Confirmed: Shopping At Wal-Mart, Costco Doesn’t Save You Money

Confirmation, in the Wall Street Journal of all places, that you really aren’t saving money by shopping at Wal-Mart, Costco or those other megastores that specialize in putting local, community-oriented Main Street stores out of business:

Consider this brain buster: You go to a discount warehouse and buy two dozen frozen bagels for, say, $9.60. Or you go to your local bagel shop and buy them for 75 cents apiece. Which one saves you more money?

Well, if you eat a bagel every morning, you clearly save money by buying the warehouse-store bagels, which come to 40 cents a pop. But what if you now eat two bagels every morning because you have a whole refrigerator full of them? What if you start making your lunchtime sandwich every day with bagels instead of cheaper sliced bread? Or if you decide to bring in bagels one morning for fellow office workers — something you never would have dreamed of doing when you bought just three or four of them at a time?

Might you end up spending more money in the end? And what about your waistline?

I don’t know about you, but when I have more cash in my wallet, I spend more of it. And when there are more bagels in my refrigerator, I consume more of them. I think that’s human nature. Call it the Costco Effect.

People are often price-sensitive about an initial purchase. But after the money has been spent, there’s a tendency to view the stash — be it a pile of bagels or imported stout — as manna from heaven. And that’s why I’ve often wondered if shopping at discount clubs saves people as much as they think.

As far as I’m aware, no one has researched this question. But Priya Raghubir, a marketing professor at New York University, says there’s a good deal of research that shows larger portion size is linked to higher consumption. “My personal opinion is that people actually spend more” in the end by going to Costco, she says.

Ms. Raghubir bases that partially on her own experience. Two years ago, she canceled her Costco membership because she was “disgusted” by how much she and her husband were spending there.

Michael Norton, a Harvard University marketing professor, co-authored a yet-to-be-published paper that found people buy more than they intend at Costco because they perceive that prices are better. He believes people end up throwing out food as a result.



Majestic is gadfly emeritus.