Costco has a business model that looks different from that of most retailers.
While many chains rely primarily on selling merchandise at a profit, the warehouse club charges customers an annual fee for the privilege of shopping in its stores.
That membership revenue is a crucial part of the business, and Costco wants to make sure members keep coming back.
Some members are particularly valuable to the retailer, though, and it’s those members Costco might increasingly try to cater to.
Executive members are becoming more important to Costco
During Costco’s fourth quarter 2026 earnings call, management highlighted the growing popularity of the company’s higher-priced membership tier.
“We also saw a record level of executive membership penetration, both in new sign-ups and within the base,“ said Costco CFO Gary Millerchip.
That trend matters because Executive members generally spend more, giving Costco another way to encourage sales and build customer loyalty.
Costco ended its fourth quarter with 42.3 million paid Executive members, an increase of 9.4% from the previous year that brought that figure to an all-time high.
By comparison, total paid memberships rose 3.8% to 84.1 million.
Customers who pay for the higher tier tend to spend more because they want to get the most out of their membership.
“Generally speaking, as members are investing a higher level in the fee, they are psychologically, if you like, looking to get the most value from their membership,” Millerchip said.
“And so we tend to see higher spend on executive members.”
The distinction is important for Costco, which generated $1.849 billion in membership fee income during the fourth quarter.
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Why Costco’s two-tiered membership system makes sense
Some people have criticized Costco for implementing a multi-tiered membership system and offering added perks for Executive customers, like early store hours.
But the structure makes perfect sense, since it gives shoppers a choice while creating an incentive to spend more.
Costco’s standard Gold Star membership costs $65 annually in the U.S., while Executive membership costs $130. Executive members also receive a 2% annual reward on eligible purchases, up to $1,250.
For frequent shoppers, that reward can help offset the higher membership fee. A member who spends $3,250 annually on eligible purchases, for example, would earn $65 back, enough to cover the difference between the two tiers.
The company also has reason to believe that higher Executive membership penetration can improve customer retention. Millerchip noted that Executive members generally renew at a higher rate than Gold Star members.
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That loyalty is especially valuable to a retailer that depends on annual membership fees to support its business model.
Of course, Costco still needs to demonstrate value to shoppers across both tiers. Its appeal rests on competitive prices, bulk purchases, Kirkland Signature products, and services such as gasoline and pharmacy offerings.
But its growing Executive membership base suggests that many shoppers see enough value to pay extra, even at a time when costs are high and consumers are generally looking to cut costs.
Maurie Backman owns shares of Costco
