Warehouse Club Study Leaves False Impressions about Costco, Sam's, BJ's

Many media outlets have picked up a report by two professors, Michael Norton of the Harvard Business School and Leonard Lee, of the Columbia Business School, contending that warehouse clubs aren't necessarily a bargain for shoppers because they encourage them to purchase more than they intended to buy, however, what the stories don't say is that the report concedes shopping at Costco and its brethren can save money.

The Feesâ€"Savings Link, or Purchasing 50 Pounds of Pasta report posits that membership dues that warehouse clubs charge "can lead consumers to infer a fees--savings link, spurring them to increase their spending independent of the actual savings afforded by such clubs." The report is based on field studies and shopping models that look at warehouse club operations. While fees fascinate the profs throughout the report, one of the field studies reveals something interesting about bargain retailers:

Indeed, when we visited both a Costco store -- which charges a fee -- and a Wal-Mart store -- which does not -- in New England and recorded the prices of a selection of 20 common consumer products ranging from Lipton tea bags and Goldfish crackers to regular household products such as Duracell batteries and Tide laundry detergent, we discovered two things. First, the two stores generally did not offer the same sized products. Second, when we extrapolated prices to calculate the volume discount, Costco had an average price advantage of 9.5 percent per unit across these product categories compared to Wal-Mart. Thus discount stores like Costco do allow consumers to enjoy lower unit prices due to volume discounts compared to other regular stores that do not charge a fee.