Costco Is Cracking Down on Membership Sharing

The success of Costco’s business model relies on rigor. The wholesale retailer, which uses a membership system, strictly monitors entrances and exits and double checks customer receipts.

But for friends and relatives of members, there was a well-known hack for scoring Costco’s low prices without paying an annual fee: the self-checkout lanes. Some users found they could borrow a member’s card, or a member’s QR code from the Costco app, and avoid the identification requirements of the regular checkout lanes.

That workaround is coming to an end. The company said in an emailed statement on Wednesday that it had noticed that nonmember shoppers had been using other people’s membership cards, which according to Costco policy are nontransferable, in the self-checkout lanes.

“We are now asking to see their membership card with their photo at our self-service checkout registers,” the company explained, adding, “If their membership card does not have a photo, then we ask for a photo ID.”

Costco is beloved by consumers for its $1.50 hot dog-and-soda combo, towering rows of inexpensive bulk goods and its signature Kirkland brand products — everything from linens to liquor. A regular membership costs $60 a year, and an executive card costs $120 a year.

Katie Thomas, who leads the Kearney Consumer Institute, a management consulting firm, said it was a “not unreasonable hack” for occasional shoppers to borrow a friend’s Costco card or QR code, adding that she thought it could lead to new paid memberships. Ms. Thomas said she herself was recently scolded at a Costco for using her mother’s membership card, though she said she was also a member.

Costco said in its statement that it was “able to keep our prices as low as possible because our membership fees help offset our operational expenses, making our membership fee and structure important to us.”

The retail market has grown tighter, said Neil Saunders, managing director at the retail consulting firm GlobalData, who guessed that reasons for the crackdown at Costco might include increasing pressures on corporate margins and the rising cost of commodities, labor and overhead for wholesalers.

“They probably turned a blind eye to it whilst growth and everything was looking rosy,” he said, but are becoming stricter in a more difficult economic environment.

Though Costco faced supply constraints and labor shortages during the pandemic, it reported strong operating results for 2022 in an annual report that also boasted about new items, including “BBQ pellets, women’s jeans, reformulated dog food, sauté pans, fresh mini cakes and chicken yakisoba.”

The company also reported that it had nearly 119 million cardholders last year. Revenue from those membership fees totaled $4.2 billion in 2022, up 9 percent from 2021. Costco’s net income was $5.8 billion last year, the company reported, up from $5 billion in 2021.

“You see the importance of the membership model,” Mr. Saunders said.

The member renewal rate was around 90 percent worldwide in 2022, the company said. Costco has not raised the cost of its membership since 2017, but executives indicated in a recent earnings call that the cost might increase.

Ms. Thomas pointed out the clear parallel to Netflix, which announced last month that it would begin kicking people off the service if they were using someone’s account for more than 30 days while at a different location, attributing its crackdown to shifting economic forces and increased competition.

Costco said on Wednesday, “We don’t feel it’s right that nonmembers receive the same benefits and pricing as our members.”