Great Things From Big Boxes

Reneacute;e Tan knew exactly what she wanted in an engagement ring, and she knew exactly where to shop for it. "My dad bought my mom a beautiful princess-cut ring from Costco," says the Culver City, Cal., bride. "So I got it in my head that I wanted a ring from Costco." Tan and fiance Adam Einstein visited the warehouse store but found her dream ring -- a one-carat, princess-cut diamond in a platinum setting -- on Costco's Web site for $4,000. At the magic moment, Einstein got down on one knee and said, "If you'll marry me, click now."

Click.

Tan may be the rare bride who dreams of shopping for her engagement ring amid the dog food and bulk toilet paper at a warehouse club. And, yet, about half of all members cruise clubs, both on-site and online, for expensive items such as electronics and jewelry, says a report by newsletter Warehouse Club Focus. Warehouse club members can afford the big stuff: More than half have household incomes of $50,000 or more; about a fifth earn more than $100,000.

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Not surprisingly, clubs have responded by expanding their jewelry and electronics sections and by offering exotic package deals. In fiscal 2006, which ended in early September, Costco sold 96,000 carats of diamonds -- ranging from tiny chips to three-carat or bigger rocks -- and $1.8 billion worth of TVs. Sam's Club recently enticed one family to buy a $30,000 package that included VIP tickets to a Jimmy Buffett concert, an autographed guitar and first-class airfare and hotel rooms.

Why would you buy fashionable, high-priced merchandise at a place that offers the ambiance of a plane hangar and the coddling of a carwash? For the same reason you buy everything else there: the savings. Costco, Sam's Club and BJ's rely on bare-bones presentation and a small, high-turnover inventory to keep costs down. Costco has just 4,000 items at each warehouse, compared with the 40,000 to 60,000 at other retail discounters.

The small markup on merchandise sold at warehouse stores basically pays the overhead. Profits come from annual membership fees -- $50 for a household membership at Costco, $40 at Sam's Club and $45 at BJ's. In its last quarterly report to investors, for instance, Costco reported membership fees of $400 million, the same as its profits.

With these profits, clubs can afford to cut prices. Markups hover around 10% to 15%, versus 30% at big discounters and 50% or more at department and specialty stores. Although seasonal sales elsewhere occasionally beat the warehouses, says retail consultant Don Delzell, "in general, you will get a bargain."

Understand the game

Still, trying to get a Costco price for that 50-inch HDTV you spotted at Best Buy can seem like trying to match socks in the dark. Clubs differentiate their products -- and discourage price comparisons -- by tweaking the mix of components, packaging items together or altering the model number. "If you know exactly what you want and you go to Costco and they've got it, great. You're a happy camper," says W. Frank Dell, a retail-management consultant. "More often than not, you're not going to see the model you're looking for." Rather than look for a SKU number, focus on features and keep an open mind, says George Andrews, of Delta Associates. "You're better off saying, 'I want a luxury watch for Christmas' than trying to find a specific model."

You might end up coming home with a different treasure altogether. Clubs offer an ever-changing variety of high-end goods, such as Kate Spade bags and Cartier watches, to keep your adrenaline up and your shopping instinct sharp, says Dell. "For some consumers, the treasure-hunt shopping experience is as enjoyable and intense as an auction. I have a friend who's a nut case when he goes into Costco and BJ's."

No matter what the surprises, you can count on finding 20 or so flat-screen TVs, a rack of digital cameras, a small showcase of diamonds, a good selection of wine, and enough beef, seafood and frozen hors d'oeuvres to stock Henry VIII's New Year's party. Besides their own private labels, the clubs regularly carry brand-name clothing, albeit often in last season's styles or by designers whose prestige is on the downswing. Expect a limited selection of fashions from any one company but a decent number of brands, says Santiago Vega, a retail expert. High-end manufacturers limit the number of items they sell through warehouse clubs to avoid diminishing their brand.

For some club members, shopping at Costco or Sam's Club has less to do with scoring a bargain than with the clubs' open-ended, no-questions-asked return policy, which applies to everything except computers. So if you decide your plasma TV isn't living up to your expectations a year from now, you can return it for the price you paid. That deal sets Costco and Sam's apart from their competition, including BJ's, which restricts returns on most purchases to 30 days or less.

Vet the diamonds

WAREHOUSE FACTS

COSTCO

Warehouses: 495

Basic membership: $50

Net revenues: $51.9 billion (fiscal '05)

SAM'S CLUB

Warehouses: 674

Basic membership: $40

Net revenues: $39.4 billion (fiscal '05)

BJ'S

Warehouses: 165

Basic membership: $45

Net revenues: $7.8 billion (fiscal '05)

To read the appraisal reports that accompany warehouse diamonds, you'd think the clubs were giving their jewels away. Not so, says David Hendry of JCRS, which helps insurers set appraisal standards for jewelry. Appraisals from warehouse clubs mostly serve as marketing tools -- "they imply that you're getting a much better deal than you really are" -- and do not reflect replacement value, he says. You're getting a fair price but not the steal the appraisal suggests. For an idea of the diamond's real worth, have it appraised independently, which could cost $100.

Costco and Sam's Club return policies turn a respectable deal on diamonds into a spectacular one, says Fred Cuellar, who wrote How to Buy a Diamond: Insider Secrets for Getting Your Money's Worth. Most boutiques give you 30 days to return a ring for full price.

But return policies don't matter to Renee Tan, who knew when she hit send that her diamond was forever. Tan enjoyed the Costco moment -- "It was romantic" -- and relived it when the ring arrived in a small, velvet box. Eight months later, the couple made their own no-return policy official, when they married in Prague.

NEXT: Six Secrets for Club-Shopping Success