If you‘ve ever shopped at Costco, Sam‘s Club, BJ‘s Wholesale Club or one of the other major wholesale retailers, you know there‘s nothing quite like the thrill of the treasure hunt – scouring the aisles for incredible deals on everything from gigantic boxes of cereal to designer jeans to 8-foot teddy bears. But wholesale clubs are much more than just a place to stock up on bulk paper towels. They‘ve revolutionized the way we shop, allowing savvy consumers to score deep discounts on a wide range of high-quality goods.
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In this ultimate guide, we‘ll take a deep dive into the world of wholesale clubs, with a particular focus on Costco, the undisputed king of the category. We‘ll explore the history and business model of these game-changing retailers, take a look at how Costco stacks up against its biggest rivals, and highlight some of the key benefits that make a wholesale club membership such a smart investment for the right type of shopper.
The Rise of the Wholesale Club
The wholesale club concept traces its origins back to 1954, when Sol Price founded FedMart in San Diego. Price is credited with being the first to implement a membership model for a retail store. For just $2 a year, government employees could shop at FedMart and access low prices on a range of goods.
But it was Price‘s next venture that really put wholesale clubs on the map. In 1976, he launched Price Club, which would go on to merge with Costco in 1993. The combined company took the Costco name and began aggressively expanding across the U.S. and globally. As of 2023, Costco boasts 848 warehouses worldwide, including 584 in the United States and Puerto Rico, 107 in Canada, 40 in Mexico, 31 in Japan, 29 in the United Kingdom, 18 in Korea, 14 in Taiwan, 13 in Australia, four in Spain, two each in France and China, and one each in Iceland, New Zealand and Sweden.
Following Costco‘s lead, other major players emerged, including Sam‘s Club (founded by Walmart in 1983), BJ‘s Wholesale Club (founded in 1984) and a host of smaller regional chains. Today, the wholesale club segment is a massive $100+ billion industry, with Costco alone racking up over $200 billion in annual revenue.
Inside the Costco Empire
Costco is an absolute juggernaut in the retail world. The company‘s revenue hit $226.9 billion in fiscal year 2022, up over 16% over the prior year. With 118.9 million total cardholders (as of Q2 2023), Costco is only getting bigger. Renewal rates remain an stellar 92.6% in the U.S. and Canada and 90.4% worldwide, highlighting the incredible loyalty of the Costco customer.
So who exactly is the typical Costco shopper? With an average household income of $125,000, Costco‘s customer base skews more affluent than that of competitors like Sam‘s Club and BJ‘s. These price-sensitive but not price-obsessed shoppers tend to live in suburban areas, have ample space to store bulk purchases, and prefer quality over quantity when it comes to the products they buy. They‘re willing to pay a bit more for the best.
Interestingly, Costco stocks only around 4,000 unique products (or stock keeping units) at any given time – a fraction of the 30,000+ found at a typical supermarket or the hundreds of thousands on Amazon.com. But by focusing ruthlessly on a relatively small number of high-volume products, Costco is able to secure incredible deals from its suppliers, which it then passes on to its members.
This limited selection, when combined with Costco‘s famously generous free sample stations, creates a highly experiential "treasure hunt" atmosphere that encourages browsing and leads to lots of unplanned impulse purchases. In fact, Costco stores are strategically designed to maximize "dwell time" – getting shoppers to linger with few windows, no shopping bags, and winding paths through various departments.
It‘s an incredibly lucrative model. The average Costco does an eye-popping $164 million in sales per year within its 145,000 square feet of space, or about $1,138 per square foot. That‘s more than two times the sales per square foot of Sam‘s Club ($571) and over four times that of BJ‘s Wholesale ($276). For comparison, the average supermarket does around $500 per square foot, while department stores average closer to $350. Costco is in a class of its own.
The Costco Difference
While all wholesale clubs operate on a similar basic premise – selling a limited selection of items in bulk quantities to members at rock-bottom prices – Costco has managed to differentiate itself from the pack in several key ways:
Membership model: Whereas other wholesale clubs allow non-members to shop (with a surcharge), Costco‘s membership policy is strictly enforced. To enter the warehouse, you must flash your membership card, which starts at $60 per year for a Gold Star membership. This creates an air of exclusivity and encourages loyalty. Membership fee income ($4.22 billion in FY 2022) flows almost entirely to the bottom line.
Kirkland Signature: Roughly 20% of Costco‘s sales come from its private label brand, Kirkland Signature. By working directly with manufacturers, Costco is able to secure top-quality products at unbeatable prices, from organic olive oil to golf balls to men‘s dress shirts. Many Kirkland Signature products are actually made by big name brands, adding to their appeal.
Sustainability focus: Costco‘s sustainability priorities extend well beyond reusable shopping bags and bulk packaging. The company employs industry-leading animal welfare standards, designs green warehouses, and has committed to cutting emissions in line with the Paris Climate Agreement. As of 2021, Costco has over 120 LEED certified warehouses worldwide.
Employee relations: Costco is consistently ranked as one of the best places to work, thanks to its generous compensation and benefits packages. The average Costco employee earns over $20 per hour (well above peers), receives regular raises, and has ample opportunities for internal promotion. 85% of warehouse managers started in hourly positions.
Unique finds: Because Costco purposely stocks a limited number of SKUs, it‘s able to frequently rotate in an eclectic mix of surprises – high-end electronics, designer goods, gourmet foods and more. About a quarter of Costco‘s inventory changes each year, giving shoppers new reasons to keep coming back.
Costco vs. The Competition
Of course, Costco isn‘t the only wholesale club in town. Sam‘s Club (with nearly 600 locations) and BJ‘s Wholesale Club (with 229 locations) are formidable competitors, each with its own loyal customer base.
So how does Costco stack up? While exact price comparisons are difficult due to differences in package sizes and product mix, Costco generally has a reputation for having the lowest prices overall, thanks to its massive economies of scale and barebones, no-frills warehouse environment.
Costco also tends to stock higher-end, better quality merchandise than its rivals, and offers a wider range of organic, natural and specialty products to cater to affluent, health-conscious shoppers. About 20% of Costco‘s goods are its private label Kirkland Signature brand, compared to around 15% at Sam‘s Club and 10% at BJ‘s.
However, Sam‘s Club and BJ‘s have their own advantages. Sam‘s Club offers a cheaper base membership ($50 vs. $60 at Costco) and more locations in rural areas. BJ‘s has a larger fresh food selection and accepts manufacturer‘s coupons, unlike Costco. Both clubs allow non-members to shop (with a surcharge), giving them a wider funnel for attracting new customers.
At the end of the day, while serious bargain hunters may comparison shop among the three major wholesale clubs, most consumers tend to pledge loyalty to whichever one has a location closest to them. With its superior scale and powerful brand, Costco remains the leader of the pack, but Sam‘s Club and BJ‘s help keep the competition fierce and the deals hot.
The Future of Wholesale Clubs
Despite its incredible success, Costco faces several risks and challenges going forward. With nearly 600 locations in the U.S. (and almost 9 in 10 Americans living within 50 miles of a warehouse), it has limited room for domestic expansion. International locations remain an opportunity, but cultural differences, supply chain complexity and local regulations all make global growth an uphill climb.
Costco‘s e-commerce strategy also remains a work in progress. Though it began selling select items online in 2001, e-commerce still accounts for under 10% of Costco‘s total revenue as of 2022. Rival Sam‘s Club has arguably pulled ahead with innovative offerings like curbside pickup, digital signage in-store, and integration with Walmart‘s impressive mobile app. Expect Costco to leverage partners like Instacart and invest heavily in digital to stay competitive.
Economic uncertainty is another concern. With a potential recession looming, some analysts worry that cash-strapped consumers will cut back on discretionary spending, even at Costco. However, the company‘s value-oriented model is historically resilient in downturns – in 2008, same-store sales actually grew 8%. In inflationary times, shoppers may stock up even more on bulk necessities.
Despite these headwinds, Costco‘s future looks bright. The company continues to post impressive high single-digit comparable sales growth and shows no signs of slowing down its torrid warehouse expansion strategy. With an ambitious goal of doubling its market share to 25%, management still sees lots of untapped potential.
Making the Most of Your Membership
So is a wholesale club membership the right choice for you and your household? As with most money matters, it depends on your unique situation and shopping habits.
Generally speaking, wholesale clubs tend to be ideal for:
- Large families or households who go through supplies quickly
- Suburban homeowners with lots of storage space
- Small business owners looking to save on everyday purchases
- Bargain hunters who don‘t mind a limited selection
- Fans of high-quality store brands like Kirkland Signature
On the flip side, a wholesale club membership may not pay off for:
- Singles or couples without kids or roommates
- Apartment dwellers in urban areas with minimal storage
- Loyal brand shoppers who aren‘t willing to try alternatives
- Shoppers who prefer a wide selection of niche products
- Those easily tempted by "deals" on unplanned purchases
If you do decide to take the plunge, here are some expert tips for maximizing the value of your wholesale club membership:
- Share a membership with a friend or family member to split the cost
- Make a list, stick to it, and avoid impulse buys that negate your savings
- Compare unit prices to ensure bulk buys are actually a better deal
- Stock up during periodic promotions and giveaways
- Leverage club credit cards for even more cash back rewards
- Fill up your gas tank for cheap at club pumps
- Utilize other club services like optical, travel, auto buying, etc.
- Consider upgrading to an Executive membership for added savings
- Avoid perishables unless you can consume in time to avoid waste
- Don‘t assume clubs are always cheapest – compare with competitors
As Costco embarks on its next chapter of growth in an uncertain economic environment, one thing seems clear: the allure of the wholesale club treasure hunt isn‘t going away anytime soon. And for shoppers strategically seeking maximum value in inflationary times, it‘s hard to beat the savings potential of a carefully-used Costco membership card.
