Yesterday’s post elicited a comment from a reader who wondered if it’s worth joining Costco because their prices aren’t always the cheapest and they offer a limited selection of merchandise. We have been Costco members for more than 10 years now and looking into Microsoft Money reports, we have spent more than two-and-a-half times at Costco than at the next highest retailer. Our purchases at Costco run the entire gamut – a furnace, a flat-screen TV, a bar fridge, automobile tires, furniture, diapers, over-the-counter medicines, groceries like milk, butter, olive oil etc.
The main reason to shop at Costco is the price – they simply have the best price on many of the items that we regularly buy and if you stock up on essentials like laundry detergent, soap, tooth paste and razor blades when they give out coupons, their prices are almost unbeatable. It is not simply anecdotal reports that bear out their low prices. A quick perusal of the financial reports for Costco and its competitors bears this out. Costco’s gross margins (net sales – merchandise costs / net sales) at 12% are lower than Wal-Mart’s 24% and Home Depot’s 34%.
Despite a regular membership that costs $55, shopping at Costco is likely to save money for most people. In fact, we have an executive membership that costs $100 and provides 2% cash back on most purchases. We shop enough that we’ve been getting back the entire membership fee for the past couple of years.
Another reason we really like Costco is their generous return policy. It’s true that they tightened up their policy on computers and electronics to 90 days but that’s still very generous compared to speciality electronics stores. We’ve bought books that remained unopened for months and didn’t have a problem returning them for a full credit.
It is true that Costco has a limited selection. If you prefer Pampers and loathe Huggies, you’re out of luck as Costco only carries the latter. But, we never found this to be a limitation and simply buy the brand or model we like at other retailers. In my opinion, for our household shopping, there are only two minor disadvantages to Costco: (1) As Costco carries many items for a very limited time, we tend to pick up goods that we really didn’t intend to buy. Costco shoppers should also guard against buying something, especially perishables, just because it is on sale. (2) The two local stores that we frequent are extremely busy on weekends and the aisles are packed with shopping carts. Still, the checkout lines move fast unlike other retailers like Wal-Mart.
Bookmark: del.icio.us Digg StumbleUpon
29 responses so far ↓
1 Jerry Hung // May 26, 2008 at 10:14 pm
Like every answer - It depends
What works for one may not work for everyone
I agree that Costco has its benefits, price errors, great return policy, that I occasionally took advantage of. Their staff were friendly as well
But Costco may not be for everyone because:
1. It is too far, you have to a lot just to even out the gas bill
2. You have to buy a lot, usually.
3. I find that, if one looks and be patient, other retail stores can beat/match Costco. e.g. electronics you wait for FS/BB, grocery you have your Sobeys/Loblaws/No Frills/Price Chopper/Food Basics…. then there’s Cdn. Tire and Wal-Mart
Don’t forget, you get $25 Gift Certificate now for the $55 Gold membership signup, making it more attractive
2 JoeTaxpayer // May 26, 2008 at 10:31 pm
I can cite many single visits where I saved more than the cost of membership. Beef Tenderloin - $11.99 (IIRC), selling at $18.99 at the local butcher. Whole piece is about 6-7 lbs.
To be sure, there are some items that on sale at CVS or the supermarket, with coupons, can be cheaper, it’s not every single item, but all in all, I’ll keep my membership.
Joe
3 moneygardener // May 26, 2008 at 10:46 pm
The Exective membership is actually a ‘no lose’ because they’ll spot you the difference if it is not worth your while. I think we’ll probably get about $150 - $300 back in one year over an above the membership price premium.
I would estimate that shopping at Costco probably saves us over $1,000 per year on essentials. The membership cost is a drop in the bucket. You can save the membership cost alone by buying Kirkland Signature diapers instead of Pampers or Huggies.
4 Jennie W // May 26, 2008 at 11:02 pm
Thanks everyone for the comments, especially C.C. It looks like it worth a 3rd try at CostCo. As Jerry put it, the location is not really convenient, but return policy is certainly great if you can keep the receipt (or do you need the receipt?). Great thanks!
5 Cash Canuck // May 26, 2008 at 11:55 pm
I hate to be a stick in the mud…
“flat-screen TV, a bar fridge, automobile tires, furniture…”
Wouldn’t it be cheaper to not buy that TV in the first place? A 2nd fridge adds to your annual electricity costs. The tires, I concede are necessary.
The furniture. I find that furniture can be had for free (or close to it) used, or a floor model at a furniture gallery can be a great deal.
However, for the necessities, if the savings vs ANY other retailer are greater than the cost of membership, then go for it!
6 Jim Somerville // May 27, 2008 at 12:37 am
I tend to agree with Jerry, it depends. I’m single, so I don’t generally need the huge packs of everything. I also find that their produce and food in general is not a great deal, in fact it is often more expensive than in supermarkets, especially the produce. I would tend not to buy meat (especially hamburger) there as there have been too many recalls compared to regular supermarkets for my liking. Go here and search for costco. http://www.inspection.gc.ca/english/corpaffr/recarapp/recaltoce.shtml
They do have a good return policy. But the checkout lines can be torturous and you may have to drive a long way to get there.
7 Dave // May 27, 2008 at 1:27 am
Many people forget that Costco specializes in making you buy more (and maybe eat more as well). Not just by making you buy things in larger quantities but by tempting you to buy things you wouldn’t normally buy, through lower prices.
The problem with all of us is we keep track of “how much we save.” But how much people save at retailers is a meaningless measure. If I tell you that I saved a $1000 last year on car insurance last year would you be impressed? Maybe, until I tell you that I had 5 accidents and my insurance now costs $20,000 per year. If I tell you I saved 50% on bell peppers at the grocery store, you might be impressed, until I tell you that I purchased them at a store that charges $10/pound. It is easy for CC to know how much he “saved” in one year by shopping at Costco, compared to buying the exact same basket of goods at other retailers, but difficult to go back in time and see if he actually would have purchased the same basket or not.
What we should look at is how much we spend. For example, how much you spent on groceries in a given year (at Costco) compared to another year (at Loblaw’s) or how much you spent on groceries in a given year compared to other Canadians. Even these measures are not perfect, but it shifts the focus away from how much was “saved” to how much was actually spent.
moneygardener pointed out that they saved ~$1,000 on “essentials.” The distinction is important as saving money on an essential is real savings. And without a doubt diapers are essentials. I can’t speak for moneygardener, but as for myself, I know if I go to Costco to get Kirkland diapers I’m going to come home with a massive bag of Que Pasa chips, massive buckets of Que Pasa fresh salsa (I’m addicted to it), a big box of SunRipe fruit bars (also addicted to these), and a box of Nature’s Valley’s granola bars.
8 Dan // May 27, 2008 at 3:17 am
Costco is wonderful for most things, but not for everything, for instance computers. Then again here in Calgary we have Memory Express.
The wonderful thing about Costco is usually what they sell is great quality. I wouldn’t consider buying tires anywhere else. For a few dollars more than cheap no name tires, you can get speed rated name brand tires. They have great deals in veggies and they have awesome frozen items, like the huge bag of Chimichangas for about $10.50.
9 moneygardener // May 27, 2008 at 6:25 am
Dave raises some good points about tempting you to buy thing that you don’t normally buy through lower prices. I would agree here although it is not difficult to control the temptation. I would argue that when we ‘need’ or ‘want’ something that we would have bought elsewhere in the past, like a flat screen TV or sort running socks…we now always turn to Costco because we just know that they’ll have the best quality product at the best price. Costco are industry leaders not because of price but because of quality. They are attracting my money that I would have spent elsewhere at retailers that take in more margin dollars. That is real savings as long as you don’t splurge on items that you would not have normally bought just because of low prices. This of course is impossible to measure but it is hard to make a case that I don’t save money when I buy the following items there regularly:
Toilet Paper
Paper Towel
Tooth Paste
Granola Bars
Milk
Bread
Deoderant
Canned Salmon
Baby Wipes
Diapers
Dog Food
Dish Washing Liquid
Laundery Detergent
Fabric Softener
Sausages
Chicken
Tissues
Bottled Water
All of these items would be bought anyway at local grocery stores in lesser quantities for more money per unit. The only difference is that I’d be buying them more often and paying more per unit and likely getting an inferior product.
10 Canadian Capitalist // May 27, 2008 at 8:27 am
Jerry: I agree that it depends. If our local Costco was 50 kms away, I’d stay away as well.
Joe, Jim: We don’t buy meat but it’s good to know that Costco’s meat prices are lower as well. And not so good that their meat is more susceptible to recalls.
MG: Good point that if you don’t earn at least $45 in rebates (the difference between the executive and regular membership), Costco refunds the difference.
Jennie: You don’t have to keep the receipt for a refund. They are really good about it. Still, if it’s very far, I’d probably stay away as well.
Cash Canuck: I didn’t say a flat-screen TV is a necessity. Simply that it’s one of the things we purchased at Costco.
Dave: It’s a good point and I’ve noted that Costco is especially good at getting us to buy what’s not on our list. They even call it “treasure hunting”. However, impulse buying is a problem at any retailer. I’ve once dropped into a Future Shop to buy DVD blanks and walked out with a “great deal” on a laptop. So, it’s perhaps a bigger problem at Costco but not specific to them. We have to watch out for spending anywhere we shop.
Dan: I agree that Costco tends to be of higher quality. We don’t buy computers there either and only rarely electronics.
11 Chuck // May 27, 2008 at 10:26 am
My wife and I always justified our costco membership on the basis that the savings on diapers alone paid for the cost of the membership. We do shop with a list and a budget so we don’t get out of hand in there.
Like anything else, you need to know what the competition is charging to know whether you’re getting a deal. I find paper goods at costco (toilet paper, paper towels) are not worth buying unless there’s a coupon or instant rebate.
There’s also a website, http://www.getmoreofwhatyoulove.ca/ that shows you the costco coupons for that week (Canada only). We always check it to see what’s on sale.
12 Melissa A. // May 27, 2008 at 10:27 am
I have avoided a membership because I don’t think I’d go there enough. It’s out of the way for me, as I don’t have a car. Though I only live in Halifax, I don’t really feel like taking a few hours out of my day (with bus travel) just to buy a giant package of toilet paper and then awkwardly carry it home on the bus. However, I am interested in their picture framing services. Oh well.
13 Canadian Capitalist // May 27, 2008 at 10:42 am
Chuck: Thanks for the website. I didn’t know about it and it’s now bookmarked.
I always pick up toilet paper, paper towels and facial tissue with a coupon at Costco. We also don’t buy produce there - Produce Depot (a local grocery store) has better prices and you can buy smaller quantities.
Melissa: Without a car, I wouldn’t even consider Costco membership.
14 nobleea // May 27, 2008 at 11:37 am
I guess it depends. I’ve never seen the value in a membership since I was always a single guy. Even as a couple, I think it’s borderline when you include the distance and time spent navigating the parking lot. Certainly with children, it probably pays for itself many times over.
I know a lot of people who buy their tires at Costco. Prices seem to be good, but getting in is a nightmare as they don’t take appointments? I have purchased my tires and wheels from tire rack in the states (tirerack.com). Even with shipping and duties, they were substantially cheaper than any local tire store. Probably better for the performance enthusiast, but there are savings for a basic winter wheel and tire package for the minivan as well. If you just get the tires, you’ll have to bring them to a local store to mount and balance (costs about $20-25 a wheel). If you get a wheel and tire package, they’re already mounted and balanced and it takes 45 mins to do it in your garage (the tools are already in your car).
15 Sampson // May 27, 2008 at 12:00 pm
Disclosure note
: I’ve got an Executive membership at Costco.
While I agree that on average, prices at Costco tend to be better than at many other retailers, I disagree that is is THE place to go for cheap things. I don’t feel the analyses that show Costco has lower margins than say Walmart is totally relevant to finding the best price. All this means is that Costco has a consistent margin on most of its products, where as Walmart marks some items up a lot, while others less so.
Sales, are the way to go, especially for staples (toilet paper etc). Every retailer will at one point offer items cheaper than at Costco (even after coupon), you just have to be patient, keep an eye out on flyers and like shopping for value stocks, pull the trigger only when the price is right!
I agree with people that shopping at Costco triggers the ultimate ‘lets buy that too!’ reflex. Next time you are waiting in line, look at all the crap that people have in their carts. For me personally, thank goodness I’m not patient enough to wait most of the time.
16 Gary // May 27, 2008 at 1:48 pm
While a professional shopper may occassionally beat Costco price, their quality of meat and produce in particular is hard to find elsewhere. I live in a remote area and produce purchased at Costco will last at least a week longer than items purchased at another store. The produce is always first quality as is the meat. If you are careful in what you purchase in quantity, even a single person household such as mine can benefit from the Costco shopping habit. As for the membership cost? One set of tires which will save from $100-200 over competitors will pay for the membership. Costco also takes excellent care of its employees and you can expect dealing with motivated, intelligent and customer focused employees at Costco. Viva Costco
17 Billy // May 27, 2008 at 3:39 pm
I will admit that I have never been in a Costco store. Given my poor impulse control at stores like FutureShop, Chapters etc I think that this may be a good thing. What do they offer besides the above listed tires, toilet paper, diapers, meat and produce? Could I buy DVDs or iPods there? Is this the store that Loblaws is going after with its ‘bus stop in the store’ type of commercials?
18 growthinvalue // May 27, 2008 at 6:32 pm
when your mom pays your annual dues as an extension of her membership, despite the fact that you’re nearly 30 years old, i can assure you it’s worth it…
19 Canadian Capitalist // May 27, 2008 at 7:22 pm
noblelea: I recently purchased tires at Costco for $416 for a set of 4 (including taxes) and I already had the wheels. The cheapest at tirerack is $350. So it seems to be an cheaper option.
Sampson, Gary, GIV: Good points.
Billy: Costco does carry DVDs, iPods, books etc. They have very good prices on books but their DVD prices seems comparable to BestBuy but they don’t have the same extensive selection.
20 Cash Instinct // May 27, 2008 at 8:58 pm
Why Costco would give money back to people if they do not get enough $ back from the 100$ membership card? Because they know that people taking the card will spend much more than they would have otherwise.
People at Costco are often buying more than they intended to. It is easy to get a bigger bill with $10 items everywhere (big format, good price, let’s buy it).
It might be a deal if you can control yourself, but if you can’t, even paying less is money out of the pocket.
21 MikeH // May 27, 2008 at 9:33 pm
We enjoy an Executive Membership at Costco and had a couple of comments:
1 ) The quality of the meat/seafood beats the grocery chains HANDS DOWN. Even if the price isn’t better (though it usually is), the quality is much higher. I’d rather pay for chicken breast that tastes good rather than bleached.
(That being said, we’ve bought beef/pork from a local butcher by the Freezer-full for the last couple of years, but we still top up our chicken and salmon at Costco and swear by the quality of the other meats.)
2 ) You can sometimes find sales on products at the grocery store that beat the Costco prices, but the “regular” prices at Costco are generally better than “regular” grocery prices. Sometimes, you can’t wait for a sale - so you head to Costco.
3 ) We get a lot of entertainment value out of going to Costco. The kids love getting “treats” - the samples. We love to browse. That being said, it’s hard to walk out of there without spending at least $100.
22 canabiz // May 29, 2008 at 11:11 pm
One disadvantage of Costco is it doesn’t take Visa or Mastercard. I have the Starwood Preferred Guest MasterCard with MBNA (pound for pound, the best credit card out there in terms of points and rebates) and even though I have a Costco membership, i don’t frequent it as often as I should (we don’t have any kids yet and I tend not to buy things unless I have to, needs vs. wants)
23 WetCoast // May 31, 2008 at 1:20 am
canabiz - you can buy Costco cash cards through their website using whatever credit card you like - it takes a little more effort but nonetheless is very feasible
24 Canadian Personal Finance Blog » Blog Archive » Random Thoughts for a Saturday // May 31, 2008 at 8:04 am
[...] Canadian Capitalist asked the question Is A Costco Membership Worth it? It never made sense for me, but he, as usual, has a good angle on the [...]
25 bobj // May 31, 2008 at 10:59 pm
At this point we would have a hard time functioning without Costco. BUT, we are small business owners AND own a deep freeze. For our business, we buy all our envelopes (for instance) through Costco as we can buy them cheaper than our printer can buy them from the paper wholesaler. For our personal shopping, you can buy products cheaper elsewhere if this week you want to buy your Charmin toilet paper on a big sale from Super Store, your Kraft Ranch Dressing on sale at Sobeys, etc. But, if you don’t want to do that, and want to buy name brands instead of no-name products, you can’t beat Costco across the board. For meat products, we are retired farmers and always had our own beef animals butchered. Now, we only buy our meat from Costco. We would prefer they had AA beef instead of AAA as we find it fatty, but we pick and choose. I think their meat is way better than the alternatives. But, we buy the full loins (pork or beef) and cut them into steaks or roasts at home into whatever size we want. It is cheaper, but you have to be prepared to put out $150 or more for meat. But that will last a long time - as long as you have a freezer.
And the big saving I found was when I purchased hearing aids. The amount I saved will pay for my membership a long, long time.
26 Riscario Insider // Jun 1, 2008 at 12:55 am
We shop at Costco because we trust them. They offer excellent quality at reasonable prices. It’s hard to go wrong with a purchase and if you do, they’re great at giving refunds. We upgraded to an Executive Membership a few years ago and have a Costco American Express card.
If you don’t have a family, the product sizes are probably too big. Not sure what’s there? Visit with a friend.
You never know what you’ll find or how long it will last. That’s part of the appeal but you do need self-control. Comment #10 refers to the Treasure Hunt ( title of a fascinating book by Michael Silverstein), which I describe further here. The book uses Costco as an example.
When we visit the US, we drop by a Costco if possible. They have different products and prices can be lower. In the US, you can even buy gasoline (87 or 93 octane) and cars.
27 Paolo // Jun 14, 2008 at 2:33 pm
I noticed a new service offered by Costco called Concierge Service, available 24 hrs for free technical support on the products they sell. Also, Costco will now extend the manufacturer’s warranty to 2 years for TVs, projectors and computers.
28 Shamj // Jun 16, 2008 at 11:37 am
I was skeptical, but i gave them a second chance and i am loving it!
PS. you can cancel your membership at anytime during the year and get the full value refunded, not prorated!
Give it a shot.
PPS, I also live and work near a costco!
Cheers.
29 MK // Aug 5, 2008 at 10:01 pm
Been a Costco member since their Price Club days,so at least a decade?I am single,but have learned to save money buying the “essentials” others here have also found savings with.
I find the Costco price for “essentials” are more often then not comparable,or less when combined with a Costco coupon to the “sale” price at most retailers.
Verify prices of items before buying at any retailer,rebates can make a difference. Costco will help you save in the overall house hold budget.
Wished Costco would bring more of their gas stations to Canada.
Sample of savings for me:
Costco Dewalt drill set: 18V drill,2 batteries,various drill bits for about $200
Home Depot, the battery alone was about $90
[Saab] synthetic oil change,about $40 @Costco;the dealership about $80
Glass Lock food storage container set of 5,$19 Costco
Glass Lock food storage @ Canadian Tire,$10 for ONE large container
National brand 12 roll toilet tissue, sale price $8.99,Zellers
National Brand,36? rolls, around $18.99,Costco
Definitely get the cost of my executive membership back each year.
Leave a Comment