There’s been a bit of buzz going around because of a recent report by two professors, Michael Norton of the Harvard Business School and Leonard Lee, of the Columbia Business School, that studies the impact of warehouse stores on consumer behavior. Basically, it seems to boil down to: do you spend more at Costco, Sam’s, or BJ’s because you perceive that you are saving money since they charge membership fees and you have been trained by the warehouse stores to think that the items won’t necessarily be there next week so you have to buy them now.
There’s only one article that I’ve read on this, where I think the author actually realizes that you are just as apt to buy unplanned items at a regular store because once you’re buying stuff, it is the store’s goal to get you to buy more. And a lot of those stores, aren’t giving you the deals you get at the warehouse stores, so you will most certainly be overspending. As this article points out, the authors do point out in their report that you can save money at Costco, but this has been largely ignored or overlooked in most of the stories about this report. Here’s a great quote from the report:
Indeed, when we visited both a Costco store — which charges a fee — and a Wal-Mart store — which does not — in New England and recorded the prices of a selection of 20 common consumer products ranging from Lipton tea bags and Goldfish crackers to regular household products such as Duracell batteries and Tide laundry detergent, we discovered two things. First, the two stores generally did not offer the same sized products. Second, when we extrapolated prices to calculate the volume discount, Costco had an average price advantage of 9.5 percent per unit across these product categories compared to Wal-Mart. Thus discount stores like Costco do allow consumers to enjoy lower unit prices due to volume discounts compared to other regular stores that do not charge a fee.
This falls right in step with my own findings when I’ve done my Grocery Store Comparison; Costco is actually saving you money. However, I’m not going to be so silly as to say that you’re not going to buy some stuff that you might not have purchased at a different store. I’ve done it on several occasions when I have seen things that I have been thinking about getting but they weren’t necessarily on my list for the week. Or, more likely, I didn’t know I could get it at Costco. That’s one of the things that keeps shopping at Costco interesting: you’re going to find new items quite often. Plus, if you have much experience shopping with Costco, you’ve probably grown to trust their quality and value. Not to mention, you know that if you don’t like it or the item turns out to be a dud, you can bring it back because of Costco’s awesome return policy.
Now, does all of that make you a naive shopper? And is this any different than people that shop at someplace not a warehouse club, that doesn’t charge a membership fee, but they still buy stuff they didn’t intend to buy? Are you lulled in to a false belief that you are saving money at Costco because of the membership fee? I say that the answer to all of these is a resounding ‘no’.
After writing this blog for over a year now, I think I’ve got a pretty good handle on how Costco shoppers act, and it isn’t in blind trust in Costco to always have the best price or that you must buy everything today even if you don’t want it or can’t afford it. I think it’s sad that shoppers are oversimplified like this by the media covering this report. Most of the people I know that shop at Costco are really astute about price checking and comparisons to a variety of other stores. And as I well know, Costco shoppers love to take advantage of the coupon offers and rebates that Costco often has going and will wait to buy things until there is an offer. I also have several examples on my blog about saving way more than the cost of the membership fee by buying just one single item at Costco; glasses and bookcases most immediately spring to mind. This might sound completely ridiculous and illogical, but it is what the report’s results claim: you think you save at the warehouse store because you had to pay a membership fee.
I feel like I am getting good value when I shop at Costco, not because they charge me a membership fee which would be preposterous, but because of my past experiences there and my own knowledge and comparisons of prices at other stores. My belief is that there are several kinds of shoppers, including those that are careful about what they are buying, those that make and stick to lists, and those that overbuy and overspend. These habits are just part of the your personality and happen regardless of where you are doing your shopping.
And there’s just one last thing, I’m really sick of reading comments like ‘you have to buy 50 boxes of cereal’ or a ’10 gallons of mayonnaise’ when you shop at Costco. Do the people saying these things actually have any experience shopping at Costco? Or are they just making this stuff up as they go along to make the story more entertaining and funny? What do people have against shopping at Costco anyway? Okay, I need to stop now or I am going to completely start a rant about this weird anti-Costco mentality from people that have never even been in a Costco.
Places you can read more about this report: