Tag: Small Business

Smart-shopping blogs and magazines teem with stories about the great deals you can get at warehouse stores. Shopping experts say joining a warehouse club can save you money on nearly everything — groceries, tires, even vacations. 

But there’s one obvious snag. Before you can fill up your cart with these bargains, you have to pay an annual fee of around $50 just to get in the door. How can you tell if your annual savings will be enough to offset this membership fee? 

To answer that question, you need to delve into the murky depths of warehouse store shopping. That means getting the details on how warehouse clubs work, what they cost, and how good the prices are on the items you buy most.

How Warehouse Stores Work

Warehouse stores use a different pricing model from other retail stores. Regular retailers, such as Walmart, make their money from the markup they charge. That’s the difference between the wholesale price they pay to their suppliers and the retail price they charge to customers.

According to Entrepreneur, the markup at a typical retail store is around 50%. In other words, the price you pay is twice what the store paid.

By contrast, warehouse stores charge a much lower markup. For instance, Costco’s markup is only 14% to 15%, according to Forbes. They make up for the lost profits by charging a fixed yearly fee to each customer. 

That’s why these stores sometimes refer to themselves as buying clubs. You pay upfront to become a member, and in return, you get to buy products at rock-bottom prices. In addition, you gain access to various other special deals on everything from health care to travel.

Top Warehouse Store Chains

There are three major warehouse chains in the United States. The biggest is Sam’s Club. Sam Walton, the founder of Walmart, started this store in 1983 as a supplier for small businesses.

Today, Sam’s Club is a nationwide chain with nearly 600 stores in the U.S. and millions of members. Its products range from groceries and office supplies to big-ticket items like jewelry and furniture.

The closest competitor to Sam’s Club is Costco. This chain started in Seattle in 1983. Ten years later, it merged with another club store called Price Club, which had been catering to business owners since 1976. 

Today, Costco boasts over 100 million members and has hundreds of stores stretching across the United States and beyond. The chain sets itself apart from other warehouse stores with its focus on high-end goods, such as organic food and designer jeans.

The third major chain is BJ’s Wholesale Club. BJ’s is a smaller chain than its competitors, with 200-plus stores in the eastern U.S., Michigan, and Ohio. But like Sam’s Club and Costco, it offers a wide range of goods and services, from groceries to vacation packages.

People who love warehouse stores really love them. Forbes reports that Costco members are extremely loyal, with more than 9 out of 10 choosing to renew their membership each year.

And they have many good reasons to feel this way. Warehouse stores offer a plethora of benefits, including the following:

1. Low Prices — At Least on Certain Items

The main reason shoppers love warehouse stores is their low prices. Independent studies have found that warehouse clubs really do offer great bargains in certain areas, such as:

• Groceries. In 2018, Consumers’ Checkbook went grocery shopping at warehouse clubs and supermarkets. It found that prices at both Sam’s Club and Costco beat major supermarket chains by 17% to 41%. (However, BJ’s prices failed to beat Walmart’s.)
• Gasoline. A 2020 analysis by CSP compared prices across gas stations around the country. Costco was the winner, beating the national average price by nearly $0.25 per gallon.
• Prescription Drugs. In 2018, Consumer Reports checked retail prices on five drugs at over 150 U.S. pharmacies. The complete set cost over $900 at CVS, but only $153 at Sam’s Club and $105 at Costco. And some generic drugs at Sam’s Club are only $4.
• Car Tires. In a 2021 analysis by Clark Howard, Sam’s Club was second only to Walmart for the lowest average price on car tires. All three warehouse clubs were in the top six.
• Booze. According to Spoon University, Costco offers the lowest unit prices on all types of alcohol. For those willing to buy in bulk, the club charges significantly less for Skyy vodka and Blue Moon beer than other retailers.
• Pet Food. In a 2019 analysis of name-brand pet food prices by Consumers’ Checkbook, Sam’s Club and BJ’s topped the list for lowest average prices. (Costco, which mainly sells its own Kirkland Signature brand, was not covered.)

2. Access to Services

When you join a warehouse club, you don’t just get access to its products. These stores also offer a variety of services exclusively for members.

For instance, a Costco membership gives you access to Costco’s car-buying service. It provides haggle-free low prices on new and used cars and RVs from approved dealers. It also gives you 15% off car parts and services from participating providers.

Costco members can also save on vacations with Costco Travel. It provides special deals on airfare, hotels, auto rentals, cruises, and travel packages. The store also offers photo printing, banking services, insurance, home renovation, eye care, and bottled water delivery.

Other warehouse clubs offer a similar menu of services. Sam’s Club doesn’t provide banking or insurance services, but it gives members discounts on concert and theater tickets, theme parks, and attractions. 

Sam’s Club also offers discounts on various subscription services. Members can get lower prices on music streaming, video streaming, educational apps for kids, and fitness apps.

Likewise, BJ’s offers travel, vision care, home improvement, and photo services for members. One special perk it provides is free technical support for all its electronics.

3. High-Quality Store Brands

Shoppers are impressed with the quality of warehouse stores’ house brands — especially at Costco. In a 2019 Consumer Reports survey, Costco was one of only three out of 96 grocery chains to earn top marks for the quality of its store brands. 

The magazine’s editors get more specific in a 2017 article. They call several Kirkland products  as good as or better than name-brand competitors. These include laundry and dishwasher detergent, batteries, toilet paper, bacon, mayonnaise, and organic chicken stock. 

Another product that gets high marks from reviewers is Kirkland Signature dog food. According to DogFood.Guide, this brand has “surprisingly high quality” for a store brand. It’s made by Diamond Pet Foods, a leading manufacturer of high-end foods like Taste of the Wild.

Both Kirkland and Member’s Mark, the house brand from Sam’s Club, get good reviews for some wines and liquors. The Beverage Tasting Institute gives ratings of at least 90 points out of 100 to several Kirkland wines and to Member’s Mark tequila, vodka, and gin.

4. One-Stop Shopping

Warehouse stores allow you to condense many errands into one. You can pick up your glasses, shop for shoes, get new tires, book a vacation, and buy groceries all in one trip.

5. Free Samples

On weekends, shoppers at warehouse stores can stroll through the aisles noshing on samples of assorted food items. Naturally, the stores hope that trying the products will inspire you to buy them, but there’s no obligation. You’re perfectly free to chow down and walk away.

6. A Pleasant Shopping Experience

On the whole, warehouse club members are satisfied shoppers. In a survey by Consumer Reports, Costco shoppers reported being more satisfied with their experience than shoppers at nine other major retail chains. 

A 2021 report by the American Customer Service Index found similar results. Costco topped a list of 20 retailers, with 81% customer satisfaction. Sam’s Club and BJ’s came in a bit lower down the rankings, with a respectable 79% and 77% respectively.

7. Good Returns Policies

One likely reason why warehouse store shoppers are so satisfied is that if they’re ever unhappy with a purchase, it’s easy to return. Both Costco and Sam’s Club offer an absolute 100% money-back guarantee on virtually everything they sell.

If you’re not satisfied for any reason, you can return it with your receipt at any time. One exception is electronic items, which can’t be returned after 90 days. BJ’s policy is a bit more restrictive, allowing returns only up to one year.

Although warehouse stores have undeniable benefits, they have their drawbacks too. Here are a few good reasons not to do your shopping at a warehouse store:

1. Membership Fees

The most obvious downside of warehouse club membership is the membership cost. The standard annual membership fee for a household or a business is $45 per year at Sam’s Club, $55 per year at BJ’s, and $60 per year at Costco. 

In addition, all three of the major warehouse chains offer higher-tier memberships. They’re called Executive Membership at Costco, Plus at Sam’s Club, and Perks Rewards at BJ’s.

These tiers cost roughly twice as much as a regular club membership. In exchange, they give you 2% back on nearly everything in the store. That means you have to spend between $2,750 and $3,000 per year before the higher-level membership will pay for itself.

2. Oversized Packages and Quantities

Warehouse stores are known for their jumbo-size packages. Buying in bulk to save money makes perfect sense with nonperishable goods, such as soap or paper towels. You can safely stock up on these bulk items as long as you have the space to store them. 

However, bulk buying can be a problem with products that don’t keep well. A five-pound bag of shredded cheese is no bargain unless you can (and actually want to) eat that much cheese before it goes bad.

3. Limited Selection

Warehouse clubs are good for grocery shopping, but you can’t always buy everything on your shopping list there. In the 2018 Consumers’ Checkbook study, the three warehouse stores only carried about half the items in a standard basket of groceries.

BJ’s was the best of the lot, with about 57% of the items available. Sam’s Club had 52% of them, and Costco had only 44%. Moreover, most of the items at all three stores were only available in bulk containers, not standard sizes.

4. Impulse Buys

Warehouse stores are huge and crammed with an incredible variety of goods. Even if all you need is cereal, milk, and toothpaste, you’ll probably have to walk past jewelry, clothes, and toys to get to those three staples. 

This makes it very easy to fall victim to the temptation of impulse buys. You could easily go in with your three-item shopping list and walk out with a whole cart full of unplanned purchases. Worse, some of these could be big-ticket items like a TV set.

5. Restrictions on Coupons

If you’re in the habit of using coupons to save money on groceries, the warehouse store isn’t the place to do it. Neither Costco nor Sam’s Club accepts manufacturer’s coupons at all. BJ’s takes them, but it only accepts select coupons in digital form.

5. Deals That Aren’t So Great

With such a vast assortment of goods gathered together in one store, warehouse stores seem ideal for one-stop shopping. However, if you buy everything on your list there, you’ll probably spend more than you need to.

My local Costco has great prices on a few staple foods, such as nuts. But its fresh foods, such as produce and eggs, are nearly always more expensive than the ones at nearby supermarkets.

Even paper goods like paper towels and toilet paper aren’t such great deals. Two dozen rolls of toilet paper at Costco cost more per roll than one dozen of the store brand from Trader Joe’s.

Warehouse stores also tempt buyers with big-ticket items like appliances, furniture, and electronics. But these products are almost never bargains. 

For instance, the current Costco savings brochure advertises LED TV sets for $700 to $3,000. But the top-rated LED TV in the same size range at Best Buy costs just $600. And a laptop Costco advertises for $700 is similar to one Lenovo sells for $565.

Deciding Whether It’s Worth It

The best way to figure out whether a warehouse club membership is worth it for you is to check it out in person. Scout up and down the aisles, check prices on the items you buy regularly, and  compare them to the prices at your local supermarket.

There’s just one problem with this plan. Most warehouse stores won’t even let you in the door to check prices without a membership card. One way to get around this problem is to ask a friend who’s a member to let you tag along on their next trip. 

Also, nonmembers are allowed to shop at Costco with a store gift card. However, only Costco members can buy these cards. To get around that rule, ask a friend to buy one for you or buy one secondhand through a gift card exchange site.

Two Real-Life Examples

Back in 2006, my husband and I took advantage of a free day pass to check out the prices at our local BJ’s Wholesale Club. We found that for most items we buy, BJ’s didn’t have lower prices than other stores. 

For instance, the $18 DVDs and $700 laptops in the electronics section couldn’t beat online deals. A 12-pound bag of baking soda cost more per pound than a supermarket store brand. And 24-roll packs of toilet paper cost nearly twice what we paid per roll at Trader Joe’s.

We still found good deals on a few items, like cereal, rice, and chocolate chips. But crunching the numbers, we found that we wouldn’t save enough on these items in a year to pay for the club membership.

But in 2017, we decided to give Costco a try. My husband needed new glasses, and we found the savings on those would more than pay for the $60 membership cost. 

Once we were inside the store, we started finding deals on all sorts of other things we buy regularly. Organic sugar, raisins, nuts, oatmeal, milk, and olive oil were all cheaper at Costco than at local supermarkets.

Here’s a sample of our savings from a single Costco trip. For each item, I’ve listed the amount we bought, the price, and what the same amount would have cost at the next cheapest store.

Product Costco Price Competitor’s Price Savings

Raisin Bran (14.34 pounds) $21.87 $24.38 (Aldi) $2.51

Brussels Sprouts (2 pounds) $4.99 $4.99 (Trader Joe’s) $0

Clementines (5 pounds) $5.49 $5.49 (supermarket sale) $0

Birdseed (80 pounds) $27.98 $31.96 (Lowe’s) $3.98

Organic Raisins (4 pounds) $10.79 $11.96 (Trader Joe’s) $1.17

Walnuts (3 pounds) $10.89 $14.97 (Aldi) $4.08

Canola Oil (6 quarts) $7.69 $9.00 (Shop-Rite) $1.31

Organic Sugar (10 pounds) $7.99 $17.45 (Trader Joe’s) $9.46 (less packaging waste as well)

On this one trip, we saved a total of $22.51 on a bill of $99.54. That means we saved about 22% off our entire bill. According to our credit card statement, we spent a total of $723.50 at Costco in 2018. If we saved 22% on everything we bought there, that’s a savings of $159.17.

In addition, by becoming members, we qualified for a Costco credit card. It offered 4% cash back on gas, 3% on restaurants and travel, and 2% on everything at Costco. Those rewards save us another $34 per year or so.

So, all told, our Costco membership is saving us over $193 per year. That’s more than three times the cost of the membership card. 

Factors That Affect Your Choice

As you can see from our experience, warehouse stores aren’t all the same. BJ’s Wholesale Club definitely wasn’t a money-saver for us, but Costco definitely was.

However, what works for our family isn’t necessarily what will work for yours. It depends largely on what you buy and how much you pay for it.

Based on our experience, these are the factors most likely to make a warehouse club membership a good deal for you.

Bulk Buying

On our initial trip to BJ’s, we had to pass up a lot of deals because the containers were too big. A 30-pound sack of rice cost less per pound than a 10-pound bag, but it would have taken us years to go through it all.

However, if you have a large family or a small business, you probably go through supplies faster. That makes these jumbo-sized packages a more reasonable deal for you. All you need is enough storage space to hold them and keep them fresh.

Brand Loyalty

My husband and I usually prefer to buy store brands rather than name brands. For most products, we find their quality is just as good and their price is much lower. Most of the products we buy at Costco are the ones that come in the Kirkland store brand. 

That’s one reason we didn’t have much luck at BJ’s on our first trip. Most of its products, at least at the time, were name brands. The store’s price for Star-Kist tuna was cheaper than the price for Star-Kist at our local Stop & Shop, but no cheaper than the Stop & Shop store brand.

However, many people are loyal to specific brands. For instance, your family may insist on Heinz ketchup or Downy fabric softener. If so, there’s a good chance that a warehouse store can offer you a better price on it than your regular supermarket. 

But before you sign up for a membership, make sure the warehouse store actually stocks the specific brands you want. If you shelled out $50 for a membership card and then find out the store doesn’t carry Heinz ketchup, you’re out of luck.

Few Local Supermarkets

Nearly all our food savings from Costco come from just a few items. On most foods, especially fresh foods, the warehouse can’t beat the prices at our area supermarkets. Even if their regular prices are higher than Costco’s, we can always wait for a sale.

However, in some areas — especially rural areas — there are no big supermarkets. The main food sellers are local grocery stores and convenience stores with high prices and few great sales. If you live in an area like this, the regular prices at warehouse stores look a lot more appealing. 

A Convenient Location

Finally, location matters. If the nearest warehouse store is 50 miles away, it isn’t practical to shop there more than once or twice per year. That hardly gives you a chance to get your money’s worth out of your membership. Plus, the cost of gas will eat into your savings. 

But if the distance to the store is less than 10 miles, regular trips become practical. You can visit every few weeks to stock up on everything you need. 

Avoiding the Pitfalls

If you decide to invest in a warehouse club membership — or you already have one — use it wisely. To get the most for your money, maximize the benefits of warehouse shopping and minimize the drawbacks.

Don’t Give In to Temptation

Impulse buys are one of the biggest hazards of the warehouse store. This can happen at the supermarket too, but Costco and Sam’s Club have a much wider array of shiny toys to tempt you. 

However, you can avoid them the same way you would in any other store. Make a shopping list and stick to it. If you see something that looks irresistible, don’t stick it right in your cart. Instead,  jot down the item and the price and walk away. 

The next day, take another look at your note. If you still want the item, you can go back to the store and get it. But chances are, by the time you’ve had 24 hours to cool off, the new toy will have lost a lot of its appeal.

Check Unit Prices

Warehouse stores don’t always beat the supermarket on price. However, comparing prices is tricky because the containers at the warehouse store tend to be so much larger. 

To be sure you’re getting a good deal, compare unit prices. That’s the cost per ounce, quart, or whatever unit the product is measured in. 

Some stores have the unit prices of different products marked on the shelf. However, if your warehouse store doesn’t, it’s easy to calculate. Just whip out your phone and divide the total price by the container size. 

Then compare this number to the price you’re used to paying at your regular store. It helps to keep a grocery price book that lists each store’s unit prices for items you buy often. That way you don’t have to try to remember one number while staring at another.

Don’t Overbuy

When you compare unit prices, the biggest container often looks like the best deal. However, a five-gallon tub of mayonnaise is no bargain if it goes bad before you use it up. 

If you’re buying something with an unlimited shelf life, such as shampoo, then buying by the case is no problem. But when you’re shopping in the food department, try to be realistic. Go for a size you can handle, even if the unit price is a bit higher.

Focus on the Best Deals

It’s tempting to take advantage of the warehouse’s store’s variety and do all your shopping in one trip. But if you do this, you’re almost sure to overpay for something. To get the most bang for your buck, focus on the items that are great deals at your particular store. 

This goes double when you’re shopping for a big-ticket item, such as jewelry or electronics. Don’t assume the warehouse store’s prices are lowest. Take the time to shop around and look for the best deal.

Final Word

A single visit may not be enough to figure out whether a warehouse club membership is a good deal for you. If you’re still on the fence, try signing up on a trial basis. 

From time to time, BJ’s Wholesale Club offers a free 90-day membership to give shoppers a chance to get to know the store. Keep your eyes out for these offers in your mailbox and in coupon circulars.

If you don’t want to wait, try BJ’s discounted membership offer. It gives you all the benefits of membership for $25 — less than half the regular price. It’s not free, but it’s a chance to try the store without risking the full $55.

Moreover, all three warehouse chains — BJ’s, Costco, and Sam’s Club — promise a full refund of your membership fees at any time if you’re not satisfied. You can give any of these stores a try for a month or two, then cancel if you decide it’s not for you.