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In this article, I dive deep into the question, is Costco worth it?
Learn the pros and cons of Costco so you can decide if a membership is worth the cost.
Costco is the largest warehouse club in the world, with 750 stores/warehouses, 90 million members, and $129 billion in revenue in 2017 (according to their annual report).
They’re known for:
- Low prices
- Bulk shopping
- High-quality merchandise
- And a very generous return policy
Unfortunately, you can’t just walk into Costco and get access to all these perks for free. To gain access, you need to become a member and pay annual membership fees.
Since most stores let anyone walk in for free, you might be asking yourself, is a Costco membership worth it?
Whether a Costco membership is worth it depends on your situation. Here’s a quick guide to help you decide:
A Costco membership is worth it if…
- You live within a 20-minute drive to a warehouse. Check the location finder on Costco.com.
- You live with at least one other person
- Your car is big enough to fit bulk items
- You have room in your house to store bulk items
- You fill your gas tank frequently
- You anticipate spending at least $2,000 annually
- You don’t mind crowds
- You own a Visa credit card (Costco only accepts Visa, Cash, Check, or Debit)
If this sounds like you, you can sign up for a membership in just a couple of minutes on Costco’s membership page.
A Costco membership is NOT worth it if…
- You live over 20 minutes away from the nearest warehouse
- You live alone
- You drive a small vehicle with limited trunk space
- You have limited storage space in your house/apartment
- You like having several brands to choose from for each product
- You hate crowds
- You plan to spend less than $2,000 annually
- You don’t have a Visa card
Costco offers four different membership types, Gold Star, which costs $60 per year, Gold Star Executive, which costs $120 per year, Business, which costs $60 per year, and Business Executive, which costs $120 per year.
Gold Star Membership
The Gold Star membership costs $60 per year and gets you one membership card and access to all Costco locations worldwide and Costco.com. Signing up for a Gold Star Membership is quick and easy. You can use this link, which takes you to the membership page on Costco.com.
(Images of membership cards are from Costco.com)
Gold Star Executive Membership
The Gold Star Executive membership costs $120 per year and gets you everything that the standard Gold Star membership does plus a 2% Reward on qualifying purchases.
About 3 months before your renewal date, Costco will send you a gift card for 2% of the total amount you spent at Costco throughout the year.
The reward cannot exceed $1000. If you spend over $3,000 at Costco each year, you’ll get the additional $60 that it costs for the Executive membership back in rewards. To see all the fine print about this award, check out this page on Costco.com.
The Business membership costs $60 per year and is for business owners who are purchasing products for resale.
To sign up for this membership, you have to provide business identification, such as a business license or resale certification.
Business members can add affiliates to their membership account for $60 per year per affiliate.
Business Executive Membership
The Business Executive membership is the same as the Business membership, except it costs $120 per year, and you get a 2% Reward up to $1000 on qualifying purchases.
Similar to the Gold Star Executive membership, if you’re buying for your business and plan to spend over $3,000 at Costco each year, this membership is the best value.
Are the Membership Fees Worth it? A Look at the Pros and Cons
Now that you understand the different fee structures for each membership type, let’s take a close look at the pros and cons so you can decide if those fees are worth the benefit.
The Pros of Costco
Costco’s most significant advantage is consistently low prices. They have a unique business strategy that keeps their costs low and allows them to pass those savings along to you.
Costco has very few SKUs (stock-keeping units) for each product, which results in lower inventory management costs and gives them negotiating leverage over suppliers.
They only carry one or two brands for each type of product, which results in intense competition between suppliers and drives down prices.
Suppliers are happy to give Costco a discount on their goods because, in return, they get massive distribution and have virtually no competition on the shelves.
Costco has enormous buying power per SKU.
In The Motley Fool’s article How Does This Retailer Keep Prices So Low? they explain that in 2012, Costco bought $86.8 billion worth of merchandise compared to Wal-Mart, who spent $335 billion.
If you look only at these numbers, you’d think Wal-Mart has much greater buying power than Costco. However, Costco spent $86.8 billion on just 4,000 SKUs compared to Wal-Mart, which spent $335 billion on 140,000 SKUs.
So, per SKU, Costo’s buying power is $21.7 million compared to Wal-Mart’s at $2.4 million.
Unlike most retailers, Costco has very minimal theft.
Due to Costco’s membership model, each customer is required to provide their ID when they walk in the door and while checking out at the register.
Costco also employs people to check receipts on the way. These systems lead to less theft and lower prices for you.
Buying in bulk means fewer trips to the store
Since most items at Costco are sold in bulk, you can get away with making a trip to the store once a month. Costco is ideal for non-perishable food items and paper products that you can store away for long periods and never worry about spoiling.
Costco has a rigorous process to vet suppliers, which results in high-quality products on the shelves.
If something isn’t selling, it gets taken off the shelf quickly.
When you buy something at Costco, you can feel confident that it is good quality and not second-hand or from a close-out sale. If you aren’t satisfied, they have a generous return policy. Speaking of which….
Generous return policy
Costco guarantees complete satisfaction of every product and will refund the entire purchase price in almost any scenario.
Since they have your information in your membership account, you don’t have to worry about keeping the receipts. The few exceptions to this policy are:
- Electronics – they will accept returns within 90 days of purchase
- Diamonds 1 ct. or larger – they will provide a jewelry credit and have their Gemologist inspect for authenticity.
- Cigarettes and alcohol – they will not accept returns on any tobacco or alcohol products.
Some products with limited useful life expectancy, like batteries and tires, come with product-specific warranties
Costco will give you a complete refund for your membership fees if you are dissatisfied.
For more details about Costco’s return policy, check out Costco.com, where they explain it all in detail.
Costco allows select vendors to set up booths and promote their products with free samples. For the best selection of free samples, go on the weekend. Who doesn’t love a free snack during their shopping experience?
The Cons of Costco
The biggest downside of Costco is the membership fees. Since most other stores don’t charge you a fee to walk in the door, that extra fee has to be worth it.
There’s no way to calculate a true break-even since the savings vary by product, but if you don’t plan to shop at Costco regularly, it might not be worth paying the membership fees.
Buying in bulk means more waste
There are advantages to buying in bulk, but there are also downsides.
If you are buying food, you need to make sure you and your family will be able to eat it all before it goes bad.
Otherwise, you’re throwing those savings in the trash. Thirty cans of tuna fish sound like a great idea when you look at the price per can, but after they collect dust in your pantry for three years, you might have second thoughts.
Storage space is required
Another consideration is storage space. It’s great to be able to buy toilet paper once a year and put it on a shelf in your basement, but if you are living in a small apartment and don’t have that space, buying a pack of 26 rolls of TP doesn’t make sense.
For whatever reason, maybe it’s the free samples, Costco has become a family affair.
I often see three generations of family members strolling the aisles together.
I think spending time with family is fantastic, but it contributes to the already large crowds at Costco, especially on the weekends.
Expect to spend at least 10 minutes waiting in line to check out.
It helps that you don’t have to go to Costco every week because the crowds can make it a stressful experience.
Lack of choices
As we mentioned before, Costco carries a limited number of brands and SKUs, which contributes to low prices, but on the flip side, it limits consumer choice.
If you don’t like the brand of ketchup that Costco is carrying at the time, you’re out of luck.
I haven’t found this to be a huge issue because Costco vets its suppliers heavily and only carries the best, but I can see how this could be a problem for people with unique tastes and preferences.
Limited payment options
Currently, the payment options at Costco are Visa credit card, debit/ATM, cash, check, electronic benefits transfer, and Costco Cash Cards.
If you only carry around an American Express or MasterCard, you’ll need to hit the ATM or bring a check before you shop at Costco.
Costco makes exclusive deals with credit card companies, which limits the payment options for customers.
For many years they only accepted American Express. Since 2016, they made a deal with Visa, which, for most people, is not a big issue since Visa is the largest credit card network in the world.
You’re probably wondering why Costco would limit its customers’ payment options. The answer is simple, to reduce costs and pass those savings along to customers.
By negotiating an exclusive deal with Visa, Visa charges Costco a lower fee, around .5% per transaction, compared to the standard fee around 2-3%. Since they are paying lower fees, Costco can keep their margins and prices low.
Tips and Tricks: How To Get the Most Out of Costco
The amount of value you get out of your Costco membership entirely depends on how you use it. Keep in mind that not every product in the store is a fantastic deal. Here are 7 tips to help you get the most out of your Costco membership.
Fill up your gas tank when you’re there
It’s not guaranteed, but you’ll typically save 20 cents per gallon at Costco gas stations.
Go Monday through Wednesday
Avoid going to Costco on Thursdays, Fridays, Saturdays, and Sundays. Costco is a mob scene on the weekends with families loading up for the week. If you can, avoid Thursdays too because the weekly deals are released on Thursdays.
Bring a list
Ever wonder why the TVs and jewelry are in the front of the store, and the more common items like food and paper goods are in the back? Costco, like most retailers, designs its store layouts strategically to increase impulse purchases for expensive items. Make a shopping list ahead of time and stick to it.
Stick to non-perishables
Unless you know for sure that your family will finish a perishable food item before it goes bad or you have a ton of freezer space, stick to non-perishables. I’ve fallen into the trap of buying six heads of lettuce and throwing away three of them. Don’t make that same mistake.
Check Costco.com for deals before you go
While you’re making your list, go to this section of Costco.com to find all the major deals happening now.
The best deals are…
Prices are always fluctuating, but, in general, the best deals are on:
- rotisserie chicken (if you ask the attendant, they will cut your favorite pieces of the rotisserie chicken for you, so you don’t need to buy the whole bird)
- minced garlic
- oil and condiments
- almonds and walnuts
- nut butter
- and maple syrup.
Always compare prices with other stores
When you compare prices with other stores, look at the per-unit cost, so you know you’re comparing apples to apples. As you are making your shopping list, check prices on Amazon. If you’re a Prime member, it’s possible to find better deals on Amazon for things like paper towels and razors. Also, keep your grocery store receipts so you can compare prices for non-perishable food items. Some items make more sense to buy at the grocery store. Identify those items and keep track of them.
Verdict: Is Costco Worth It?
In general, Costco is worth it if you live with two or more people, you live within 20 minutes of a location, you have ample storage space in your car and home, you plan to spend at least $2,000 per year, and you are a Visa cardholder.
Costco is not worth it if you live alone, the nearest Costco is over 20 minutes away, you drive a small car and have limited storage at home, you plan to spend under $2,000, and you hate crowds.
We wish you the best of luck with your Costco experience. Hopefully, this article helped you decide if Costco is worth it for your situation.
If you ready to sign up for a membership, you can check out all the details and sign up on Costco.com.
Do any Costco members reading this have strong options on this topic or other tips and tricks for getting the most out of your membership? Let us know in the comments below!
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