The best part of the story is that although membership fees have increased over time, Costco is having no problem in expanding its membership network. In the fourth quarter of 2013, new membership increased 4%, taking the number of members to more than 71 million. Furthermore, most customers are satisfied with Costco's discounts and decide to renew their membership, as evidenced by the recent upsurge in annual membership renewals. In this way, Costco's main profit source is not only improving, it is also recurrent.
Aware of the benefits of having a strong community of customers, Wal-Mart is expanding its Sam's Club subsidiary, which also uses a membership model. However, Sam's Club may be failing to capture market share from Costco. This is because Costco, apart from offering slightly lower price points on certain key products, is trying to improve its customer experience by implementing kind return policies, accepting several payment methods, and adding gift prizes. More importantly, Costco is always changing its brands and introducing new products in order to provide customers with a pleasant "treasure hunt" experience.
At this point, the main advantage that Wal-Mart has over Costco is its pricing power. With more than $400 billion in annual global sales, Wal-Mart can in theory impose the most favorable terms possible from its suppliers and vendors. However, if Costco continues opening 25-40 global warehouses per year, high-single-digit revenue growth rates should help to minimize the pricing power difference between Costco and Wal-Mart.