Is the Costco Membership Fee a Bargain or a Scam?

Is the Costco Membership Fee Worth It?

Looking for a conversation starter for your next dinner party or family function?  Just ask everyone what they think of the Costco membership fee and then sit back and enjoy the show!

You might think I’m joking, but I’ve witnessed several arguments (both online and off) about Costco that quickly escalated beyond reason.

It seems half the population loves Costco and the other half despises it.  I’m not sure why people get so worked up when talking about warehouse club stores like Costco, Sam’s Club, and BJ’s but let’s try to figure it out together.

According to the Costco card in my wallet I’ve been a member since 2002.  Some quick math tells me that I’ve dropped over $500 on Costco membership fees since signing up.  The current price is $55 for Gold Star Members but I think it was around $45 when I first became a member.

That’s a lot of money to spend just for the privilege of shopping and spending even more money at the store.  In fact, it sounds a lot like the personal seat licenses (PSLs) many sports teams force their fans to purchase just for the right to buy tickets.

Yet I and over 37 million other households happily pay our annual Costco membership fee and continue shopping there, so obviously a good portion of the population feels the value they receive is worth more than the cost of admission.

Gold Star Membership ($55) is the basic household membership which is perfect for the average family to do their shopping.  You get two membership cards so you can keep one for yourself and give the other to your spouse.

Business Membership ($55) allows business owners and managers to purchase products for business, personal, or resale use.  This also comes with two cards so if you own a small business you can keep one card for yourself and let one of your employees use the other.  You also have the option of adding up to six additional cards if you need them.

Executive Membership ($110) is an upgraded version of either the Gold Star or Business membership levels.  It comes with two cards, and you will also earn a 2 percent reward on purchases.  Obviously, you’d have to spend enough money to make your rewards worth the added cost. To be precise, you’d need to spend at least $2,750 ($230 per month) to cover the added cost of executive membership.

That may sound like a lot but as a Costco member with a growing family I don’t think that’s much more than we currently spend.

Executive membership is a really good deal for small business owners who purchase products to resell them.  For example, there’s a hot dog stand not far from my office and the woman who owns it does much of her shopping at Costco.  She can purchase a 32-count package of Coca-Cola soda for just $7.99 (about a quarter a can) and then resell them for a dollar each.

The more you spend the more your two percent rewards will add up, but there is a limit.  The reward is capped at $750 per year.  Another thing to keep in mind is that the reward is in the form of a Costco reward certificate, not cash.  That means it can only be used inside Costco itself.  While that is certainly a great benefit to regular Costco shoppers, a cash reward that can be used anywhere would be more flexible.

Why Does Costco Charge a Membership Fee?

Costco follows a different business model than typical supermarkets and retail outlets.  While other stores earn all their revenue from the spread between their cost of goods sold and their sales, Costco relies on their membership fees to maintain profitability.

Costco’s goal is to provide the lowest price possible for their customers.  That means fewer sales people on the floor and no shopping bags to lug home your stuff.  But it also means prices that are often significantly lower than you’ll find elsewhere.  There are several items (paper plates and cups for parties, Premio sausage links, grated Parmesan cheese, GoGurts) that my family only purchases at Costco because they are so much cheaper than at other stores.

Costco does put their money where their mouth is and they are even willing to drop a product if they can’t provide the best possible price to their customers.  In 2009, they actually pulled Coca-Cola products off the shelves because they felt the wholesale prices were too high.  Within a month Coke was back on the shelves at a new lower price.

“Costco is able to offer lower prices and better values by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing and accounts receivable. We run a tight operation with extremely low overhead which enables us to pass on dramatic savings to our members.”  -Jim Sinegal, Costco’s Co-Founder and Director

Common Costco Complaints

There are a handful of arguments that Costco haters like to use to criticize the company.  I’ll list some of the common complaints about Costco and my thoughts on each.

• Membership Fee.  Yes, I wish I didn’t have to pay Costco’s membership fee but when I add up all the money I save throughout the year I still come out way ahead.  How much you save depends on how much you spend.  Large families and small businesses can really take advantage of the low prices, while single shoppers may not see as much benefit.
• No bags to carry stuff home.  This doesn’t bother me at all.  Many of the packages are too big for bags anyway and it is easy enough to bring along a few reusable bags for the smaller stuff.   Not providing shopping bags helps keep prices down and it is environmentally friendly too.
• Lack of employees on the floor…good luck finding help if you need it.  If you’re looking for someone to walk around and show you where to find everything, Costco isn’t for you.  But personally I don’t like being bugged every 15 seconds by someone asking if I need help.  I just want to get in, grab what I need, and get the hell out as fast as possible.
• You’re forced to buy in bulk.  Savvy shoppers know that buying in bulk is usually cheaper than purchasing smaller versions of the same item.  Of course, you won’t save any money if products go bad before you have a chance to use them.  Larger families have an advantage here since they’re more likely to use their entire purchases.  But smaller families and individuals can always shop with a friend or neighbor and then split up the bulk packages at home.
• Prices are not always better than other stores.  In my experience, the everyday prices at Costco are better than regular prices at other stores.  Of course, there are times when another store could have the same item at a cheaper price.  This is especially true if the item is on sale and you have a coupon.  It’s always good to consider the per unit price when shopping and compare prices before just assuming Costco is cheaper.

What’s your opinion?  Are you a Costco member?  Do you think the Costco membership fee is worth it?