Costco is a Rip-Off

My husband and I used to believe in Costco. We bought Costco cards and went into the big-box retailers’s store regularly; and when we came out, having spent hundreds more than we would have in a trip to a regular store, I mentally justified it by telling myself we’d saved money by buying items in larger quantities. Then, early in our marriage we ran into a tough spot financially and I started keeping a diary of food costs at various grocery stores. To my surprise, Costco wasn’t cheaper at all. We could get similar items in bulk sizes at Smart & Final at the same price, and sometimes even for less; and loss-leader sales at our local grocery stores always beat the Costco price, and were sold in more convenient sizes for our 2-person family.

I already hated the insult of shopping at Costco. Just going in meant having to bypass some crazy door Nazi who insisted on seeing the Costco card, even though it would be impossible to buy anything without it; the checkout lines were always dreadfully long and headed by surly clerks; and God forbid the day when one spouse had brought his card and the other spouse had brought her checkbook, because if check name and card name didn’t match, even if both spouses have the same surname, only cash would do. Furthermore, we’d have to wait in another long line just to get out, so another door Nazi could carefully check our purchases against our receipt, as if it’s possible to smuggle out a big screen TV. We ended our relationship with Costco, and only went back briefly when Neil was a baby for their bulk pricing on diapers and formula; but we didn’t bother to do so for Kelly.

Yet most of the people I know still swear by the belief that Costco is saving them money, and think the $50 card fee and the hassle is worth the savings. I know people who go into the store every day, and the parking lot of the Almaden Costco near us is always packed. On a certain level, honest Costco mavens will admit that they’re paying more for their food than I am pouncing on supermarket promotions and driving to Wal-Mart, but there’s another element of it that Peter calls “adventure shopping.”

Costco adventure shopping is the particular thrill of snagging one or several of the consumer items Costco buys at a bulk discount and makes available to its shoppers. Peter talks of a Kitchenaid mixer he found at a price well below other places one year; I still have a suede skirt that can’t have cost me more than $30. But today, in the age of Froogle and Gasbuddy, I’ve become more cynical about those bargains. One year, several mothers from Neil’s second grade classroom were teamed up to buy a Christmas gift for the artistic son in a certain impoverished family. One of the daily Costco shoppers came to our team, thrilled that she’d seen an easel at Costco for only $30. When I took the information to Peter, he mentioned that IKEA had easels for $12–so we ended up buying one of those and a slew of art supplies to boot.

For their typical customer, a trip to Costco almost always involves unneccessary spending. Do you really need a $600 air hockey table, or did the sight of it inspire in you a desire for air hockey? And if you do have an unquenchable air hockey table desire, did you know that Wal-Mart has a less-flashy air hockey table for only $250? When you were buying that massive $40 gift basket for your uncle, did you even stop to think if he might have been just as happy with a $20 bottle of wine, or some good books instead? Many people cite Costco’s “bargain” gasoline a great reason to buy a Costco card, but a quick check on Gasbuddy this morning revealed the price of Costco gasoline to be exactly the same as at the Arco station 3 blocks from my house, and gasoline actually costs even less a few miles east of it.

While researching this piece, I also discovered a hot topic among discount shopping fans is that Costco pays its employees better than Wal-Mart does. But I certainly haven’t seen that difference shown in service. The employees at the Super Wal-Mart in Gilroy are plentiful and cheery. The Costco near us, last time I was there, made us feel like citizens of a police state, and the painfully long wait in line was obvious evidence of far too few cashiers. True, the Wal-Mart in south San Jose has less-than-spectacular employees, but I don’t have to lick their boots going in and out of the place, nor pay $50 a year for the priviledge of doing so.

My title for this piece is an exaggeration, largely to get attention. Costco, after all, isn’t an out-and-out rip-off. If you are dilligent enough to keep a price diary, or compare prices with other stores, you can pick out their bargains. But the membership card does not get you items below cost; Costco has a mark-up on everything it sells, just like any other store. But if you believe you’re saving money by buying everything at Costco, you’re wrong.

Update: I added a new posting identifying some Costco deals, and not-so-good deals here. In short, you can get modest discounts with Costco, if you shop carefully, but many items will cost as much or more than you would pay for similar items elsewhere.

14 Comments

  1. Keith

    Actually, Costco’s business model is that they don’t really charge a markup on their merchandise. Their ‘profit’ comes from the membership fee they charge; the actual merchandise is sold at pretty much their wholesale cost + a flat percentage of overhead for transport, etc.

    Part of the value of Costco is that in many ways they’re very forgiving with returns and customer service. I disagree about the surly associates; for the most part I’ve found the employees at Costco are as good or better than the ones I’ve seen in Walmart or Target, and Costco will let me return things that are broken months later without a huge hassle.

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  2. Steve

    I agree 100% with Carolyn. People are sheep and for some reason just assume Costco is looking out for them and everything must be a bargain. Otherwise why would they have to pay $50 each year to get in.

    The fact is our local Ralphs, Vons & Albertsons consistently beat Costco on things like toilet paper, paper towels and detergent. And that’s if its not on sale at the local grocery store, let alone if it is. Same thing holds true for most produce and frozen items.

    The frozen items used to be everywhere on the map and now it’s an ongoing joke as to the fact that everything seems to be $10, or $20 plus. Granted their are a few things like their eggs, both fresh and the eggbeater types in the boxes that are substanially lower than grocery stores but it is a chore to struggle through the year just to make back the $50.

    I wish I had a profit model like that where I could just charge whatever I wanted and as long as people were too stupid to compare, I could get away with it.

    I also agree on gasoline as it’s exactly the same price as the Arco right down the street. If people would just wake up Costco would lose tens of thousands of members instantly but unfortunately, even in this economy, people are too ignorant. Maybe they figure they can eat $50 worth of samples.

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  3. ala

    I disagree with you when you said your title is an exaggeration. I truly believe Costco membership fee is a rip off. The entire business model is set up to convince the customers that they are privileged to be inside and they shouldn’t even be questioning the cost vs. benefit.

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  4. Bill Wolbach

    For a public school teacher, this blog is rather irrational. No one makes you buy anything at costco. You choose to buy that..you make a consumer choice. There is a lot of whining here over nothing…they have store security..so what? It doesnt really inconvenience you. Calling people Nazis is rather derogatory and does not show a lot of respect for people. I am a teacher also and I am not so sure, with your attitude, I would want you teaching my child. I would prefer a teacher who is more balanced, more reasoned, less irrational. And to trash a companies name for attention is somewhat less than admirable. You have choices..shop only at Costco, shop part time at Costco or dont shop there at all. Although I have had some issues with Costco. they are a company largely responsive to customer complaints. Your responder, Steve seems greedy and rude. Both of you seem to share a certain lack of sensitivity and objectivity. Bill

    cjb comments–Perhaps more was read into the blog posting than was there. Obviously, I do not shop at Costco, and believe the people who think it saves them money are deluded. I do not teach at a public school nor do I send my children there any longer. I also added a link in the article to the urban dictionary definition for “door Nazi,” a term in common usage at least within my crowd in Silicon Valley. Beyond that, thanks for adding your opinion.

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  5. Costco Lover

    I believe Costco offers headache free shopping. Costco is NOT for poor. It’s for middle to lower upper class families. I don’t have time to write down prices for yogurt and oatmeal. All I know is when I shop at Costco I get a GOOD solid price. Maybe not the BEST price but I don’t have time to do worry about 17 cents I will save this week by driving to 5 different supermarkets to get same groceries I can get from 1 place, forget about wasting gas.

    The reason other places can sell stuff for cheaper is because they sell these items at a loss, taking a business class or 2 and perhaps you will understand what sale is.

    The reason they have a “nazi” at the door is to MAKE sure you have membership. Think of it like this you at the register and you just took out everything out of your cart and cashier is asking you for a membership card and you realize that you don’t have it with you. You are going to have to put everything back into the cart, walk to membership and get a day pass. You are wasting cashiers time and most importantly time of other MEMBERS. Do you know how many times I got some idiots in front of me that sneak inside the store and tried to shop not understanding that they need membership first and NO customer behind can’t lend it to them. This is a done for your own well being just like seat belt law.

    Your comment about air hockey table is funny. I drive a Lexus GS350, yes yes I know Toyota Camry is the same thing but “less-flashy” but I LIKE Lexus and not toyota.

    I don’t buy everything at Costco. I sometimes want a cheap chair or a cheap sofa, I go somewhere else. Nevertheless I will say this with 100% certainty that everything they sell is very well priced.

    One last thing, no one is forcing anyone to go to Costco and shop there, it is your own choice.

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  6. Costco Lover

    One more thing. About gas prices – they are not always better but they are NEVER more, I usually save 1 to 3 dollars per tank when compared to BP, no I do NOT buy gas at GAS branded gas stations.

    TO STEVE: You can’t justify paying $50 to buy select few items at Costco, I am going to say this, get an executive membership. I get $500 every year. I saved soooo much money when I booked my vacation to St.Maarten last year, not a single travel agent was able to match the price even though they guaranteed me they WILL match ANYONE.

    Also you claim you can get something cheaper at some stores even when its not on sale. First it could be that the company is doing a marketing promotion where certain items are just priced below the actual price. I had so many people make a claim that bowenty towels are cheaper at this store or that store, I made those people go there and buy it and bring it to me. When they came over to show me, we compared and learned that Costco towels were larger and if you calculate unit cost of material, Costco was cheaper. I am not going to argue with you, I am sure you can find few things that are cheaper in other stores but to me a lot of time saving is not worth driving to some store that’s out of my way to get this item for 30 cents cheaper.

    I also got my Lexus through them, I have few colleagues that drive the same car as me but all of them paid more than I did and had to spend hours at dealerships to get their price, where I just filled out a form, applied for financing, came to dealership, talked my price a little more down and walked out.

    I like to keep things simple,

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  7. Bob

    I find that if you watch the monthly coupons and go for those items in the coupons that you actually would buy over the course of a couple of months, the savings are substantial. During a $400 run, you can save $50 on the coupons and immediately make back the membership fee. The point is not that you couldn’t find a few items elsewhere for less from time to time, but that all the prices are very good overall, all the time. For example, can a local drug store beat the shampoo prices? I doubt it. And they sell generic Rogaine for $18 for a 6-month supply whereas the local stores charge $50 for a 3-month supply (brand name).

    So stock up for a couple of months with one trip and save 5 smaller trips to your local grocery store. I don’t go for the big-ticket items like hockey tables.

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  8. Stauschua

    Have you people looked at the prices your paying. I had my first day off in thirty-three days so I went to Costco on Memorial Day. They were closed. Why because they wanted an excuse not to be open. I was looking for a Coleman cooler and was going to write a nasty e-mail to them. I looked up the price at Costco and it was more than 10% more at Costco than Walmart. I paid $49 and Costco’s price for the same exact cooler $54. It’s not Sam’s club where for business they opened at 7:00 AM and serve coffee and Danish.

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  9. Stephen

    Costco is a RIPOFF!

    Although it may be all warm & fuzzy to believe that Costco is in business to stand up for the little guy… to protect us… but that is just foolish.

    Costco is about ONE thing – money. And when I say money, I don’t mean small amounts. I mean LOTS of money. Tons of money. Truckloads of money. Like every business, Costco wants YOUR money and they want as much as possible. And, they sucker you into falling for their schemes and selling you this “illusion of savings” so, like a crack-addict, you just keep coming back for more. Oh, and throw in the emotional connection… you somehow think they’re sticking up for ‘you’… this gives you some “irrational loyalty” to go along with the perception of savings.

    Meanwhile… all of this equals ONE thing for Costco: $$$$$$. That’s right. Your perception of savings and your emotional connection based on false understanding means money… your money… straight to Costco. They know. They play on it. They love it. And, they want you coming back time and time again.

    Wal-Mart customers are like Microsoft computer users. We use our computer. We do what we need. We don’t make a big deal about it. Meaning, we go into Wal-Mart. Get what we want. Go home. Don’t need to fill this void of having to feel special.

    Costco customers are like Apple users. These computer users have a quest to feel special, and for some strange reason, need to tell everyone they “own a Mac”. Speaking of, when a friend recently showed me his Mac, I simply asked, “So, what EXACTLY does that computer do differently than a Windows machine?” After stuttering for about 3 minutes because he had no viable answer, I let him off the hook and changed the subject.

    The point is – Costco people want to feel like they’re part of some special, selective club. And they are. Just like Mac users. They both spend too much money for something they can get cheaper because they’re missing something in their personal life and they don’t feel special.

    So Costco fans, Carolyn hit the nail on the head with this one. And, if you want to feel special, just remember – “You’re different. Just like everyone else.”

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  10. Matthew

    Costco doesn’t have the best prices, and yet they charge you $50 a year to come to the store. Also, because people pay the yearly fee, they feel like they need to do all their shopping there to justify the membership fee. They also assume they are saving well more than $50 over the year. The truth is, the prices are about the same, and other stores don’t charge you to come in the door.

    In regards to Macs, they are superior to every other manufacturer’s computers, especially in longevity and reliability, as proven by many years of Consumer Reports studies. The OS is easier to use and less crash-prone – that’s just the icing on the cake. And they don’t charge you $50 to come into their store – you can actually go into any Apple Store and check your email or browse the web for free.

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  11. Russ

    Costco UK = not a wholesaler anymore. I’ve noticed that prices have gone up and up and up on a LOT of products. Examples: A nerf gun that is £30 retail @ Toys R Us is a whole £4 cheaper in Costco. A Nintendo DS game that is £25 in GAME (Electronic Boutique) or on Play is actually MORE expensive in Costco. Meat is cheaper if you can justify buying a piece of it that’ll feed a family of 6-10 people. Costco Membership here is expensive. I agree about the Door Nazi comment, especially as you need the card to make a purchase. You do get the odd bargain but its just not worth the effort.

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  12. Nick

    Costco is a f***ing ripoff and a waste of time. When trying to purchase $25 tickets for my mom, I used her card (which apparently is non-transferable).

    I was at one location with my mom who had sold out of the tickets. They gave me horrible directions to another Costco nearly 1/2 an hour away.

    I wound up arriving at the other location only to be told I could not but the tickets because my name wasn’t on the costco card. What a f***ing waste of time and gas.

    Not only were they not helpful but gave false information. I have told all of my friends this and none of them will be renewing their membership for the way I was treated, lied to, and had my time wasted.

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  13. Yvette

    To the person who mentions that she got a deal on her vacation, I am a Travel Agent and I can tell you that Costco is monopolizing the industry. They get the vacations, cruises, and tours for the exact same price as other Travel Agencies but then they take part of the commission and discount the vacation. This is a perfect way for them to earn the reputation that they are cheaper on everything else. The sad part is that many struggling Travel Agents like myself are about to lose their jobs because of Costco. I work so hard just to have client came back and tell me they found it cheaper at Costco. It is so frustrating.

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  14. Richman

    I agree. Shopping at Costco is a horrendous, demoralizing experience and less pleasant than a trip to the local supermarket, and, as Carolyn pointed out, deceptive in its “bargains”. On average, you wind up buying massive quantities of fewer items than you need and spending more money in the quest for “bargains”. Yes, sometimes, you can find a deal on a coffee brewer, but, on the hole, not worth making regular trips for a week’s worth of groceries.

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