Costco is not seeking to win in retail through the traditional methods of "selling at a higher price" or "increasing margins." Its strategy is cooler yet more human: turning a shopping visit into a psychological contract that customers renew almost automatically. In its first quarter of fiscal 2026, ending November 23, 2025, the company reported 81.4 million paid memberships (a 5.2% year-over-year increase) and 145.9 million cardholders (up 5.1%) with net sales of almost $66 billion (an 8.2% rise). However, the figure that explains the rest is this: membership fee income surged 14% to $1.329 billion, which is estimated to account for approximately 64% of the earnings for the period, according to the earnings briefing and analysis cited by TheStreet.
The financial narrative is clear: when most of the profit comes from fees, the dividend resembles less a reward for commercial efficiency and more a return on an invisible asset: persistent loyalty with low friction. The corporate temptation is to attribute it to an abstract "value proposition." I would interpret it differently: Costco is winning because it manages a bundle of behavioral forces that push consumers to stay, upgrade, and return better than anyone else.
Fees as Margin: When the Customer Subsidizes Stability
In retail, talking about "predictable profits" is often just propaganda. Costs rise, demand shifts, e-commerce erodes foot traffic, and consumers punish any price hike that smells of opportunism. Costco steers clear of that swamp with a mental architecture: the customer does not pay just to enter a supermarket; they pay to belong to a system where "taking advantage of membership" becomes an ongoing task. That nuance is the source of resilience.
Quarterly data supports this. With $1.329 billion in fees and a 14% year-over-year increase, Costco is financing its profitability with a revenue stream that doesn’t depend on each SKU performing. Even if part of the growth is attributed to the price increase in September 2024 in the United States and Canada, the briefing notes that less than half of the increase comes from that adjustment; excluding the price rise and currency effects, membership income grew by 7.3% thanks to base expansion and upgrades to Executive.
Here arises a pattern that many boards overlook: the fee is not just income; it is a commitment mechanism. Once paid, the consumer feels a quiet pressure to "recover" their investment through visits, larger tickets, and habits that justify renewal. This is the alchemy of the model: Costco can sustain low commercial margins because its "real margin" lives in recurring behavior, not in isolated transactions.
Financially, this stability becomes ammunition for shareholders. The dividend, in this context, does not rely on squeezing buyers with each purchase, but on keeping the membership engine running with renewals close to 90%. This difference reduces the need for aggressive tactics typical of retail, which often erode trust in the medium term.
The Power of the Executive Tier: Selling Functional Status Without Friction
The growth of the Executive tier is perhaps the detail that most exposes the behavioral intelligence of the system. In the quarter, Executive memberships grew by 9.1% to 39.7 million, and these members already represent 74.3% of total sales. The Executive membership offers a 2% rebate on most purchases and costs more than the Gold Star level. Translated: Costco is getting a large part of its base to pay more for the feeling of making a financially "smart" decision.
From the outside, it might seem like just another upsell. From within the consumer's mind, it engages in an identity narrative. The 2% rebate serves as a perpetual justification: I don’t just buy, I “optimize.” When the benefit is expressed as return rather than discount, the customer perceives it as a personal achievement. This subtlety reduces cognitive friction: the consumer does not recalculate each time whether it’s worth it; they internalize it as a rule.
Moreover, Costco anchors value in a criterion that the buyer feels is controllable: buying more and in bulk “makes me win.” The Executive tier becomes a magnet for households with high ticket purchases, those that stabilize sales when the economy becomes less friendly. At the same time, it increases the difficulty of exit: quitting is not simply losing access, but also losing a condition already perceived as rational and deserved.
The strategic effect is twofold. First, it improves income per member without inventing a new product. Second, it concentrates sales on customers with higher retention inertia, which protects the flow sustaining dividends. For the C-Level, this is an uncomfortable lesson: innovation is not always technology; sometimes it is designing a higher tier that customers perceive as a reward for their good behavior.
Nearly Perfect Renewal and the Digital Crack: The Risk Is Not Price, but Connection
Renewal rates remain extraordinary, but the briefing leaves a hint of vulnerability. In the United States and Canada, the renewal rate stands at 92.2%, while globally it dipped from 90.4% to 89.7%, attributed to lower engagement from members who registered digitally. This point is often underestimated because the decline seems small. Behaviorally, it signals that digital acquisition can bring volume without creating habit.
Membership functions when the customer builds a routine: going, browsing, buying in quantity, discovering finds, and repeating. The digital channel, on the other hand, facilitates entry without the same level of ritual. A consumer “signs up” with a click, but they do not always incorporate the behavior that makes renewal seem obvious a year later. This disconnection is an example of deferred cognitive friction: the decision to renew requires recalling benefits, comparing alternatives, and justifying spending. When the experience didn’t generate a personal story, the mind trims it away.
Here Costco faces a modern tension: growing in new markets and channels without diluting the type of connection that sustains the model. With over 900 warehouses globally, expansion must turn openings into high-return communities, not just foot traffic. The risk is not that the consumer complains about the membership price; the risk is that the digital customer becomes a "nominal member," with low engagement and a propensity to lapse.
The company is already suggesting mitigation strategies: improving digital communications, promoting auto-renewal, and adding benefits to increase perceived value. But the core is not the email or the app; it is designing a path that transforms affiliation into habit. When the habit is not established, the business ceases to be a psychological subscription and reverts to being retail with a card.
The Dividend as Discipline: A Model That Requires Customer Care
The most useful reading for a business leader is not in the dividend amount since the report does not specify figures or dates. It lies in the fact that Costco structures its profitability to ensure that cash flow depends on earning renewals. This dependence introduces an operational discipline: any move that increases anxiety or the sense of abuse jeopardizes the most lucrative component of the business.
In 2025, membership income reached $5.3 billion, with renewals of 92.3% in the U.S.-Canada and 89.8% globally. This is the type of income that markets reward with high valuations because it reduces uncertainty. It is also the kind of income that quickly punishes mistakes in experience design, especially when trying to scale internationally.
What interests me is the contrast with the typical reflection of many companies: they invest in making the product “shine” with advertising, features, and storytelling but leave intact the micro-frictions that erode continuity. Costco invests in a continuity device: a system where improvement is measured not just in satisfaction but in renewal. This approach makes the dividend a consequence of nurturing the relationship, not a goal pursued by cutting costs to the bone.
There’s also a governance lesson often overlooked: when fees account for such a large portion of quarterly earnings, the organization becomes hostage to a metric that doesn’t admit cynicism. Traffic can be masked, promotions can be pushed, inventories can be played with. It is more difficult to hide a mass lapse in renewals. Membership, when executed well, forces the organization to operate with strategic humility.
The Real Advantage of Costco Is Reducing Friction, Not Creating Shine
Costco is demonstrating that membership growth can sustain dividends because it turns a low-margin business into a cash machine based on retention. 81.4 million paid memberships, 39.7 million Executive members, and $1.329 billion in quarterly fees do not just describe scale; they describe a design that reduces the need to convince the consumer from scratch each day.
The alert is on the digital and global edge: the decline to 89.7% in international renewal, attributed to lower engagement from digitally acquired members, shows that growing faster can become expensive if it sacrifices ritual, belonging, and repetition. The dividend is not protected by more advertising creativity but by a system that makes renewal the option requiring the least mental effort.
Management teams that take this story as inspiration often copy the shell—a "membership" with scattered perks—and then are surprised when people do not renew. The difference lies in the type of investment: Costco is financing a model where the customer feels that staying is natural. The C-Level that aspires to similar results ends up facing the same strategic verdict: misallocated capital goes into making the product shine when real returns appear by rigorously investing in reducing the fears and frictions that prevent customers from purchasing and staying.
