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I don't remember where I read the following analysis (maybe from someone here on HN?) but it goes something like this... Costco's membership fee (minimum is $6
by jasode 7y ago
I don't remember where I read the following analysis (maybe from someone here on HN?) but it goes something like this...
Costco's membership fee (minimum is $60) has several benefits that the media don't like to talk about -- because it's unpleasant to mention it. The membership fee charged by Costco helps keep the riff-raff out. Although the cheapest Costco membership at $60/year looks like a trivial amount to middle-income people, even that tiny cost is enough to be an unreachable Mt Everest for the poorest segments of society. Therefore, the membership fee acts as a socially acceptable way to keep out the undesirables.
Often, you'll see a thread on reddit showing photos of "Walmart shoppers" with tube tops and loose pants with butt cracks showing. That's not the type of clientele that shops at Costco. Walmart also has a huge problem with shoplifting and employee theft (what the retail industry calls "shrinkage") and therefore, there's often a police car outside to arrest somebody. Costco's membership requirement is the hurdle that helps them avoid all that.
Costco makes money on the membership fees itself, but they also save money by not having to deal with shrinkage because their higher-income clientele has less problems.
The above advantages only adds to the other positives such as simpler logistics of ~4000 SKUs at Costco vs 40000 SKUs at Walmart.
- hogFeast 7y agoAnother point is that paying upfront for something means you have to use it. I remember when I joined a real cult. It cost $5k just to join, and another $5k to advance a level. So when you are down $20k and someone asks you to move to the Brazilian rainforest to live in a mud hut...well, you can't really say no. Remember: you can fly to Brazil, just don't enter the cave.
- youeseh 7y agoCostco also has security personnel that work hard to prevent shoplifting - from people walking around, to the people by the exit who crosscheck the receipts with what they see in the cart.
- timClicks 7y agoNaturally, but defense in depth.
- lotsofpulp 7y agoSounds like an erroneous analysis to me. The cost of a $60 membership pales in comparison to the cost of the space needed to store bulk items, especially refrigerated, and the cost of travel to and from a Costco, which are not located in the poorest areas. Most importantly, $60 cash upfront for a membership fee is nothing compared to all the cash you need to buy bulk items upfront. Is selling bulk items a way to keep "riff-raff" out?
- pg_is_a_butt 7y agoSam's Club works exactly like Costco, and is usually located right next door to Walmart.
- pixl97 7y ago>selling bulk items a way to keep "riff-raff" out? It depends, but in many areas with extreme poverty and drug use there are businesses that break apart packages and sell single items, even when it is a violation of the law, such as single cigarettes
- twothamendment 7y agoThey weren't riff-raff, but one of my neighbors who was on a tight budget couldn't afford to shop there because buying in bulk meant laying out a lot of cash at once. They were convinced they wanted to buy bulk staples and save, so the went rice and beans for a month so they could save up for a Costco trip. They claim they save quite a bit buying at Costco, but those bulk prices can indeed be a hurdle.
- labster 7y agoPoor people are the people that have to drive everywhere, so I don't think location has much to do with it. Costco in Ventura County has two stores: the one in the rich area in Simi Valley, and the one in a (relatively speaking) poor area in Oxnard. The Simi store is half empty, while the Oxnard store has one of the highest sales in the entire chain. I actually don't know if the $60 keeps anyone out. I think it's just pure profit, and an inducement for customers to return so they "get what they pay for." People are terrible at thinking about sunk costs, you know.
- lttlrck 7y agoI’d imagine the high average per item cost has the same filtering effect.
- unlinked_dll 7y agoThis sounds like BS unless you have numbers. Shopping at Costco is like riding the NYC subway - it's a cross section of society from all income levels. Costco saves people hundreds to thousands of dollars a year both in time and price. Shopping there isn't exactly a luxury experience. I'd guess the fact you need to enter with a photo ID and they keep records on everyone entering/leaving with their names and addresses attached is a much bigger factor at loss prevention.
- agentdrtran 7y ago> Shopping at Costco is like riding the NYC subway - it's a cross section of society from all income levels. The linked article says this isn't true. "Unlike other discount chain customers, the majority of these cardholders are largely affluent ($100k+ income) and college-educated"
- unlinked_dll 7y agoIt's also uncited. There are a few other articles that say the same thing (or more accurately, paraphrasing "the average customer at costco has a yearly income of $100k") and none of them are cited either. I skimmed some investor documents/earnings call transcripts and couldn't find much discussion of what members are like from Costco themselves, just third parties. I'm just a bit skeptical of that factoid. It smells funny.
- albedoa 7y agoCNBC cites 2017 data from Costco: In 2017, the most recent year Costco has data for, the average household income of the Costco member was $92,236. https://www.cnbc.com/2019/05/22/hooked-how-costco-turns-customers-into-fanatics.html https://www.cnbc.com/2019/05/22/hooked-how-costco-turns-cust... Regardless of your threshold for reliability, I would be much more interested in anything that demonstrates your claim that Costco is "a cross section of society from all income levels".
- albedoa 7y ago
- trianglem 7y agoI disagree. $60 a year is so low it's not prohibitive to any segment of American society.
- axus 7y agoIf it cost $60 to vote, it would rightly be called voter suppression.
- hunterloftis 7y agoAn unmarried minimum-wage worker working 40 hours/week will net about $1,085/month, so $60 would consume 11% of their biweekly paycheck. I don't know about you, but dropping 11% of my paycheck on a membership card would certainly be a barrier for me.
- trianglem 7y agoIt is $60/yr, not per month. It's less than $5 a month.
- hunterloftis 7y agoI know. And I wouldn't drop 11% of my paycheck in a single month on a yearlong membership to anything. “The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money. Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles. But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet. This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”
- 7y ago
- noitsnot 7y agoLow income families won't pay anything extra to shop at stores like Costco, BJ's, etc, nevermind $60, which seems high. I imagine they can't afford to buy in bulk, to begin with.
- chiph 7y agoIf they qualify, they ought to get the Costco credit card (there are lower credit limits available). I typically make a $250+ profit each year, even after paying $120 for the executive membership. I usually split some purchases with friends, like the Kirkland microwave popcorn. It will go bad before I can eat it all, but split it 3 or 4 ways, and it's not wasted.
- bradleyankrom 7y agoWould add that people buying in the quantities offered at Costco are likely to live in a place that’s large enough to accommodate storing those items.
- madengr 7y agoTrue, for this family of 4. We buy the big pack of Scott toilet paper, and store it amongst 4 bathrooms; same for tissues, both 2x a year. Paper towels in the garage, along with detergent and bleach. Bulk meat in a small deep freeze. A $6 bag of garlic lasts for months, but just toss it even if it’s only 1/2 used, as that would buy you 6 bulbs at the normal grocer.
- markdown 7y ago> True, for this family of 4... > 4 bathrooms SMH. Americans are a special breed. I assume you have a McMansion?
- vl 7y agoTypical modern American house has at least 3 bathrooms: downstairs, upstairs master bedroom for parents, upstairs shared for kids. Downstairs ”in-law” room with private bathroom or washer/dryer closet with toilet gives you fourth.
- shostack 7y agoWhich is frustrating in places the Bay Area. Even if you can afford and benefit from Costco and buying in bulk, it's not easy to find space to store a single trip's worth of stuff in the tiny homes out here.
- ProfessorLayton 7y agoWhen I was working in retail during college, they made it very clear that most shrinkage actually comes from employees and not shoppers. Employees with bags were searched by loss prevention on their way out of the store, and we were required to use a separate entrance/exit than shoppers.
- deleted 7y ago[deleted]
- sjg007 7y agoIt's also hard to walk out with a 75" tv or a giant flat of tomato soup..
- Scoundreller 7y agoI guess the membership makes it harder to use a cloned credit card too. Not impossible (just signup for a membership), but that's a barrier carders wouldn't want to bother with. Especially since carders don't care about price, just time and risk. And the Costco parking lot is the last place I would want to include in a getaway.
- 1123581321 7y agoSam’s Club has similar clientele to Walmart and more shrinkage issues (I spend time regularly in all three stores.) The Costco difference is about the types of products that are sold, the locations, the brand, and the quality/wage of the employees, not the membership fee.