The Dues Are the ProfitWide moat

Do the subtraction yourself, because nobody in the industry likes to say it out loud. Fiscal 2025 net sales $269,912 million, less merchandise costs of $239,886 million, less selling, general and administrative expenses of $24,966 million, leaves $5,060 million. That is what Costco earned from the act of retailing — from buying goods, shipping them, stacking them and selling them, on four continents, at 914 locations. Membership fees the same year were $5,323 million¹. The fee out-earned the shop.

It is not a rounding-error distinction and it is getting wider. Over the first thirty-six weeks of fiscal 2026 the merchandise operation produced $3,827 million and membership fees produced $4,057 million². The dues are now 51.5% of operating income and rising, on 1.9% of revenue.

What makes the fee remarkable is not its size but its shape. It is collected before anything is bought, in a single payment, and recognised over the following twelve months — which is why $3,157 million sits on the balance sheet as deferred membership fees³, money that is legally Costco's and has not yet been earned. There is no cost of goods against it, no shrink, no markdown, no freight. Roughly ninety-two cents of each renewed dollar arrives on time each year because a household in a suburb decided, without being asked to think about it, that the card was worth keeping.

The second-order effect is the one that actually builds the moat. Because the fee covers half the profit, Costco can price merchandise at a level that makes no sense for anybody without a fee — and the low prices are what makes the fee renew. Try to break the loop at either end and it collapses. A competitor matching the prices without the fee earns nothing; a competitor charging the fee without the prices signs nobody up. The two halves are not a strategy stacked on a business. They are one mechanism with two ends.

The most direct evidence that members value it correctly arrived in September 2024, when Costco raised the American and Canadian fee for the first time in seven years — $60 to $65 for Gold Star and Business, $120 to $130 for Executive. Membership fee revenue rose 10% in fiscal 2025, about 40% of that increase attributable to the rise itself⁴. The renewal rate at the end of the year was 92.3% in the United States and Canada. Costco charged its customers more and essentially none of them left.

The falsifier is therefore not the fee and not the count. It is the renewal rate, which is a straight referendum held annually among 81 million households⁵, and which slipped from 92.3% to 92.2% in the United States and Canada and from 89.8% to 89.7% worldwide during fiscal 2026⁶. Costco attributes the drift to memberships sold online through digital promotions, which renew at a slightly lower rate. That explanation is plausible and it is also exactly what a company would say if the fee had started to bite.