Costco’s Membership Model: A Retail Anomaly with Annuity-Like Revenue

Costco Wholesale Corporation (COST) operates on a radically different retail model than most competitors. While traditional retailers welcome all shoppers, Costco restricts access to paying members—a strategy that creates a predictable revenue stream akin to financial annuities. Membership renewal rates consistently hover NEAR 90%, demonstrating remarkable customer loyalty.

The financial impact of this model becomes clear upon closer inspection. Though membership fees constitute less than 2% of total revenue ($1.2 billion of $63.2 billion in Q3 2025), they represent pure profit margin compared to the thin margins of product sales. This structural advantage allows Costco to maintain competitive pricing while sustaining profitability.

Club stores remain a niche within retail, with Costco competing primarily against Sam's Club. The membership barrier creates a self-selecting customer base that shops more frequently and spends significantly more than average consumers—a dynamic that continues to defy traditional retail economics.