Sunday, August 3, 2014

The trouble with Costco

(photo via Wikipedia)
First, a disclaimer: Costco is a fine store and I have nothing against their products or employees. They are fantastic at what they do, offer some of the best customer service around, and their products are great. It's the way they do business that I take issue with, and that's what I'll be discussing here. I do not hate Costco, please don't send me nasty emails.

I read an article several years ago that changed the way I perceive shopping forever. Everyone should read it, seriously. Go read it now and then come back, I'll wait.

Done? Okay, good. It's actually not an article, but an excerpt from a book called Cheap: The High Cost of Discount Culture. I haven't read the whole book, but the excerpt article definitely makes me want to read more. Anyway, the excerpt article talks specifically about shopping at outlets. It describes the way outlet malls use mind games to entice customers to spend more money. Every store employs tactics like this, of course, but outlets do it in ways that seem contradictory. While a grocery store may put the highest margin products on an endcap where you're sure to see them, outlets intentionally make shopping difficult, appealing to mindset that inconvenience equals savings.



Outlets are typically built farther away from big population centers, forcing you to spend time getting there. Outlets provide less parking than needed, forcing you to circle the lot. Outlets are often outside, forcing you to brave heat and weather to walk between stores. The whole package is designed to make you work to get there. When you are forced to put in effort to shop, you tend to spend more because you want to get your money's worth. The little inconveniences add up to a somewhat unpleasant shopping experience.

Sound familiar?

Here are some quotes from the book. Now, instead of thinking about outlet malls when you read these, think about Costco (or BJ's, or Sam's Club, etc.):

"In the public mind, convenience is a trade-off for price, and price is traded off for convenience. Inconvenience connotes cheap, while convenience connotes pricey."
- - - 
"On average, shoppers spend nearly 80 percent more money at a bare bones outlet mall than they would at a fully loaded regional mall. A popular rationale for this seeming paradox, in addition to the inconvenience hypothesis, is that outlet shoppers spend more to save more on things they really need."
- - - 
"But unlike other shoppers and very much like gamblers, outlet shoppers believe they can "beat the house" by scoring great deals on expensive brand-name products."
The simple truth is that, for the most part Costco's prices aren't any cheaper than other places, at least not by much. There are exceptions, of course, especially with brand name products. If you must have Tide detergent, for example, you can probably find it cheaper per-ounce than at a grocery store. But even Costco's off brand laundry soap is more expensive than Walmart's. The classic example people always point to is the Rotisserie Chicken being an insane bargain at only $5. BusinessWeek even wrote an article about it. But Walmart sells the same chicken for the same price and has for years. I've also heard people excitedly say that they keep their Costco membership just for the gas savings. Personally, having shopped around, I don't find Costco's gas prices to be much, if any, cheaper than other nearby stations.

Even their free samples scattered all over the store could be viewed as a tactic. By offering samples, they increase sales. Plain and simple.

On the whole, however, Costco's prices aren't any better than other places, but they draw you in the same way outlets do: by being intentionally inconvenient:

  • They charge a membership fee. This alone makes the inconvenience factor skyrocket and gives the place an air of exclusivity; "I have to pay to get in, I'm going to get something here I can't get elsewhere."
  • They only accept American Express. This is a business partnership that brings in money for Costco...and makes shopping inconvenient for lots of people.
  • The hot food shop only accepts cash. This is downright laughable and is purely there to add inconvenience.
  • Their products all come in enormous quantities. This tricks people into thinking they're getting a deal when they're most likely paying the same price (or more) per ounce than at Walmart or Aldi.
  • There are always long check-out lines. Have you ever been to Costco and not waited in a long line to check out? Despite having multiple registers, most are closed all the time.
Now I'm not in any way saying that Costco is a bad store. Far from it. There are tons of legitimate reasons to shop there. Many of their large, seasonal items (furniture, grills, etc) can be legitimate bargains, and if you run a business, for example, then even saving a few cents per ounce on a product you buy in bulk can save hundreds. And like I said before, Costco's customer service is fantastic and their own products are high quality.

But for most shoppers (the vast majority, I would argue), Costco does not save money. So it comes down to a decision of preference. If you prefer to shop at Costco because of one of the other reasons I mentioned, and don't mind the prices and inconvenience factors, then that's fine and I respect that. 

Personally, I won't be renewing my membership.