Warehouse Stores: Deal or No Deal?

They offer great discounts, but there's no guarantee you'll find a better bargain versus conventional retailers.

It’s no secret that warehouse stores can offer compelling value. The markup over wholesale prices averages about 14%, according to Michael Clayman, editor of Warehouse Club Focus, an industry newsletter. Compare that with a 25% to 50% markup at conventional retailers, and odds are you’ll find lower prices at warehouse stores.

But there’s no guarantee that every item on your shopping list is a better buy at a warehouse store. In some cases, your neighborhood grocer or the local Wal-Mart can top prices at Costco, Sam’s Club or BJ’s. The best way to nab a deal is by shopping strategically.

There are several factors to consider as you compare costs at warehouse stores to those at non-warehouse retailers:

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Membership fees. Sam’s Club charges $40 a year; Costco and BJ's charge $50 annually. If you shop a warehouse store only once or twice a year, your savings might not offset the cost of membership.

Selection. Warehouse stores stock fewer brands than conventional retailers, so your favorites might not be available. Ask yourself: Can a Charmin family survive the switch to Quilted Northern?

Unit costs. Even if the top-line price at a warehouse store is tempting, don’t neglect to calculate the unit cost. It’s the apples-to-apples (or roll-to-roll) comparison that matters most.

Quantity. Items at warehouse stores often come in bulk packages. Consider whether you have the storage space -- and whether you’ll really use it all.

Loyalty discounts. Many retail chains have free loyalty programs that offer added savings at the register. Combined with coupons, loyalty programs can sometimes undercut everyday prices at warehouse stores.

Don’t limit your warehouse shopping to staples. As you’ll see from these examples, bargains can be found on unusual big-ticket purchases. But for some items, you can find a better deal elsewhere.

Caskets: DEAL

The average metal casket costs $2,300 and is the single biggest expense of a funeral, according to the National Funeral Directors Association. Costco’s caskets run from $950 to $3,000. Wal-Mart sells discount caskets, too, ranging from $995 to $3,200. Confirm shipping availability to your state.

"Caskets from places like Costco and Walmart can be much cheaper than a funeral home,” says Joshua Slocum, executive director of the Funeral Consumers Alliance. Some funeral homes have dropped casket prices to compete, but fees for other services might be raised to make up the difference. Ask for an itemized price list.

Beer: DEAL

You won’t find six-packs here, but you will find an array of single craft bottles and cases of popular beer. And like many warehouse products, discounts come with bulk purchases, so make room in the fridge.

A 24-pack of Heineken at Costco can cost about 10% less than it does at a local grocery chain. A four-pack of Guinness can cost twice as much per can at a local grocery store compared with a 24-pack at a warehouse club.

Diamonds: NO DEAL

Buying diamonds from a warehouse club is risky. Stones generally aren’t branded, and quality varies tremendously, so you’re largely on your own to determine whether the cost is equal to the grade of the diamond. An appraisal from an independent gemologist is helpful, but getting an outside expert’s opinion adds to the expense.

“The biggest problem consumers face when buying a diamond from a store like Costco is that the sales staff usually lacks the knowledge to be able to answer questions you should be asking,” says Antoinette Matlins, author of Diamonds: The Antoinette Matlins Buying Guide. At a place like Tiffany, the price more accurately reflects a diamond’s quality. Tiffany can also be cheaper than mall stores, which mark up diamonds 50% to 100%, adds Matlins.

Designer watches: DEAL

You won’t find Rolex or Patek Philippe, but you can find a bargain on a midrange designer watch. After all, despite its bare-bones appearance, Costco attracts an affluent clientele. “They have tapped into a group of consumers who appreciate the value of buying luxury items at a warehouse club,” says George Whalin, president and CEO of Retail Management Consultants.

Look for brands such as Movado and Raymond Weil, which even at Sam’s Club can run into the thousands of dollars. Expect warehouse-store prices to undercut the traditional markup of 65% to 70% on luxury watches.

Televisions: DEAL

A giant Vizio 65-inch Class 3D 1080p 120Hz LED Edge Lit LCD HDTV from Sam’s Club was $400 less than its listing on Amazon.com. We also found a Sony Bravia 55-inch set at Costco that was $300 cheaper than Best Buy’s cheapest Sony Bravia 55-inch model. If a big screen at a small price is your goal, then you’re in luck.

Here’s the caveat: Warehouse stores carry a limited selection of TVs. Most have specific model numbers that you can’t find anywhere else, so precise cost comparisons can be a challenge. For example, the specifications of the two Sony Bravias we compared varied slightly. Go elsewhere (and pay more) only if you require a wide selection of sets and brands, or if you have your heart set on a specific model.

Tires: DEAL

At Costco, Bridgestone Potenza RE92A tires -- the high-performance, run-flat tire that comes with the Infiniti G37 coupe and FX45 crossover -- cost $60 less per tire compared to Sears. That’s a savings of nearly 20%. Like Sears, Costco offers installation. We also found a Michelin HydroEdge at Sam’s Club that beat Sears by $20 (for a set of four) and Wal-Mart by $36 per set.

Warehouse-store prices are generally better than what you’d typically spend at a local tire dealer. “It’s a lower cost of business than the tire store down the street,” says retail analyst Christopher Ramey, of Affluent Insights.

Appliances: NO DEAL

The warehouse stores we visited had no washers or dryers in stock, compared with Sears, which had dozens of choices on the floor. The warehouse stores’ online selection wasn’t much better. There was only one washer and four washer/dryer combos available on Costco’s Web site. Sam’s Club had two washers and one washer/dryer combo from which to choose.

Costco’s price on a Whirlpool 3.5-cubic-foot, top-load washer did beat Sears’s price on a similar washer by $80, but that was the everyday price charged by Sears. Appliance retailers run big sales promotions over just about every holiday weekend, from Presidents' Day to the Fourth of July to Veterans Day. Time your purchase wisely and you can find bigger discounts -- and better selection -- away from the warehouse stores.

John Miley
Senior Associate Editor, The Kiplinger Letter

John Miley is a Senior Associate Editor at The Kiplinger Letter. He mainly covers technology, telecom and education, but will jump on other important business topics as needed. In his role, he provides timely forecasts about emerging technologies, business trends and government regulations. He also edits stories for the weekly publication and has written and edited e-mail newsletters.

He joined Kiplinger in August 2010 as a reporter for Kiplinger's Personal Finance magazine, where he wrote stories, fact-checked articles and researched investing data. After two years at the magazine, he moved to the Letter, where he has been for the last decade. He holds a BA from Bates College and a master’s degree in magazine journalism from Northwestern University, where he specialized in business reporting. An avid runner and a former decathlete, he has written about fitness and competed in triathlons.