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Warehouse clubs scream 'bargain!'

A Costco customer pushes her shopping cart by a display of televisions at a Costco warehouse store in Richmond, Calif.

TEXT OF STORY

TESS VIGELAND: If you shop at warehouse clubs like Costco, or Sam's Club, I'm sure this will sound all too familiar. You go in expecting to spend, oh, a $100 on laundry detergent, toilet paper and all the other things you really need.

You end up spending at least twice that to take home a 10-pack of linguine and a five-gallon jug of Patron Silver. This, dear listener, prompts us to wonder...

Comedian: What the hell were you thinking?

Yes -- what were you thinking? Our look at why we do what we do with our money.

We sent Rachel Dornhelm to her local big-box store to find out.


Rachel Dornhelm: It's the middle of the afternoon, but the parking lot at my local Costco is packed. After finding a spot, I grab a shopping cart the size of a small car.

Sound of cart rolling

And head into the cavernous space. Past the person checking membership cards...

...And then through a canyon of tempting electronics.

Dornhelm to herself: So now I've walked in made it past the big screen TVs, and I'm kind of in the center of the store, where there are kite's hanging and flags and oh, tables of clothes.

I stop and pull my list out, fully intending to focus on just that.

Dornhelm: The oats, the hummus, toilet paper, yogurt.

I am not going to fall into the trap of spending money save money on things I don't need. But there are cues all around me screaming "Great deals! Huge Discounts!"

Larry Compeau studies consumer behavior at Clarkson University. He says that inner voice chimes in as soon as you lay your hands on that giant cart.

Larry Compeau: Immediately, as they walk in and they experience the scale, they start thinking value, saving money, lower prices.

And that membership card you have to flash as you enter, that whole gatekeeper aspect of the place, that also activates my bargain antennae, says Compeau.

Compeau: If you have to pay $50 a year just to shop there to get the member prices, then they must be good prices, they must be low prices.

Which is probably how oodles of kids' clothes and stacks of books from the first tables I encountered immediately end up in my cart.

Here's my problem, if I see books on a table, I just have to look.

But this isn't all about the virtues of reading. I'm likely feeling something else too -- a feeling of urgency.

Compeau: The inference that most consumers are going to make is that this must be something temporary. Either these are items that are on sale, these are items that are going to be discontinued. There's something special about these otherwise they wouldn't be on a table somewhere.

And then there only 316 shopping days until Christmas. Herb Sorensen, who studies consumer behavior, says shopping is a way more emotional than rational.

Herb Sorensen: Price doesn't drive shopping as much as it's thought to, however, perceived pricing does.

Who knew a forklift had anything to do with that?

Sound of honking

Forklift driver: Forklift coming through!

My ears hear it as "forklift coming through," but my brain registers it as "warehouse, wholesale prices." Retail designers say every sense is considered in a store's design, so there are visual cues. Some are obvious, like the plain steel shelves holding cases of canned corn and gallon jugs of salsa. And then there's the lighting.

Barbara Bestor: Warehouse store lighting is generally as little lighting as possible with as much wattage as possible.

That's Barbara Bestor, chair of graduate studies at the Woodbury School of Architecture in Los Angeles. Bestor says the bargain warehouse design probably grew out of pure function, but it's becoming its own aesthetic. Bestor points to the way warehouses display large quantities of the same thing over and over again, like cereal

Bestor: Like a regular supermarket even has one of each cereal box facing you and a whole stack of them behind, and here, you have like an entire wall of Honey Nut Cheerios.

Bestor says this over abundance encourages buying -- by sending the message everybody else is stocking up, so I probably should too. Maybe that's what I was thinking when I rolled up to the warehouse dairy case tiled with big pink tubs that were only $4.99.

I should be able to eat three pounds of cottage cheese in three weeks. Maybe?

But what if I stumbled across this same deal at my local supermarket? Who knows? But it's definitely something to think about over my next bowl of cottage cheese.

I'm Rachel Dornhelm for Marketplace Money.

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As I listened to Ms. Dornhelm talking, I heard many things that I tell myself or do when shopping. The standing joke at my home is that I can't go shopping, because I end up buying a "300 dollar coat hanger" (by the time I leave the store I not only got the coat hanger but many more items than I intended)! It always reminds me of some show I heard a long time ago, ( no idea what it was about), where the speaker was stating that many of these behaviors are present from the earliest cultures: "men are hunters, women are gatherers". Certainly this is stereotypical (though culturally true), and to me it really explains why my husband can go for one specific thing and if he doesn't find it, he leaves without being majorly sidetracked, where I fall prey to all the strategically placed displays of great buys that I probably didn't need that instant, but reminded me that at some point I had thought about getting.....

The interesting point of this article is the subtle marketing that is taking place. The manipulation of our expectations by the "low cost" atmosphere. I had not considered that. It was enlightening.

I'd like to know what prompted this very disappointing article absent of any actual information.

When I listen to a Money Market program I'm listening for information I can use to help my financial circumstances, save money, etc... This, however seems like an unreasonable slam on Costco to me. The article talks about "How it makes you feel" not a word about how much you can save, quality of products, or overall value. No price comparison was made between costco and another retailer. Nothing really helpful.

Had some real comparisons been made, light would have been shed on why the parking lot was so full. It's because those people were saving money, and buying superior products.

Costco has Starbucks and other coffee for a fraction of the price elsewhere, It has Boudin's San Francisco Sourdough; where else can you get that outside of San Francisco"? a great selection of cheese (Best possible price on aged parmesan). Wines, Fresh veg, and the list goes on. These are products that either can't be found in other stores or the price would be prohibitive.

Costco can do this because of their unique distribution model, which is far different from a regional chain of grocery/department stores. Also, Costco employees are well compensated and have good benefits. Costco is a very responsible employer.

As for the membership fee, if you choose the "Executive Member" COSTCO PAYS YOU every year, a rebate on your purchses. Last year, costco gave us a check for $284.00. So, Costco paid us $184 to shop with them (And Save Money).

If a shopper purchases any products that weren't on their list, that wasn't needed, that says something about the shopper, not Costco.

Beware of B-school types straining to offer insight. Though I agree with Campeau's statement: "The inference that most consumers are going to make is that this must be something temporary."

At Costco an item can easily be temporary though perhaps not so much because of clever marketing strategy as their cost. The margins are thin and inventory turnover is important; Costco used to claim eight times.

Mr. Compeau defines my emotions when I walk into a store with my membership card. "I paid for the privelege... I want to take advantage of the benefits."

Mr. Compeau defines my emotions when I walk into a store with my membership card. "I paid for the privelege... I want to take advantage of the benefits."

I forgot to mention that the laptop that she bought was made to meet Costco's specs. A comparable laptop would have cost at least $500.00 elsewhere. Her laptop has more memory than most I've ever seen and even had 1G set aside just for graphics for gaming or Autocad. The speed was 7200 RPM which is rare, unlike the standard 5400 RPM in most computers. The purchase price was less than $1000.00.

My daughter just purchased a laptop at Costco that came with a 2 year warranty. There was an instant $100.00 rebate, nothing to mail in. She put it on her American Express card in order to get an additional 1 year warranty for free. They have the best return policy I've ever seen on anything. If you buy a food item and you just don't like the taste, you can return it with no questions asked. Around the winter holiday season they carry girls velvet dresses for around $18.00. The same dresses sell for 3 times as much in a store such as Kohl's. I DO have to be careful not to be an impulsive buyer because there are so many things that are so tempting to buy so in this regard I do agree with the points made in the article. However, I will continue to be a Costco shopper because of the money saving products they do sell, even if that means I will occasionally splurge.

Great story on marketing strategies. It will make me think twice before shopping at one of these stores when I'm in a low mood and now if I do end up spending more than I planned on at least I'll know why.

I thought this story had an irritating, "you're stupid if you shop here" tone. It would have been a more helpful, informative piece if they actually investigated whether you can save money by shopping there. Costco certainly isn't the only place where people buy stuff that they don't need because it seems cheap. They do that every day, in every grocery store, Target, mall, etc. That's exactly what every retail establishment would like consumers to do. It might not be a wise choice for a single woman to buy 3 pounds of cottage cheese because it's cheap, but it could be great for a family of 6.

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