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.