⚠ Half the Profit Comes From a Line Item Regulators Have NoticedLow threat

A membership fee that renews without a fresh decision is worth far more than one that requires an annual act of purchase, and legislators in several of Costco's markets have spent recent years attacking exactly that difference. Automatic-renewal and negative-option rules — click-to-cancel requirements, mandatory pre-renewal reminders, consent refreshes — are aimed at subscription businesses generally, and Costco's fee sits squarely inside the definition even though the club is nothing like a streaming service.

The direct financial exposure is modest; Costco already offers a full refund of the membership fee at any time, which is a stronger consumer protection than most rules require and is one of the reasons the model reads as fair. The indirect exposure is the interesting one. Anything that converts a passive renewal into an active one moves the rate, because the difference between 92% and 88% is not conviction, it is friction.

Costco's own disclosure hints at the mechanism without naming the risk: the renewal rate has already been pulled down by memberships sold online through digital promotions, which "renew at a slightly lower rate on average"¹. The company has discovered, in its own data, that the way a member is signed up changes how likely they are to stay — which is the same finding a regulator would use to argue that renewal design matters.

Watch for a market where reminder-and-consent rules apply to annual memberships, and then watch that country's renewal rate. If the worldwide figure separates further from the United States and Canada figure, the friction hypothesis is doing real work.