Costco’s loyalty engine still earns its price
- Comparable sales excluding gas and currency effects held at 7% in Q3 2026.
- Membership fee revenue grew 11%, still strong but slower than 14% in Q2.
- Digitally-enabled comparable sales rose 21%, a small step down from 23% last quarter.
- Renewal rates stayed high at 92.2% in the U.S. and Canada and 89.7% worldwide.
- The main concern is whether online-acquired members keep renewing at the same pace as warehouse sign-ups.
Loyalty is still the engine
Costco’s thesis is steady. The company keeps bringing members into warehouses, selling high volumes at low prices, and earning a large part of its profit from membership fees. Q3 2026 kept that pattern alive, with comparable sales excluding gas and currency effects holding at 7%.
The best part of the story is still the fee stream. Membership fee revenue grew 11% in Q3 2026. That was slower than 14% in Q2, but it is still double-digit growth from a high-margin source. Digitally-enabled comparable sales also grew 21%, showing that online and digitally assisted shopping remain useful growth tools.
The bear case is not that Costco is broken. It is that the stock already expects a lot. The valuation view is not cheap, so Costco has less room for mistakes. The key open questions are digital margins and whether online-acquired members renew at lower rates as that channel gets bigger.
Management gave investors a clearer warning in Q3 2026: memberships sold online renew at a slightly lower rate on average. Overall loyalty still looks strong, with renewal rates of 92.2% in the U.S. and Canada and 89.7% worldwide, but that mix shift is now a real item to watch.
Low prices, paid access
Costco charges people to shop. That simple idea changes the whole model. Membership fees bring in repeat revenue, and the warehouses use that fee base to keep product prices low.
The stores carry a limited selection of items compared with many retailers. That helps Costco buy in large volumes, turn inventory quickly, and keep costs down. Kirkland Signature, its private-label brand, also lets Costco offer lower prices while keeping more control over product quality and margin.
The model can break if members stop seeing clear value. It can also weaken if Costco must spend too much on wages, supply chain costs, digital delivery, or price cuts to defend its reputation. Because retail margins are thin, small cost changes can matter.
Costco’s own filings say its e-commerce business has a lower gross-margin percentage than warehouse operations. That matters because digital sales are growing quickly, but the company does not disclose the full profit profile of that channel.
What fills the carts
Membership fees
This is the core profit engine. Fees grew 11% in Q3 2026 and help fund low merchandise prices.
Core merchandise
Food, sundries, non-foods, and fresh foods drive the main warehouse trip. Costco uses a limited selection to move goods quickly.
Kirkland Signature
Kirkland is Costco’s private-label brand. It helps Costco offer value versus national brands and can support better merchandise economics.
Warehouse ancillary services
Gasoline, pharmacy, optical, food court, tire installation, and similar services bring members back more often. Gasoline was about 12% of fiscal 2024 net sales.
Digitally-enabled sales
This includes e-commerce and other digitally assisted sales activity. Digitally-enabled comparable sales rose 21% in Q3 2026, but margins are still an open question.
Travel and business centers
These add ways for members to use the Costco relationship outside a standard warehouse trip. They are smaller than the core store model.
Still a North America story
Shares use fiscal 2025 total revenue by geography from Costco’s 2025 10-K segment note. U.S. and Canada made up about 86% of net sales, and California alone was 26% of U.S. net sales in fiscal 2025.
What could go wrong
Online member renewal gap
Medium impact · Medium oddsCostco said online-acquired members renew at a slightly lower rate on average. That is not a problem today because overall renewal is still high. It could become a bigger issue if online promotions become a larger source of new members.
Digital growth with weaker margins
Medium impact · Medium oddsDigitally-enabled comparable sales grew 21% in Q3 2026, but Costco’s filings say e-commerce has a lower gross-margin percentage than warehouse operations. Fast digital growth is good only if the profit trade-off stays manageable. The company has not disclosed enough detail to prove that yet.
North America concentration
High impact · Medium oddsCostco depends heavily on the U.S. and Canada. In fiscal 2025, those two markets produced about 86% of net sales and 84% of operating income. California is also a major concentration within the U.S.
Price war against giant retailers
Medium impact · High oddsCostco competes with Sam’s Club, BJ’s, Walmart, Target, Amazon, supermarkets, gas stations, and hard discounters. Its promise is low prices. If competitors force deeper price cuts, Costco may protect member value at the cost of margin.
Cyber and supply chain disruption
Medium impact · Medium oddsCostco runs high-volume stores and online systems that depend on technology and logistics working well. Its risk filings call out threats such as phishing and ransomware. A serious disruption could hurt sales, trust, and store operations.
In one breath
How does Costco make money?
Costco sells merchandise at low prices and earns an important part of profit from membership fees. The fee model gives members a reason to keep shopping and gives Costco a steady income stream.
Why are membership renewal rates so important for Costco?
Renewal rates show whether members still think the fee is worth paying. In Q3 2026, renewal rates were 92.2% in the U.S. and Canada and 89.7% worldwide, which supports the bull case.
Is Costco’s digital business a good thing?
It is a growth driver, with digitally-enabled comparable sales up 21% in Q3 2026. The open question is profit, because Costco says e-commerce has a lower gross-margin percentage than warehouse operations.
What is the biggest risk for Costco stock?
The biggest risk is not one single event. It is that a well-loved business may already be priced for steady execution, while digital margins, online member renewal, and North America concentration still need monitoring.