THE ANTI-STORE: Costco, Jet, and Price Club

I was listening to one of the more recent Planet Money podcasts on NPR the other day called The Anti-Store which actually puts some blatant, yet inexplicable tricks Costco implements, into comprehensible and conversational language.  Robert Smith and Jacob Goldstein, who hosted the podcast, argued that at heart, Costco is a cold hearted store which utilizes some pretty sly, but profitable business strategies to get the most from their customers while expending less.  But this story, which focuses primarily on Costco and Jet, did not start with these two major companies.  It actually began in 1976 with a man named Robert Price and his company, Price Club.  

Robert Price started Price Club in 1976, which is similar to Costco.  It was designed for small businesses to shop at and there was a $25 membership fee that must be paid for the luxury of shopping there.  After its first couple months of opening, Price Club was failing.  The small businesses just did not shop there.  Price decided, in hopes of saving his business, to open up Price Club to people who wanted to shop for themselves and avoid limiting the warehouse to small businesses only.  And right there, that got the ball rolling for Price Club.

The founder of Costco was originally an employee of Price Club who left to start Costco. His name was James Sinegal.  Costco has many similar values to Price Club, including a membership fees and targeting small businesses.  The remainder of this podcast explained

some of the fundamentals of how Costco and Price Club are organized and why the companies chose to run themselves in their current fashion.

Obviously, in order to shop at Costco, you need a membership, which costs $55 annually.  Robert Smith and Jacob Goldstein explain how this membership acts kind of like a pass to an “exclusive” club, even though hundreds of millions of people own this membership.  Just because millions of people have this “exclusive” membership, Costco does not abandon this “exclusive” feeling after customers pay the membership fee: there’s always someone at the warehouse entrance who asks to see your membership card.  For some people, having something to show and justify themselves feels “exclusive.”  

Then you begin shopping.  Have you ever noticed how Costco never has signs at the ends of aisles? Robert Price says it’s a trick Price Club also used.  In The Anti-Store, Smith and Goldstein give the example of needing plastic bags.  Since there are no aisle signs and few employees walking around the store to offer assistance, some people end up walking up and down all the aisles looking for plastic bags.  Price says the business’s hope in setting up the warehouse as explained is to inveigle customers to pick up things they don’t actually need. However, walking by it may have sparked an interest of two, and most customers leave with

Proof of my cashew purchase;)

little extra things they might not have initially put on their shopping list.  I know that happened to my family last week.  We were going to Costco to purchase a couple things: paper towels, tissues, towels and I believe Lysol.  I specifically remembering walking down the candy aisle to the checkout line [ though we seldom purchase candy] and stopping because my dad saw something yummy to eat: cashews covered in vanilla creme with dark chocolate coating and flaked coconuts.   I know for certain those cashews were not on our shopping list, yet walking down that aisle and seeing them lured my family to purchase them.  Thumbs up for Costco.

Let's continue on with Robert Smith and Jacob Goldstein's example of shopping for plastic bags at Costco.  You've finally found the plastic bags after walking up and down just about every aisle and you're looking at the selection of plastic bags to purchase.  This is no retail store that has 15 plastic bag options.  When you go to Costco, you’re asking for limited selection.  You may find only about three different types of plastic bags at Costco and usually their small, medium and large, not Ziploc, Up and Up, Hefty etc.  

At the checkout line.  Costco does not provide bags for your purchased items.  Robert Price says that this is another trick that Costco uses in order to promote themselves as a “mysterious warehouse With the cement floors and bright lighting”.  Again, this leads us back to that idea of  appearing “exclusive.”  in other words Costco does not want to look like a typical retail store.  Not only does providing no bags allow Costco to appear less like an ordinary retail store, but it also saves them a lot of money.  As I mentioned before they're all so few employees and Costco who walk around.  When my family and I go, we usually see a couple of employees folding clothing in the clothing aisle but besides that you will come upon very few.  This is another tactic that Costco utilizes to lower their costs.  Both hiring employees and giving bags costs money that could otherwise be saved.

Now we get to the part of the podcast that I find most shocking as a listener. This is another money-saving strategy that continues to evolve with Costco.  And it is this strategy:  Costco wants its customers to come less often.  They would rather a customer spend $400 once a month rather than $100 every week because it costs money for Costco to give you a parking space,  it costs money for Costco to hire someone to check your membership at the entrance,  it costs money for Costco to validate your credit card every week, and it costs money for Costco to hire people to work at the checkout lines. So one of their business mottos is actually a question of how can we encourage customers to come less often.  For me, that very interesting.  I'm now seeing how Costco is really one of those companies that values every cent it can save on store maintenance,  and every dollar it can gain off customers.

The rest of the podcast is primarily about an online warehouse called Jet and it's business strategies for saving money on shipping returns. Long story short,  the more you buy on Jet the cheaper things in your shopping cart become because it saves Jet money instead of having to send something different to your address everyday. Instead, they can send it all in one shipment.  Here’s what I’m sensing from this: even if a company says you’re getting “free-shipping”, you’re really not because the shipping cost is embedded in the products price;  you're really only saving extra money you would have to pay if it was not free shipping, or money for shipping on top of money for shipping.  

Jet also has an interesting feature on its website.  If you click on a no return button, you save additional money.  To me, that suggests the shipping price you pay for the delivery of a product also includes the shipping price for the return of an item you're not satisfied with.

Whew! That was a long post!  But hopefully, that gives you an fairly good synopsis of The Anti-Store podcast from this past week from Planet Money on NPR news.  If you’d like to listen to it for yourself, I’ve included the link below.  

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Link to The Anti-Store.