Costco’s business model is an exercise in elegant simplicity. The company makes very little operating profit on the goods it sells; its primary profit centre is the annual membership fee. This allows it to cap mark-ups on products, reinforcing the value proposition to its members. The result is a powerful feedback loop: low prices drive membership sign-ups, and the membership fees allow the company to maintain its low prices. The health of this ecosystem is best measured by its extraordinary renewal rate, which has long hovered above 90%.
For investors, a key catalyst is the company’s periodic fee increase. These are well-telegraphed events that flow almost entirely to net income, providing a significant and predictable boost to earnings per share. Management has indicated that another increase is a matter of when, not if, creating a recurring point of positive speculation.5
Walmart’s Two-Pronged Attack
Walmart’s strategy is less transparent but potentially grander in scope. It fights on two fronts. First, Sam’s Club competes directly with Costco in the warehouse space, generating a steady, if smaller, stream of membership income. The more significant strategic thrust, however, is Walmart+.
Launched in 2020, Walmart+ is not about warehouse access but about creating a digital “lock-in” to the entire Walmart universe. By bundling free delivery, fuel discounts, and streaming perks (via Paramount+), Walmart aims to replicate the ecosystem effect of Amazon Prime. The goal is to capture a greater share of its existing customers’ wallets by making shopping at Walmart the most convenient and logical choice. While the company does not disclose subscriber numbers or revenue, third-party estimates suggest the programme has scaled rapidly, leveraging Walmart’s enormous base of over 100 million weekly shoppers in the U.S. alone. This opacity is a strategic trade-off: it prevents competitors from seeing its hand, but it also leaves investors to rely on estimates to gauge its success.
Beyond the Fees: Second-Order Effects
Focusing solely on the headline revenue figure misses the wider strategic impact of a successful membership programme. The true value extends into several second-order effects. Members not only visit more frequently but also consistently exhibit higher average transaction values compared to non-members.6 This behavioural shift is driven by a psychological sunk-cost rationale; having paid the annual fee, consumers are motivated to maximise its value.
Furthermore, the membership model is a data-gathering machine. It provides a clean, longitudinal view of household spending habits, enabling highly efficient inventory management, personalised marketing, and the cultivation of lucrative private-label brand strategies. This data is the foundation upon which modern retail empires are built and defended.
Ultimately, both Costco and Walmart have turned a simple fee into a sophisticated strategic weapon. Costco has perfected a model of profitable loyalty that is the envy of the retail world. Walmart is leveraging its unmatched physical scale to build a digital and logistical moat designed for the next generation of commerce. For investors, the speculative question is not which model is better, but which is better positioned for the coming decade. While Costco’s path is clear and proven, the sheer scale of Walmart’s ambition presents a different kind of opportunity. The conclusive battle may not be fought over the price of a rotisserie chicken, but over the perceived value of the subscription bundle that keeps customers from ever looking elsewhere.
References
1. Costco Wholesale Corporation. (2023). Form 10-K for the fiscal year ended September 3, 2023. U.S. Securities and Exchange Commission. Retrieved from SEC EDGAR database.
2. Walmart Inc. (2024). Form 10-K for the fiscal year ended January 31, 2024. U.S. Securities and Exchange Commission. Retrieved from SEC EDGAR database.
3. Figure is an author’s estimate based on Consumer Intelligence Research Partners (CIRP) data suggesting approximately 58.5 million Walmart+ members as of late 2023, at an annual fee of $98.
4. Costco Wholesale Corporation. (2024, March 7). Q2 2024 Earnings Call Transcript. Retrieved from company investor relations website.
5. TheStreet. (2024). Costco has a major membership fee price increase update for members. Retrieved from TheStreet.
6. Yodlee. (2023). Walmart and Costco spending trends. Envestnet | Yodlee. Retrieved from their official blog on data analytics.
fiscal_ai. (2024, October 2). [Post comparing Walmart and Costco membership fee revenue]. Retrieved from https://x.com/fiscal_ai/status/1841443698699035765
