How cost-effective are shopping clubs?

GRAND RAPIDS, Mich. (WOOD) - Paying to save money might sound crazy, but thousands of shoppers do it every day when they choose to join a club such as Costco or Sam's.

But is the cost of a shopping club membership worth it?

The clubs charge an annual fee. At Costco, it is $50 and at Sam's Club it's $40. More expensive memberships are available for increased savings. 24 Hour News 8 investigated whether customers are getting their money's worth based on the lower prices these clubs claim to charge.

Dozens of items were priced, from steaks to computer printer ink. Then, the prices were compared to those at Walmart, where typically, the lowest retail prices can be found without the cost of a membership. 24 Hour News 8 also compared prices at Costco vs. Sam's.

The bottom line?

Those memberships can be worth the cost if the shopper spends at least $200 per year.

Here is how: Savings were found between 6 and 28 percent. Gasoline is between 5 and 10 cents cheaper at shopping clubs than anywhere else. Twenty-eight percent of $200 covers more than a $50 membership.

The biggest savings, that 28 percent, were found on basic grocery items, such as cereal, baking goods, pet supplies and health and beauty aides.

For example: Starbucks coffee. Costco sells it for $1.66 per pound less than Walmart. For one cup each day, that saves $28 per year.

The other big savings were in the produce, dairy and bakery sections. Generally, Costco and Sam's Club were 25 percent cheaper than Walmart. Sheet cakes, for example, were about $8 less.

The shopping clubs offered more variety of produce and fruit than Walmart, and customers did not mind the large amounts they had to buy. They seemed pleased with the quality.

"I love the produce, that's what brought me to Costco and buy a membership," Trina Harris said.

When it came to meat and seafood, both clubs beat Walmart by at least 6 percent, and there was more variety. Walmart's chicken was less expensive but according to Costco, its chicken contains less water.

Deals were found beyond the grocery aisle.

Scott's lawn fertilizer at Costco was half the price at Walmart. A graphing calculator was $18 cheaper, and a Conair blow dryer was $10 less.

If a shopper buys Duracell batteries in a bigger package, they are about half the price of the small package at Walmart.

But not everything was a steal in favor of the shopping clubs.

Electronics are priced competitively just about everywhere, and the model numbers seem to be different regardless of location. The same is true for tires. Costco carries Michelin, which you can't seem to find anywhere else.

The shopping clubs have a hard time beating sales, loss leaders and promotions at their nonmembership competitors.

For example, Epson printer ink was cheaper at Staples, because the retailer gives the shopper $3 in-store credit for a used cartridge.

In optical, Walmart has the same lens and service prices as Costco, and in the pharmacy, 24 Hour News 8 found one prescription drug $47 cheaper at Target.

In addition, shopping clubs could cost consumers money based on the fact that they sell products in such large quantity. If consumers don't need the quantity, they should not waste their money on the large amounts.

Shopping clubs, while a good deal for some, are not for everyone.

What is a bargain to one person, may not be to another. To understand the bargains, it helps to learn how these clubs make a profit.

It's all from those membership fees.

In 2008, based on its public financial statements, Costco said it spent nearly $70 billion on merchandise and labor - about the same amount as the goods it sold.

Separately, memberships brought in $1.5 billion - about the same amount as the company netted in profit last year. Its profit was 1.2 billion, just about the same amount as the memberships it sold.

The only way the clubs survive is with those memberships, and the only way they can sell memberships is to convince shoppers they are getting a deal. That is why you'll find some items and not others.

"When gas prices, for example, were going down, some of our vendors came to us with price increases," said Mary Fredrickson, of Costco. "We chose not to buy those because people come to us for value."

In order to determine if a shopping club would benefit you, keep track of your purchases for about one month and make your own cost-comparisons. Look for the tried-and-true items you use all the time and do the math.

Inside woodtv.com:

Shopping Club analysis (pdf)

Sam's Club analysis (spread sheet)