Do warehouse clubs like Costco save you money in the long run?
This is just one of the stories in our “I’ve Always Asked Myself” series, where we answer all your questions about the business world, regardless of its size. Have you ever wondered if recycling is worth it? Or how to store brands stack against famous brands? Discover more of the series here.
Auditor Anne Prianti from Alpharetta, Georgia, asked:
Warehouse clubs (ie Costco, Sam’s, BJ’s) cost you more than you save? I run a high school kitchen and if my monthly inventory is high (in dollars) it negatively impacts my finances. Wouldn’t buying and storing items in bulk also negatively affect my household finances?
When Sarah Boling was raising five children as a single mother, she remembers being unable to purchase common wholesale household items because she did not have enough cash on hand.
This meant buying, say, a four pack of toilet paper for a few dollars versus a 16 pack which cost more but would last a lot longer.
“With all these kids, you know, toilet paper, paper towels – all that stuff, you go through this stuff pretty quickly,” said Boling, who lives in Inverness, Fla. “So it would have helped if I could have bought large quantities. ”
Now that she has a more stable salary and is married, living in a two-earner household has allowed her to buy wholesale at Sam’s Club, obtain household cleaning supplies and paper products as well as non-perishable foods like spices. She said she saves hundreds every year.
Boling’s past experience reflects the “poverty penalty” – a phenomenon in which low-income consumers actually pay more than the rich.
Low-income households tend to buy smaller packages from cheaper brands. This undermines their efforts to save money because the unit price is higher than that of items sold in bulk, according to a 2016 working paper by Professor Yesim Orhun of the University of Michigan and Mike Palazzolo, a PhD. student at the time.
Their data showed that when low-income households buy toilet paper, for example, they pay 5.5% more per roll than if they had shopped the same way as high-income households. These households buy in bulk and take advantage of the sales more often. These less well-off households not only lack the initial cash, but they do not have the space to store additional items, so they cannot wait for the products to go on sale.
The study also showed that they take advantage of discounts and wholesale when they have more cash.
“I was certainly aware that I was essentially spending more money than I should have spent,” Boling said. “I have been fairly poor for most of my life and have been a single mother for a long time. So basically you have to get what’s the cheapest.
Nicole Dow, editor-in-chief at The Penny Hoarder which focuses on saving and budgeting strategies, said warehouse club buyers can usually see price breakdowns that help them make smarter decisions.
“When you look around the store, you will see that the store will actually list the unit price,” Dow said. “And you can use it to compare. Because there are times when you might find that the item you usually buy is better to buy a single item rather than a bulk item.
She also noted that while bulk foods tend to have a lower unit price, you need to make sure you can eat them before the expiration date.
Echoing this point, Kara Grant, assistant professor of economics at Missouri Western State University, pointed out that your family size affects the benefit of these offers over the long term. Buying items like fresh produce in bulk, for example, may not be the best option for small households.
For non-perishable items, Dow suggested that you could share the cost with a roommate or friend.
Purchases at warehouse clubs, such as Costco, Sam’s, and BJ’s, also require a membership fee of between $ 55 and $ 120 per year, depending on the tier you purchase. Boling pointed out, however, that warehouse club memberships are another thing low-income consumers usually can’t afford to buy in advance.
One tip offered by Dow is to find someone, like a neighbor, who has a subscription and who can pick up an item for you. You can then reimburse them for this purchase.
“If you only go shopping once a month, or if you don’t really get the most out of that purchase, it might not be a good deal for you to shop at these stores. “said Dow. “But you can still buy in bulk at your everyday grocery stores. ”
Nancy Wong, a professor of consumer science at the University of Wisconsin-Madison, said she stopped shopping at Costco because she felt like she was losing money.
“I remember buying things like guacamole,” she said with a laugh. “I realized that I could only reduce the quantity. I ended up throwing the rest away.
There are lifestyle features, which are easily taken for granted, that go along with being able to shop in stores like these. For example, you need to have a car and a house with storage space to accommodate these items, Wong said.
Costco “is clearly targeting a particular segment of the market,” she explained.
The typical Costco shopper is a 39-year-old Asian American woman who earns more than $ 125,000 a year, according to data from analytics firm Numerator provided to Insider. The big-box chain attracts a richer clientele than stores like Walmart, hence its luxury offerings.
Orhun of the University of Michigan said that to help reduce costs associated with not being able to buy wholesale, retailers could provide low-interest lines of credit or manufacturers could run promotions.
“There are ways to save money if you have the money,” Boling noted. “And you can’t do that if you don’t have the money.”