The Executive Member Is a Different CustomerWide moat
Costco Wholesale (COST) — moat facet
The tier that doubles the fee, produces three-quarters of the sales, and hands the member a certificate redeemable in exactly one place.
Costco has two customer bases wearing the same card, and the smaller one is where the economics live.
At the end of fiscal 2025, 38.7 million of 81.0 million paid memberships were Executive1 — 47.8% — and Executive members accounted for approximately 73.6% of worldwide net sales2. They pay $130 a year against $65 and receive a 2% reward on qualified purchases, generally capped at $1,250 a year, redeemable only in a Costco warehouse3.
The structure of that reward tells you what the tier is for. It is not a discount; it is a mechanism that turns the fee into a deposit and the customer into a returning one. The $1,250 cap implies annual spending of $62,500 before the reward stops accruing, which almost nobody reaches, so the effective offer to a heavy spender is that the upgrade pays for itself several times over provided they keep coming back — and the certificate can only be spent on the premises. The accrued liability for those rewards was $2,948 million at the third quarter of fiscal 20264: a large, pre-committed book of future visits.
For Costco, upgrading an existing Gold Star member is the most profitable action available. It adds $65 of revenue with no cost of goods, no new warehouse, no new member acquisition, and it lifts spending. Membership fee growth in fiscal 2026 has been credited to "new member sign-ups, membership fee increases and upgrades to Executive Membership"5, and the American Executive tier now carries exclusive shopping hours6 — a benefit that costs nothing and is visible every week.
The risk in a two-tier base is that the tiers behave differently in a downturn. A household under pressure downgrades before it cancels, which converts $130 of pure profit into $65 without any change in the membership count. Nothing in Costco's disclosure would show that happening except membership fee revenue growing more slowly than paid memberships.
Executive penetration of worldwide net sales, 73.6%, is the number that decides it. Rising alongside a rising Executive share of the count means the base is deepening.
Executive penetration of sales is 73.6% and upgrades are being named as a growth driver in every quarter. The valuable half of the base is getting larger.
The 2% reward is redeemable only inside a Costco, so the liability is a book of pre-committed future visits. It also scales with Executive spending against a fee that does not.
Source: Costco Form 10-Q, quarter ended May 10, 2026 ↗- ReportedAt the end of fiscal 2025, 38.7 million of 81.0 million paid memberships were Executive — 47.8% — and Executive members accounted for approximately 73.6% of worldwide net sales.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 ↗
- ReportedAt the end of fiscal 2025, 38.7 million of 81.0 million paid memberships were Executive — 47.8% — and Executive members accounted for approximately 73.6% of worldwide net sales.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 ↗
- Moat Explorer calcThey pay $130 a year against $65 and receive a 2% reward on qualified purchases, generally capped at $1,250 a year, redeemable only in a Costco warehouse.Moat Explorer calculation - arithmetic on figures reported in Costco's Form 10-K and Form 10-Q: accounts payable less merchandise inventories ($1,667M at FY2025 and $2,945M at Q3 FY2026), foods and sundries plus fresh foods ($147,552M), Executive memberships over paid memberships (38.7M / 81.0M = 47.8%), accrued member rewards over gross margin dollars ($2,677M / $30,026M = 8.9%), the $1,250 reward cap divided by the 2% rate ($62,500), and Other International revenue as a share of the total — FY2025 and Q3 FY2026 · publ. September 2026 · source ↗
- ReportedThe accrued liability for those rewards was $2,948 million at the third quarter of fiscal 2026: a large, pre-committed book of future visits.Costco Form 10-Q, quarter ended May 10, 2026 - condensed financial statements and notes (total revenue $70,527M, operating income $2,815M, diluted EPS $4.93, balance sheet, segment table, 928 warehouses) — Q3 FY2026 and the first 36 weeks · publ. June 3, 2026 · source ↗
- ReportedMembership fee growth in fiscal 2026 has been credited to "new member sign-ups, membership fee increases and upgrades to Executive Membership", and the American Executive tier now carries exclusive shopping hours — a benefit that costs...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 ↗
- ReportedMembership fee growth in fiscal 2026 has been credited to "new member sign-ups, membership fee increases and upgrades to Executive Membership", and the American Executive tier now carries exclusive shopping hours — a benefit that costs...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 ↗