‘Why the Membership Model Makes Sense’ – ‘Entrepreneur’ Blog
Will Ford says, “Brick-and-mortar retailing is a rough business. Even established players like RadioShack and Borders have found it impossible to stay afloat in such a cut-throat environment. Yet Costco has a happy oasis in the category, able to thrive and pay its staff well, even in the face of larger competitors.
How? One explanation is membership fees. Patrons at Costco pay $55 a year for the privilege of shopping at the retailer and enjoying deep discounts. It’s said that, since Costco shoppers save about $5 on each bottle of wine, after purchasing 11 bottles of wine, you’ll have justified the yearly fee.
For Costco, it’s a win-win; some 75 percent of the chain’s operating profits come from those yearly fees. The warehouse chain’s renewal rate is 90 percent, indicating that most customers are happy to pay them as well“.
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