⚠ The Mix Raises the Margin Without Anybody Deciding ToLow threat

A markup ceiling governs individual items. It does not govern the mix, and Costco's mix is drifting toward the higher-margin end without any decision to abandon the discipline.

Three shifts are visible in the filings. Kirkland Signature "generally carry higher margins than national brand products" and represents "a growing portion of our overall sales"¹. The ancillary businesses — pharmacy in particular — were the largest positive contributor to gross margin in the third quarter of fiscal 2026, worth 14 basis points, while core merchandise categories subtracted 29². And the co-branded credit card programme has been cited repeatedly as a gross-margin tailwind³, which is income from a bank rather than from selling anything.

None of this is improper and all of it is disclosed. The question it raises is whether the eleven percent that members experience as a promise is being held constant while the profit is quietly rebuilt somewhere adjacent. So far the answer is no: the headline margin has not expanded, because the higher-margin pieces are offsetting genuine pressure in food. But the two effects are not the same thing, and a reader tracking only the headline cannot tell them apart.

The disclosure that separates them is the one Costco gives in every gross-margin discussion: the contribution in basis points from core merchandise versus warehouse ancillary and other businesses. Core merchandise contributed 19 basis points positively in fiscal 2025 and subtracted 29 basis points in the third quarter of fiscal 2026. If core keeps subtracting while the total holds flat, the low prices are being subsidised from elsewhere rather than earned.