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Comment by OutOfHere | Hacker News Reader

Good comment, but IMHO the main reason to not love it so much is the annual membership fee. It sits well with cult cultivation. Other stores don't require it and they don't form a cult around them.

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Costco derives the majority of their revenue from the membership fee, followed by services. They actually make very little on the products themselves as they have a hard cap on markups at like 11% or something around there.

The membership is the whole reason they can offer the deals they do.

> Costco derives the majority of their revenue from the membership fee,

Costco revenue is about 2% membership fee and 98% sales of merchandise and services (most of which is merchandise, not services.)

Now, the membership fee is its main source of profit (because the merchandise sales are extremely low margin), but not its main source of revenue.

> Costco derives the majority of their revenue from the membership fee […]

Costco derives the majority of their profits from the membership fee:

* https://en.wikipedia.org/wiki/Costco#Business_model

The annual membership fee is about customer selection, for me.

What it buys for me is, "not Walmart People". Totally worth the investment.

right, it buys Costco people. my local Haggens is a veritable paradise by comparison to the overcrowded warehouse that's too far away and closes too early to shop at after work. don't get me started on Fred Meyer clientele

On the contrary, the fact that they exclude free riders is what makes the whole thing possible.

The price is so low that it makes no real difference at this point. I barely go to my local CostCo (on the edge of being worth the annual fee myself!) because it's so incredibly crowded at all times that the savings are only worth it for more expensive items. In contrast, there are several BJ's nearby and the closest one to me is often blissfully sparse. No idea how they manage to stay in business in that location, but it's really nice.

There is no such thing as a free rider in this context, only a fee rider. After all, other supermarkets do fine without a fee. This is not Amazon Prime with free shipping that we're talking about. Charging for just the item still works.

I occasionally go into a Walmart. If a modest membership fee keeps those people out, I'm all for it.

I know what you're thinking, but if a Costco membership is elitism, then fine you can call me elitist. Along with apparently 30% of the American population over the age of 18. We're the big bad 30-percenters, I guess.

But the fee isn't an initiation ritual. It's what partially subsidizes the low prices, often at the expense of people who buy the membership and underutilize it, spending more money upfront than they save on later purchases.

The yearly fee is $65. If you save $5/month on what you buy you break even. Personally I save over $5/month just buying butter there vs buying from my local supermarket.

Most people can do even better with the executive membership if you spend ~$550 a month you'll get the $130 fee back in your rebate. That may seem like a lot but not if you buy most of your groceries there, or things like tires or book a vacation.

We get like 4-5x our exec. membership fee back in rewards cost every year - and I stopped buying tires/car batteries there (takes too long / quality no longer as good) and usually go to best buy for electronics (their return policy is no longer as good, and they often stock sub-par models, etc). Even with that, Costo is essentially paying us to save money.

Yeah, with TVs, Costcos in our area only stock one tier of Samsung models, but "worse" they're recently the 2-3 year old model that has already been superseded. And while the markup is minimal, you're still paying retail for a 3 year old model. Shades of Apple selling the Mac Pro 2019 (cheese grater) with a 4 year old Xeon processor at "full Apple" prices (I almost said full retail, but full Apple is a bit more), and with RAM prices from 4 years prior, too.

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