Amazon: The Other SubscriptionNarrow moat
Costco Wholesale (COST) — moat facet
Two annual fees competing for one renewal decision — one buys lower prices in exchange for a trip, the other buys the trip away.
The rival most structurally similar to Costco does not run a single warehouse club. Amazon Prime has roughly 200 million members paying an annual fee for the right to shop1, which is precisely Costco's invention applied to a different physical arrangement — and the difference in what the two fees buy is the whole competitive question.
Costco's fee buys lower prices in exchange for a trip. Prime's fee buys the removal of the trip. Both create the same behavioural lock: a household that has paid in advance stops comparison shopping, because the sunk fee makes the incumbent feel free. Both convert a retail relationship into a subscription with an annual renewal decision. And both are defended by making the fee feel underpriced — Costco through an 11% gross margin, Amazon through delivery speed and video.
Where they genuinely collide is the planned household stock-up, which is the trip Costco's economics are built on. Every improvement in same-day grocery delivery removes a reason to drive somewhere, and the households most able to substitute — urban, smaller, without a large car — are the ones Costco's format serves worst anyway.
Where they do not collide is the discovery basket. Costco's assortment of fewer than 4,000 items2 is curated in a way an infinite catalogue cannot be, and a great deal of what a member buys was not on the list. Amazon has never replicated the treasure hunt, and it is not obvious that a search box can.
Costco's own 10-K names Amazon among its significant general merchandise competitors in the United States3. The company's defence is the one it has always run: keep the fee obviously worth it and keep the frequency up.
The reason not to overstate this is that the two fees have coexisted for twenty years and evidently are not substitutes for most households: Costco's renewal rate is 92.2% in a country where Prime penetration is already very high, and paid memberships rose 3.3 million in the twelve months to the third quarter of fiscal 20264. The demographic drift is the slower worry — smaller households, less storage, fewer cars — and it runs against a format that requires all three.
Everything here reduces to the frequency component of Costco's comparable sales, 5 points in fiscal 2025 and 2 in the third quarter of fiscal 20265. Amazon does not need to take Costco's members. It only needs to take the trips.
Every improvement in same-day grocery removes a reason to drive somewhere, and the households best able to substitute are the ones the warehouse format serves worst.
Prime and a Costco membership have coexisted for twenty years without substituting for each other. A renewal rate sliding below 90% would be the first sign Amazon's subscription is replacing the trip.
Source: Costco Form 10-Q, Q3 FY2026 ↗- Third-party estimateAmazon Prime has roughly 200 million members paying an annual fee for the right to shop, which is precisely Costco's invention applied to a different physical arrangement — and the difference in what the two fees buy is the whole...Amazon Prime — program disclosures (200M+ members management-disclosed; fee history $99 -> $119 -> $139; the benefits bundle as documented) — Current program · publ. 2018-2026 · source ↗
- ReportedCostco's assortment of fewer than 4,000 items is curated in a way an infinite catalogue cannot be, and a great deal of what a member buys was not on the list.Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1 Business (membership counts and renewal rates, warehouse and gas-station counts, under 4,000 SKUs, Executive tier and the 2% reward, human capital and wages, competition, Kirkland Signature) — FY2025 · publ. October 8, 2025 · source ↗
- ReportedCostco's own 10-K names Amazon among its significant general merchandise competitors in the United States.Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1 Business (membership counts and renewal rates, warehouse and gas-station counts, under 4,000 SKUs, Executive tier and the 2% reward, human capital and wages, competition, Kirkland Signature) — FY2025 · publ. October 8, 2025 · source ↗
- ReportedThe reason not to overstate this is that the two fees have coexisted for twenty years and evidently are not substitutes for most households: Costco's renewal rate is 92.2% in a country where Prime penetration is already very high, and paid...Costco Form 10-Q, quarter ended May 10, 2026 - MD&A (comparable sales +10% and +7% excluding fuel and currency, ticket +7% against frequency +2%, membership fees $1,373M, renewal 92.2% and 89.7%, gross margin 11.04%) — Q3 FY2026 and the first 36 weeks · publ. June 3, 2026 · source ↗
- ReportedEverything here reduces to the frequency component of Costco's comparable sales, 5 points in fiscal 2025 and 2 in the third quarter of fiscal 2026.Costco Form 10-Q, quarter ended May 10, 2026 - MD&A (comparable sales +10% and +7% excluding fuel and currency, ticket +7% against frequency +2%, membership fees $1,373M, renewal 92.2% and 89.7%, gross margin 11.04%) — Q3 FY2026 and the first 36 weeks · publ. June 3, 2026 · source ↗