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RETAIL membership clubs have grown in recent years, offering customers an alternative to traditional shopping.
These stores lure customers with a large selection of products and big savings on bulk purchases but require paid membership to enter.
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Membership-based warehouse clubs started popping up in the US in the 1970s, offering shoppers a limited variety of discounted products in bulk.
The retailers were originally designed to sell products to small and medium-sized businesses but also drew in shoppers seeking low prices and a new selection.
The first membership warehouse club in the world was Price Club, founded in San Diego, California, in 1976 by Sol Price.
Then in 1983, Sam Walton opened the first Sam’s Club in Midwest City, Oklahoma, and Jim Sinegal and Jeff Brotman launched Costco Wholesale Corporation in Seattle, Washington.
The next year, BJ’s Wholesale Club was founded by the discount department store chain Zayre in Massachusetts.
Price Club merged with competitor Costco Wholesale Corporation in 1993, creating a new company called PriceCostco.
By 1997, the company rebranded as Costco Wholesale Corporation, with all stores operating under the Costco name.
Costco has quickly surpassed Sam’s Club and BJ’s in popularity and market share, attracting members with its high-quality products and excellent customer service.
Costco held the majority of the wholesale club market as of August 2022 with 55.5%, while Sam’s Club and BJ’s lagged at 36.2% and 8.3%, respectively.
Getting in on the bulk savings at the beloved retailer, however, comes at a price.
Starting September 1, Costco’s basic Gold Star Membership will increase from $60 annually to $65 while the Executive Membership will rise from $120 to $130.
The U.S. Sun spoke exclusively with retail experts Greg Buzek and Sucharita Kodali to determine if memberships at bulk retailers like Costco are worth the entrance fee.
Buzek is the president of the retail analyst and market research firm IHL Group, while Kodali is the vice president and retail analyst at the global market research company Forrester.
Both experts have over 20 years of experience in retail market analysis.
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IS IT WORTH IT?
Although a $65 or $130 membership fee may seem like a lot to some, Costco’s over 120 million members worldwide consider the retailer worth the price.
Buzek and Kodali agreed that a Costco membership was a good investment, but with a key caveat – shoppers determine if a membership fee is worth it based on their spending habits.
Both retail experts compared a Costco membership to a gym membership.
“If you use the membership, it pays for itself very quickly. If not, it is simply money down the drain,” said Buzek.
Costco Membership Tiers
Costco customers can choose between three membership cards:
Gold Star Membership:
- $60 annual fee
- Includes a free household card
- Valid at all Costco locations worldwide
Executive Membership:
- $120 annual fee
- Includes a free household card
- Valid at all Costco locations worldwide
- Annual 2% reward on qualifying Costco purchases
Business Membership:
- $60 annual fee
- Includes a free household card
- Add affiliate cardholders for $60 each
- Valid at all Costco locations worldwide
- Purchase for resale
He shared that if Costco customers take advantage of the membership benefits on shipping, gas, and other discounts, “most times it is well worth it in convenience and savings.”
Kodali pointed out that most shoppers are “very rational” and typically spend enough money to make the membership worthwhile.
“Usually people churn if they aren’t getting value from a paid membership,” said the expert.
Buzek attributed this to the sunk cost fallacy, which is the phenomenon in which people hesitate to abandon something because they have invested heavily in it.
“That membership is always in the back of your mind,” he said. “It is a question of ‘why not’ rather than ‘why shop here,'” he said.
PAYING FOR ITSELF
If Costco shoppers use their membership enough, the retail experts shared that the membership essentially pays for itself through the savings gained from frequent visits and bulk purchases.
Kodali noted that Costco’s items are generally priced lower than those at other retailers because they are sold in larger sizes, meaning shoppers receive more product for a lower price per unit.
If Costco shoppers make use of the bulk buys, they save on average $2 to $3 per item according to Buzek.
If you use the membership, it pays for itself very quickly. If not, it is simply money down the drain.”
Greg Buzek
The average member spends around $100 per trip, or $3,018 per year, making for a high amount of savings thanks to shopping in bulk.
Aside from the warehouse club’s huge quantities, a Costco membership proves its worth in two other ways.
“It pays for itself multiple times in fuel savings alone, let alone for savings in the store,” said Buzek, noting that Costco’s gas prices are 25 cents per gallon cheaper on average in most markets.
He shared that the fuel savings make a Costco membership worth it even for single-household shoppers, but the money saved for families is even greater.
“On Saturday and Sunday, the sheer number of families coming in for groceries and getting that low-cost meal for their kids saves well more than the membership fee,” he said of the beloved Costco food court.
The U.S. Sun previously spoke with Buzek on five key reasons why Costco won’t take a major membership hit despite its fee increase.
Plus, we spoke to a Costco and Sam’s Club member who shared why she belongs to both.
