"Members, Let's Check the Photos" Costco Blocks Membership Sharing

Email Statement "Same Benefits Not Allowed for Members and Non-Members"
Subscription Economy Outlook Darkens... Operating Profit Hit
"If Management Indicators Were Good, Sharing Would Have Been Overlooked"

Global wholesale retail chain Costco plans to crack down on the sharing of paid membership cards. Previously, video streaming company Netflix also took measures to curb the sharing of paid accounts. Although consumer sentiment may temporarily worsen, this appears to be a desperate measure to boost the slowing growth of the subscription economy.

According to the New York Times (NYT), Costco issued an email statement on the 28th (local time) saying, "After expanding self-checkout lanes, we discovered that non-members were using other people's cards," adding, "We believe it is not right for non-members to enjoy the same benefits as members."

It continued, "We will now require photo ID membership cards at self-checkout lanes," and "If the card does not have a photo, we will ask for a photo ID," it added.

Costco exterior. [Image source=Yonhap News]

Costco is a distributor that limits its profit margin to a maximum of 15%, supplying products at low prices. Instead, the shortfall in revenue is compensated by membership cards issued upon payment of an annual fee. The annual fee is $60 per year in the U.S., and the Executive Membership, which includes 2% reward points, costs $120.

Consumer loyalty toward membership cards is reported to be very high. The annual membership retention rate exceeds 90%. Also, the practice of sharing membership cards with acquaintances is known to constitute only a very small fraction of total transactions.

Nevertheless, Costco emphasized a firm stance, stating, "Even if it is a very small percentage, it must be corrected," and "It is not right for non-members and members to receive the same benefits."

Increase Paid Memberships... Subscription Economy Companies Building 'Fences' Around Memberships

Netflix
Photo by Yonhap News

Costco's tightening of membership card supervision aligns with Netflix's 'account sharing ban' policy. Previously, Netflix prohibited multiple people from sharing one account to reduce subscription fees in some countries including the U.S. and South America.

The account sharing ban sparked strong backlash from consumers. This was especially so because Netflix had previously taken a lenient stance, saying "account sharing is love," before reversing its position.

Despite these side effects, Netflix is pushing forward with the account sharing ban due to its effect on increasing service revenue. According to a letter sent to shareholders in April by CNBC, Netflix explained, "(Following the ban on free account sharing) it soon led to positive results in the form of increased paid customers."

According to data released on the 23rd of last month by streaming industry analytics firm Antenna, the average daily number of new subscribers during the four days after Netflix announced the account sharing ban increased by 102% compared to two months prior. This is interpreted as a temporary surge in paid accounts as users who canceled shared accounts re-subscribed individually.

Companies like Netflix and Costco, which rely on operating profits from the so-called 'subscription economy,' are facing a critical crisis of slowing growth. The subscription economy grew rapidly during the COVID-19 pandemic but has clearly slowed down recently.

In fact, Netflix's new subscriber count in the first quarter was 1.75 million, significantly below market expectations of 2.41 million. The crackdown on membership sharing is a desperate measure chosen to overcome this situation.

Costco also expects to secure additional paid members through this measure, similar to Netflix. Cathy Thomas of management consulting firm KCI predicted, "An increase in paid members is expected as a result of this measure."

Neil Sanders of retail consulting company GlobalData analyzed, "If Costco had good indicators such as growth potential, it would have overlooked membership card sharing," adding, "This measure is due to pressure on corporate margins, rising raw material costs, labor costs, and overhead."