More
close ad

Warehouse Club Secrets: How They Make You Spend and How You Can Save

Just because you can buy a 5-pound bag of baking soda or a ginormous sack of Cheez Doodles doesn't make it a brilliant idea. Staying mindful of that fact is just one of the secrets to coming out ahead when you shop at Costco.
  • Share
  • Print
Shopping at wholesale clubs
Enlarge Image
Tim Marrs

I love Costco. I also loathe it. I'm convinced that if we really tried, my family of six could live solely on stuff bought there. In addition to groceries, we could buy a car to carry them, plus gas, insurance, wine, eyeglasses, prescriptions, even a stock portfolio. On the plus side, Costco saves us a significant amount of cash every month. However, it's a hassle and a commitment -- and if we're not careful, it's an incredibly easy place to get soaked for large amounts of money.

Though I've walked into Costco more times than I can count, I'm still struck by the scale of the place -- not just in terms of square footage. Between the superhigh ceilings and giant boxes stacked nearly to the roof, it's basically the closest thing our town has to a cathedral, and it packs a similar awe-tinged psychological punch. Only the Deity is consumption. The sacrament is that most sacred American ritual: paying less.

Costco immediately wraps me in a heady blend of frugality and excess, a proprietary mixture that's pure genius. Customers experience both states simultaneously, so we feel neither deprived by our thrift nor guilty about our gluttony. It is at once what is right and wrong with this country. What could be more fiscally responsible than driving down the per-unit price on my family's granola bars? And what could be more horrifying than a 5-pound tub of fake cheese spread? Make no mistake, this purchasing power comes at a price. Thankfully, understanding all the ins and outs can help minimize it.

On the surface Costco's premise is simple: buying in bulk can reduce the cost of individual goods. Still, there's no such thing as a free lunch. Costco obtains deep discounts from manufacturers by buying in mass quantities, then passes some of those savings on to members. This forces the chain to operate on extremely tight margins, which limits options. It also means you better have plenty of storage space, because there are no small containers of anything. Want to scour the kitchen sink? Hope you don't mind buying six cans of Comet.

The stadium-like dimensions and crazy-quilt layout give the illusion of choice, but in reality there are far fewer options than at most grocery stores. Often you'll find only one national name in a given category, sometimes accompanied by a store-brand version (those would be the Kirkland products you see everywhere in a devoted Costco-ian's household). The average supermarket carried 47,000 different items in 2008, give or take; most Costcos carry around 4,000. This major differential is what allows the chain to maximize both its wholesale savings and sell-through.

But I'm not knocking the products themselves, you understand. While Costco scores low on the number of brands within a given category, the one or two they have for pickles or juice or whatever are almost always very good. And then there are the aforementioned Kirkland products. We were wary at first but have never been disappointed. From baked goods and bedsheets to milk and laundry detergent, their stuff does a perfectly solid job.

The last variable in the financial equation is the $50 annual membership fee. Don't get me wrong, it's not unreasonable, provided you like their brands and shop prudently and regularly. Making back that fee and then some is highly possible, assuming you remain disciplined. This, however, is no small task. Shopping Costco as a value proposition requires constant vigilance. Lose concentration for a split second and your savings disappear. Temptation lurks in every aisle and assumes many forms. My personal waterloos are Cheez Doodles and baking soda, the yin and yang of Costco pitfalls.

More Smart Savings