Seven years ago, I was introduced to and fell in love with Costco. For those who may not be familiar with its format, Costco is a membership only wholesale warehouse club that sells a wide selection of merchandise in bulk sizes. It’s a giant of a company coming in only behind Walmart on the 2014 list of largest U.S. based retail stores for total worldwide sales.
The allure of Costco is palpable the moment you walk in the doors. Big open spaces, big shopping carts, big packaging, big slices of pizza at the food court…it’s all big. Add to that the big savings of buying in bulk and you have a shoppers dream.
Indeed, I was intoxicated all those years ago at its format and the prospect of saving money. “Look how much we are saving on diapers!” I remember exclaiming the first time we shopped there. It only took one trip for me to become hooked.
Two years ago the unthinkable happened. I began to fall out of love with Costco. The reason was simple…the company began to rethink its target audience.
Costco Business Centers
In mid 2012, we received a letter from our local Costco stating that the company would be converting to a new concept store known as a business center. At that time, our location was the ninth such center in the country and the only one on the east coast. The letter informed us that we would be seeing changes to the merchandise as the store transitioned to its new products. I was intrigued but also worried to see the new offerings.
The reason for my worry was because the letter stated that business centers are more oriented to small business owners. To this end over 70% of the merchandise in these stores is not carried at a normal Costco. Items such as TVs and other electronics, apparel, sporting goods, jewelry, toys, house wares, tires, books and CDs, and many other items are not sold. The deli and bakeries are removed. While they still carry food products, many of the items we had come to enjoy were eliminated.
Needless to say, once the conversion happened, our shopping cart was never as full as it used to be. That had a direct result on our savings and caused us to rethink whether our membership was worth it.
The Cost of Membership
Costco’s membership plans come in two tiers: Gold Star and Executive. The Gold Star level membership costs $55 annually with no additional benefits. Those who purchase the Executive level membership for $110 annually enjoy the perk of 2% annual reward (up to $750) on most Costco purchases.
So the Executive level membership works as long as one spends enough to recoup in reward dollars the $110 membership fee. If you can’t get back that amount it’s best to purchase the standard Gold Star membership.
After the change occurred, we continued with our Executive membership. Because of the change in products at the new business center, our spending at Costco began to decrease. They simply weren’t carrying as many items we were interested in purchasing. When it came time to renew, the reward check we received did not come close to recouping the cost of the Executive level membership.
Naturally, this was discouraging and we downgraded to the Standard Gold membership level.
Saving Without Costco?
Once the downgrade in membership occurred, I decided to get serious about whether or not Costco should even be a viable shopping option for us. I mean, why even spend the $55 for a basic membership if the savings aren’t there? As members, we had been regulars there about every six weeks, shopping for mainly groceries and household paper products. I wanted to see if the savings still justified the membership and the cost of gas and time to drive there.
So for this first half of 2014 I decided to only shop at our local grocery store (Publix), purchasing all the comparable items I would have otherwise bought at Costco. I’ve been closely tracking expenses in our budget and comparing that to what we purchased at Costco and Publix during the same time frame in 2013. All those years of being a member, I had been working under the assumption that the combination of shopping at both locations, buying some things at Publix and other items at Costco, was saving us money.
Turns out that wasn’t an accurate assumption.
For the first five months of 2014, I’ve spent $700 less on groceries while not doing any shopping at Costco.
Because of this reduction in spending, we no longer see the relevance of continuing to be members. The products at our local business center no longer match our needs and, as demonstrated by my five-month experiment, we are actually spending less overall.
This experience has reinforced some valuable lessons, mainly that:
1. I should continue to evaluate my spending patterns,
2. The lure of saving at warehouse clubs can actually lead to overspending, and
3. I should do a better job of cost comparisons when dividing purchases between multiple stores.
In no way am I suggesting Costco is making a mistake by targeting businesses in some areas of the country. They obviously feel that is the model that will move their profits forward. It seems to be working well for our local store.
All I know is that it’s not working anymore for our family. Bye, bye Costco…it has been great knowing you.
Do you shop at a warehouse club? What’s the big draw of these stores? Have you analyzed whether it saves you money in the long run? What’s your favorite item to purchase at Costco or any of the other warehouse stores?
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