Costco makes a key membership change members won’t like

Daniel Kline AMG-TheStreet

8 months ago

During the covid pandemic, sharing memberships became a thing.

People were stuck in their homes with little to do as the major sports leagues shut down and no new movies and television shows were being made. Television networks got creative, with ESPN airing Korean baseball, old cornhole competitions and anything else they might be able to find.

It was a period where people were desperate to be entertained so they turned to streaming networks. Not everyone, however, actually paid for the networks they wanted to watch. People shared passwords with their friends and family so they could catch up on the hottest shows without laying out additional membership fees.

That effort in turn cut into the profits of the biggest streamers, including Netflix (NFLX) and Disney+. Yet during the dark days of lockdown, both those companies were growing so fast that password sharing did not seem like a big problem.

Once people were able to leave their homes and traditional shows and movies went back into production, streaming demand slowed. That meant that anyone sharing a password with a friend was in effect stealing from Disney, (DIS) Netflix and the other streamers. Netflix some time ago started to crack down on password sharing.

But password sharing is not unique to streaming memberships. Costco (COST) has suffered from similar issues and has now taken steps to crack down on members sharing their memberships.

You need a membership to shop in a Costco warehouse.

Costco does not want members sharing

Costco members pay $60 a year for a basic Gold membership or $120 for an Executive membership, the latter coming with 2% cash back up to $1,000. That entitles the membership holders, and family members living in the same household, to access the chain’s warehouses.

You can bring a guest with you into the store, but the cardholder is the only one who can buy anything and check out. So in theory you can pay for your guest’s purchases and settle up afterward.

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Traditionally, anyone can enter a Costco even if they do not have a membership. Until recently, the chain even allowed nonmembers to eat at its food court. That wasn’t a policy it promoted, but it made no effort to keep nonmembers out.

That has changed: Costco now requires members to show their cards to make purchases at its food courts. It has also started to test new technology designed to stop members from sharing their memberships.

Costco cracks down on membership sharing

Costco has traditionally required members to show their cards at checkout. In theory, they were also supposed to show an ID card, but that has not been widely the actual practice. The chain’s checking was not rigorous, and sharing memberships wasn’t that difficult.

That’s now changing at least at a select group of Costco locations. Some of the chain’s warehouse clubs have installed scanners, so when people enter the stores, their cards are checked against the pictures of them in Costco’s system.

More Retail:

The pilot test is needed because more Costco members have been sharing their memberships since 2020, former Costco Chief Financial Officer Richard Galanti told CNN.

“It speeds up the process at entry and speeds up the process at the checkout. That’s what we believe and we’re going to pilot it,” he said.

With the change, checkout clerks no longer are responsible for checking cards and IDs. That removes a potential point of contention, where a clerk would have to accuse someone of using someone else’s card.

Costco has not said how it will judge the pilot program and whether it plans to roll it out nationwide.

“Since expanding our self-service checkout, we’ve noticed that nonmember shoppers have been using membership cards that do not belong to them,” a company statement said. “We don’t feel it’s right that nonmembers receive the same benefits and pricing as our members.”

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Costco has been scaling back self-checkout at its warehouse clubs.