Costco has a generous policy many members don’t know about

Published 8:58 am Sunday, February 4, 2024

By Daniel Kline

: Cheap gas has been a driver for Costco.

Costco puts its members first. That’s because the warehouse chain’s success comes not from what its members buy, but from retaining those customers from year to year.

The chain puts every decision it makes through the lens of whether the move would be good for its paid membership. Costco (COST) – Get Free Report fully understands that its customers expect low prices and high value over anything else.

That’s why you don’t see the chain adopt the latest technology or even invest in store displays. Costco’s warehouses are literally warehouses with pricing added. If the chain spent money on fancy displays or anything else, its costs would increase and force the warehouse club to raise prices.

Costco also discloses information about its expense structure more openly than many of its rivals do. That’s an effort to be transparent to members when market conditions force prices up.

Chief Financial Officer Richard Galanti, for example, talks openly about inflation during the company’s earnings calls.

“In the last fourth-quarter discussion, we had estimated that year-over-year inflation was in the 1% to 2% range. Our estimate for the quarter just ended [was] that inflation was in the 0% to 1% range,” he said during the retailer’s first-quarter call.

He also noted that the chain saw deflation on certain “big and bulky items like furniture sets due to lower freight costs year over year.”

Galanti shares this info because Costco sees its members as partners who deserve to understand why prices move. The chain, however, also realizes that having a good relationship with its members is not solely about pricing,

Cheaper gas is a draw for many Costco members.

Image source: Kevork Djansezian/Getty Images

Costco has a generous return policy

Most retailers have specific return policies that require a receipt and limit returns to a specific time period. That’s not the case for Costco, which has an absurdly generous return policy.

“We guarantee your satisfaction on every product we sell, and will refund your purchase price,” Costco shares on its website. There’s no time limit on those returns and the chain does not require a receipt.

Costco does have some exceptions. Electronics, for example, can be returned only within 90 days, while any diamond larger than one carat requires all the original paperwork and is subject to an inspection by a certified technician.

The retailer also does not allow alcohol or cigarettes to be returned, and gold bars, something it only recently began selling, along with a small list of other items can’t be returned. Aside from those, you can theoretically buy just about anything from Costco, wait a few years, decide you don’t like it, and bring it back.

Target and Walmart have a 90-day return policy on most items with receipts or other proof of purchase required.

Costco trusts its members

Costco recently said that it does not have the same retail-theft problems that rivals including Target and Walmart have complained about. That could be because since people pay to join the warehouse club, they feel a deeper connection to it than they might to a traditional store.

It’s also possible that shoplifters don’t want to pay a membership fee to access the store so they can steal from it.

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But it’s clear from Costco’s return policy, which has been in place for decades, that the chain trusts its members. If people widely abused the policy, the retailer very likely would have changed it.

Amazon, for example, flags certain accounts when too many items have been returned. That discourages people from buying certain items like clothing from the retailer. You don’t want to get put on the naughty list simply because you’re struggling to find the right size.

Costco’s relationship with its members is strong, and that’s rewarded by the incredible membership renewal rates the chain routinely delivers.

At fiscal-first-quarter end, Costco’s U.S. and Canada renewal rate was 92.8% while the worldwide figure came in at 90.5%. Both rates were up 0.1 percentage point from 12 weeks earlier, at the end of the fiscal fourth quarter.