The Psychological Trap of Warehouse Clubs

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Jonah Lehrer wrote a brilliant little article about Costco over at the Science Blog. An excerpt:

The secret of Costco’s success – and the reason I’m willing to pay just to enter the store – is because I trust the company to give me a good deal. As a result, I don’t comparison shop on my phone when I’m browsing the Costco aisles, checking to see if I can get the same book, or sunglasses, or toothpaste for less on Amazon. My usual cheapskate anxieties have been quieted.

And then, later:

And this is where all those details of the Costco shopping experience make us more likely to spend money. The bare bones warehouse aesthetic, the discounted house brand, the constant reassurance that we’re paying “wholesale” prices – it’s all an effective means of convincing us to not worry so much about the price tag. As a result, we’re able to focus entirely on our anticipated pleasures, which is why I walk out of the store with all this stuff I don’t need.

Quite often in the past, I’ve discussed the advantages of shopping at warehouse clubs. I currently have a Sam’s Club membership (it’s the only warehouse club anywhere near my home) and have visited Costco several times in the past – the shopping experience is almost identical.

What I’ve learned is that almost always, you do save money when you shop there, but only if you buy things you would buy normally anyway.

Of course, that’s not where the profit lies for a warehouse club. If they earn a return on every item you buy, then they make a larger profit. It’s business 101.

Thus, the store is often set up to encourage you to buy more. They already have the psychological benefit of the idea that the stuff there is inexpensive – and it often is – but that often convinces people that things are a “deal” there and that they don’t really have to look at the price tag or think about whether they really need the item at all.

Take, for example, my last visit to Sam’s Club. I went there merely to buy Pull-Ups for my daughter. By the time I neared the checkout, I had several items in my cart – a paperback book, a large container of grapes, a two-pack of my son’s favorite fruit juice, and a few other odds and ends. Once I thought about each of them for a little while, I realized I didn’t actually need most of them – I was only buying them because I wanted them, thought they might serve a use for me, and believed the price was good. So I put them back and left only with the Pull Ups (a big win, in my eyes).

What can you do to avoid falling into this trap and spending more than you should on “bargains” (that aren’t really bargains at all if it’s not stuff you really need)? Here’s how I usually work it.

I don’t go in there without a shopping list. I know what I’m there to buy the second I walk in the door. The trip has a very specific purpose – I’m getting the items on my list and nothing else.

I don’t even go down aisles that do not contain items on my list. Wandering is the enemy of frugal shopping, because you always see something you “need” that’s a good “deal.”

I re-evaluate everything in my cart as I approach the checkout. I look at every single item and ask myself if I actually need it or even want it that badly. Does it really serve a purpose in my life? Is that purpose worth the cost?

I usually shop with a buddy. That buddy is usually my wife. We talk ourselves out of an awful lot of frivolous purchases, which saves us both money. A good shopping buddy is someone who talks you out of stuff and doesn’t talk you into stuff.

Warehouse stores are great tools for minimizing your grocery and household budget, but you have to be careful not to give into impulse buys, which warehouse stores make so easy. Good luck.

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30 thoughts on “The Psychological Trap of Warehouse Clubs

  1. Do you think this is worth it in terms of time? I really have got the feeling that this blog has begun to lose its perspective – your definition of a “big win” is very, very different from most other folks’.

    There’s something to be said about just doing what one feels like especially when such small dollar amounts are involved, without having to analyze and obsess over every last dollar. The experts call this the ‘paralysis of analysis.’

  2. One of the problems w/ places like Costco is the illusion that what we see on the shelves has been discounted so we’re getting a bargain. The reality, however, is that some items have actually been made more cheaply strictly for sale at Costco. Consumer Reports did a piece on this in the last 12 months, and described that the item’s bar code was the same, with one small exception: an “X” at the end, indicating it was a Costco item. Turns out that instead of having the same innards, items like printers, mixers, etc., have plastic instead of metal gears and mechanisms, hence the potential to break more quickly. You apparently do get what you pay for.

  3. Another trick I use: when I only want 1 or 2 things, I don’t take a cart. That way, I am limited to only those impulse buys I can carry, along with my two necessities.

  4. I have had the same experience walking the isles of Costco. When I did a price comparison in my local area, Costco was cheaper for the brand-named processed foods, but was more expensive for bulk raw goods (flour, nuts, rice, seasonings, etc.) Toilet paper and organic salsa are the only Costco items that are a good deal for our family with our eating habits (ymmv). We plan on going once a year with friends to stock up on those two items, but it wasn’t worth the membership fee for us. It was a fun Saturday morning event for a while, though.

  5. Back when I was president of our local Church Womens’ organization, I did a very thorough comparison of prices for basic household and food necessities at all of our local stores. In just about every category, BJ’s had better prices per pound. I also discovered that Walmart plays some very interesting tricks with perceived value on bulk sizes – quite often, the price per unit/pound will be a few cents higher on larger sizes there than the small sizes. Every now and ten, I pull out my old price comparison chart to update and double check on savings. BJ’s still rules with low prices – Walmart’s prices have climbed faster than other stores – especially since the three super centers have driven away over half of their competition.

    Sometimes when shopping at BJ’s, I’ll allow myself one little budgeted impulse buy – like a fun movie or kitchen gadget. That fills my need for frivolity but keeps me within budget.

  6. Des makes a good point. Although I’ve found a few amazing deals at Sam’s (3 pounds of garlic under $3…!), often it’s not a better deal and even when it is, it’s only a couple of cents a pound. It would not be worth it if I was paying the membership fee instead of mooching a friend’s mother’s membership.

  7. Sure, going with a list only go shopping a couple of times a month will save you money. Then you don’t need to fight your impulses so much.

    But hey, who is to say that just because it isn’t on your list you shouldn’t get it? Lots of times we are not aware of what’s available to buy and we only learn at the store. If I’d stuck with my list today I would have left the ethnic market with only a large bag of dried chiles for enchilada sauce and 20 lbs of rice. But I saw there were fantastic mangoes and plantains too so I gladly picked some of those up. It was a fantastic addition to my shopping trip, it was improvisational, and I get to eat some different stuff over the next few days.

    Since I already know I’m coming in under budget so far this month, I have no problem with the add-on purchases.

  8. I always get weird faces when I am at the checkout line just holding a rotisserie chicken while people around me are waiting with two extra large carts of items. I admit, if I had nothing to do, I would probably wonder around the store. Since they only except debit cards or AMEX at Costco, it is the perfect place to bring only cash that way if you don’t have the cash, you can’t buy it.

  9. I do agree wtih #7 — I often have a rough list of what I want to buy, but I’m willing to switch based on what’s on sale. Especially if the item is non-perishable, I am super willing to stock up when something is on sale. I’m working on changing my eating habits, and I’ve discovered that I really like soup. I haven’t yet had the time to make my own, so I’ve been buying canned or boxed soup. The other day, I went to Target to pick up a drying rack, but I also browsed the grocery sales. I found lots of organic soups on sale for $1.80 or so. Each thing of soup is typically two servings for me. So, 90 cents for Definitely glad I didn’t just buzz in, get the drying rack, and buzz out. Now, my cupboard at work is restocked with yummy, healthy soups :-)

  10. I don’t see why you wouldn’t have picked up the juice if the price was good and it was your son’s favourite. It would have surely been used and not wasted. It would have saved you from buying it next week (or whenever) for more money. I think you lost on that one!

    I think a savvy shopper takes advantage of a good deal when they see one!

  11. I gave up my Sam’s membership 4 years ago and am now spending LESS money because I don’t buy crap – in bulk – I don’t need.

    4 years later and I still have stuff I bought in bulk and its sitting in my basement.

  12. I know so many people who get so caught up in a lower per unit price at Costco that they forget to ask themselves if they can reasonably use that many units. It’s not a big deal for laundry detergent, but I’ve seen friends buy the 3 litre buckets of cottage cheese and then either force themselves to eat it all or throw it out when it goes bad.

    One of my friends like this literally does ALL of her grocery shopping at Costco (bulk, produce, everything), and she can’t figure out why she spends so much money. Um, because you buy more food than you need to eat?

  13. I used to shop these places but I stopped for the reasons outlined here.

    Unless you have twenty kids, I don’t see the need for buying most of the stuff they have there.

    I think some of their “deals” aren’t really deals at all.

  14. Even though I recently got a membership to Costco and like to shop there, I am still really skeptical as soon as I walk in. Since I do the majority of my shopping at a regular grocery store, the familiarity with the average prices of things I normally buy is a great tool when walking into a warehouse “bargain” atmosphere. I am constantly going over and comapring prices in my head, breaking down the true cost of the items Costco is offering in bulk with what I know.

  15. i LOVE costco- i don’t buy everything there, because i also shop at aldi and a bakery outlet, and shop rite.

    i’ve posted here before about the real estate referral program we used when we bought our house in june of 2008- we got about $1500 in a check, as well as a gift card for either 250 or 400 or something- i can’t remember.

    and we do the $100 membership that gives you 2% back- then our membership is free or almost free.

    my FAVORITE thing about costco is their vendor conduct policy. if you go to the website you can read it- for example they require their vendors to no use child labor, prison labor, etc. the whole policy is at their site under the investor relations section.

  16. I agree with this article and find that my husband and I overbuy sometimes when we go to Sam’s. I also got burned on some staples. I thought the bulk butter was cheaper than the Aldi price and it ended up being almost twice as expensive. It really pays to have an updated price book.

    But I just love the hot dog and pizza combos at the front. Can’t beat eating lunch for under $2. Sure, it’s not healthy, but once in a while, it’s great.

  17. We have a BJ’s about a mile from our house, so we’re able to go there just to get one or two items.

    That said, the only things I regularly get there are milk and tortellini. All the other food and non-perishable items I can usually get cheaper when they’re on sale at the grocery store or CVS (like diapers).

    We’ve definitely been going less often since our daughter became an active toddler – there are just too many temptations for her in a warehouse store. At a regular grocery store, I am better able to stick to my list and keep her under control.

  18. I keep a price book so I always know what I paid for things in the past to compare a new “sale” to. I also take about an hour a week to gather my coupons and routinely save at least 50% or more off my grocery bill at my regular grocery store. I dont care how big a can of peas you buy at a warehouse store you will NEVER get the saving you get when you use coupons at a regular store! You dont have to go crazy shopping in huge trips to benefit from using coupons, just buy a few extra of an item on a good sale each week and start a pantry. Soom you will be shopping from your store of discount finds and almost everything you use will be bought at half price or less. All for just one hours work a week!

  19. Our local Costco once posted a sign at the soft drink section stating that due to summer promotions on soft drinks available to local markets, the Costco price might NOT be the lowest.

  20. I thought the best deals at Sam’s, were the bulk spices and I’ve found here in Poland, the local “Makro” has the best price on mozarella cheese. The rest of the stuff? I find myself spending more than I would otherwise, if I go often.

    Unlike #1, I think it was a HUGE win, if you made yourself put back all your nonimpulse stuff.. It was a good exercise in self discipline, if nothing else.

    I’ve also found that if I buy or make “a lot” of something, we tend to eat more/go through more–faster. Not sure why, but when I talked with another mom about this, she said the same thing. Mostly I don’t shop at those places anymore.

    In the states, definitely using coupons and local store sales is going to result in lower prices than your local warehouse club, with few exceptions.

  21. I usually visit Costco with a list and a max cash amount of $300 month for our shopping. I get want I need based on the $300 limit…Interesting I priced out my 52″ SONY HD TV at other places I got it almost $500 less plus Costco extends the manufacturer warranty and has a great return policy..these are soft benefits that makes them so popular.

  22. This is silly…. ALL, yes ALL, stores are set up to get you to make impulsive purchases, not just the warehouse clubs. They are all in business to sell you items. Let’s all take personal responsibility for the purchases we make and stop blaming a lack of self-discipline, whether it be sporadic or habitual, on the retailers (regardless of who that retailer may be). After all, nobody is forcing any of us to buy anything.

  23. We do go to Costco once a month, and we buy a lot of non-perishable stuff in bulk, since we have the storage space. But before we go anywhere, we look at all the flyers for our area, and compare every “sale” price with my price book. DH used to think I was a little nuts on the subject, until the day I took the shopping list, added up all the “sale” prices, and showed him how they compared to Costco’s regular prices. Now he asks me every time we make a list, “What does the price book say? Is this a good deal?”

  24. I usually only go to Costco a couple of times a year (with my daughter, who has a membership and uses it every month or couple of weeks) but I also get her to pick up the occasional item for me when she’s there, like toilet paper.

    I recently bought bulk disposables for Passover but they’ll last us for several more months. No, it’s not as economical as washing and drying dishes, but we’re talking about several meals in a row (dinner, lunch, dinner, lunch) where we might have as many as 14 people for dinner. The big stack of dinner plates at Costco has about 3 times as many as the large pack at Safeway, for less money! Same for the other items I buy.

    And their toilet paper is a way better deal than any other toilet paper I’ve tried. But I wouldn’t buy a lot of their bulk items because I couldn’t use them up before they went bad or it would take too much space to store.

    Philip’s point about their return policy is one that my daughter has mentioned before, though. Apparently, you can take things back that fail somehow and they’ll just give you a new one right away. For example, the kids bought an air mattress (when they didn’t have a guest room) but it leaked after being used a few times over several months and Costco just replaced it, no quetions.

  25. Actually, I like Costcos where I live, because I can buy some really nice coffee beans at prices that are quite reasonable. I love drinking coffee, but after joining Costco’s I discovered that I could buy and grind beans as I needed them.

    Though the bags are bigger in size, the flavors don’t go off if I look after them, and use them quickly. We now supply our office coffee needs courtesy of Costco. Alternatives are either horrible or horribly expensive where we live.

    So for that I’m happy to pay because even if I don’t buy anything else in a year: the Costco membership means I get great coffee at home and at work for prices that Starbucks would be happy to charge me four times more!

    I do find a quality difference between those private blends and the kirklands blends, too. So I prefer to buy the private blends as I perceive a better quality at a reasonably good price.

    Anyway, we do enjoy Costco, though we are mindful that not everything represents a bargain there. The price isn’t the only determinant of bargain or not: it’s how much you use, how much you throw away, and how much the quality is different from what you would normally buy.

    If you can factor all those in, then you’ll be able to determine whether it represents a good choice or not.

    For me, the coffee’s worth it: I buy it less expensively, much better quality than local equivalents, hardly throw any away, and use it as a replacement for buying coffee in a store/restaurant.

    Hence, for me: it’s worth it.

    Kenneth

  26. Of course, all the points mentioned contribute to what might be called “rational” shopping behavior. And what also encourages me to accept the Costco pricing is the large number of “wholesale” buyers (restaurants, group purchasers (military, other uniformed folks)that I observe routinely. It would be informative to know what, if any, regional differences in pricing exist among the various warehouses nationwide (I’m thinking of “graduating” from retail customer to “stockholder” perhaps).

  27. We have a friend who is a long time employee of BJ’s who told me that BJ’s doesn’t really care much about sales volume because it makes its money in memberships.You have to exceed the cost of the membership before you SAVE anything. Few people do this or BJ’s would not be profiting from them.

    Where do you get price books?

  28. If you really want a challenge at Sam’s or whatever warehouse store, take cash. Write your list with an estimated cost per item, add it up before you go into the store and take that cash, plus $10,in there for your planned purchases. Then if you find some really cool thing that you decide is a really good deal or limited purchase opportunity you’d like to partake in, you can, but you also quickly limit how many ‘good deals’ you can participate in. The extra $10 allows for fluctuations in prices since your last visit as well. The same strategy works at any store really. :)

  29. @#28, you make your own price book by writing down all of the items you would normally buy or consider buying. I made mine staring at Sam’s because the options were fewer. I just walked the aisles with my notepad, on a day I was not shopping (it is close to my office), and wrote down every item I might buy, the price, and what I would get for that price whether in ounces, pounds, servings, roll, or measurement that was appropriate for the item I was documenting. I then loaded it into a spreadsheet and the next time I was at the regular grocery store, or looking at sale flyers I had a place to start my price comparison. It’s completely a custom job. This tip ended up saving me about $75/mo on grocery items/paper products when I started. You are able to find your *best price* on any given item. Good luck.

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