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Does It Pay To Be A Warehouse Club Member?

Michael Beyman|CNBC Associate Producer
Thursday, 12 Apr 2012 | 4:23 PM ET

Every month, Parthie Orth visits the Costco Wholesale warehouse in Yonkers, N.Y., to pick up a few staples for her family.

A Costco employee pulls shopping charts at a Costco Wholesale store.
Damian Dovarganes
A Costco employee pulls shopping charts at a Costco Wholesale store.

“I’m planning to buy a lot of food today,” Orth said. "I buy the organic chicken and the organic meat. I’m also a huge proponent of the frozen lasagna.”

While some of the items on her list may seem routine, the amount she is looking is to spend is not.

“I’m looking to spend about $1,000,” she said. “I stock up.”

Warehouse clubs are not your garden variety big-box store. The three most popular warehouse chains in the United States —Costco , Wal-Mart's Sam’s Club, and BJ’s — are sparsely decorated and starkly lit; products are unceremoniously displayed on shipping pallets. Many clubs don’t take coupons and some accept only a few major credit cards: Sam’s Club accepts only MasterCard and Discover. Costco stores accept American Express credit cards, and Visa and MasterCard debit cards. Items are sold in limited sizes and usually come in bulk packaging. Yet despite their drawbacks, warehouse clubs are popular; the three stores combined have more than 122 million members.

Membership in these club stores does not come free; each requires you to pay before you purchase a single item. Sam’s Club charges $40 for basic membership, BJ’s $50, and Costco $55. Each of the three clubs also have a premium membership tier that costs about double and pays members a small amount of cash back based on their annual purchases.

Customers may believe they’re paying for a chance to save money, but some experts think membership fees actually cause consumers to spend more.

“Right after you join a warehouse club, the first thing you think is ‘how am I going to earn back that entry fee I just paid?’” said Brian Wansink, a professor of consumer behavior at Cornell University. “It creates a spending, but also a justification mentality.”

As a result, Wansink says, you’re going to spend more so that you feel like you’re saving more.

The Costco Craze - See Show Details
The Costco Craze - See Show Details

“We have this basic view that buying in bulk is cheap. We clearly come home with a lot more stuff; we end up spending more because we are motivated to save money.”

That doesn’t trouble warehouse club member David Ziobro, who shops at the Edison, N.J., Costco. He said he believes his savings justify his membership fee. Even though Ziobro spent $262 on items ranging from chocolate chip cookies to grill cleaner to drill bits he picked up on impulse, he says he’s confident he’s still getting a good deal.

“Yeah, without a doubt my membership pays for itself,” Ziobro said. “I figure I save at least 10 percent to 15 percent overall.”

Warehouse customers who believe that bulk shopping is smart shopping may have a point. According to a Consumers' Checkbook survey published by the not-for-profit Center for the Study of Services, BJ’s prices were on average 29 percent lower, Costco’s 30 percent lower, and Sam’s 33 percent lower than the largest supermarket chains. The survey found that a family that spends $150 a week at a conventional supermarket could save $2,270 a year when shopping at BJ’s, $2,344 a year when shopping at Costco, and $2,571 when shopping at Sam’s Club.

The money saved at warehouses comes at the expense of selection and convenience. Warehouse clubs carry a relatively small array of items in a limited range of sizes. The Consumers' Checkbook survey found that warehouse club shoppers would only be able to find about half of the products they buy at their regular supermarket. BJ’s carries roughly 7,200 individual items, Sam’s club about 4,900 items, and Costco around 4,000. When compared to the average supermarket, which carries about 50,000 items, and the average Wal-Mart, which carries about 100,000, warehouse club members are at a disadvantage in terms of selection. Because of this, the survey noted, consumers would still need to supplement their trip to a warehouse club with a trip to a supermarket.

Orth knows that pitfall of warehouse clubs firsthand. While she ended up spending $550, slightly more than half of what she expected, she still needs to make another shopping trip.

“Even though I spent over $500, I probably will have to go to the grocery store tomorrow,” Orth said. “My mother-in-law always says that the frustrating thing about going to Costco is that you can spend hundreds of dollars, but you still come home with nothing to eat for dinner.”

-A previous version of this story incorrectly stated that Sam's Club only takes Visa and Discover. However, Sam's Club only takes MasterCard and Discover.

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