I have been shopping at warehouse retail stores for over 20 years, starting at the Price Club in Sunnyvale. In those days, you had to have some union membership to have access to those stores. I was a member of the HP Credit Union and felt privileged to shop at Price Club. Costco later entered the market as a competitor to Price Club and as it happened Costco bought Price Club to become Price-Costo and then it was simply Costco. I have had a Costco membership since forever.
I think about 90 percent of my purchases have been at Costco for decades. Everything that I need, I buy at Costco — food, clothing, shoes, toiletries, cameras, furniture, gas (petrol), tires, car batteries, engine oil, roasted chicken, cereals, sun glasses, candy, basmati rice, laptops, wine . . . the list goes on. I have never bought a car at Costco nor did I ever buy a speedboat or an SUV. But I could have. I have often noticed that everything that was on me was bought at Costco — sneakers, socks, underwear, jeans, shirt, and cologne. As I often say, if you cannot find it at Costco, you can do without it. Every visitor, whether domestic or foreign, I would drag them to a Costco shopping spree. There is something magical about going to a Costco that defies description.
One of the best ways to spend an afternoon was to go to a Costco and have lunch for free. Scattered throughout the stores are “food product demonstration stations.” They give you samples of products that are on offer — fish fingers, salads, Dove ice cream bars, Thai noodles, Mexican enchiladas, you name it — and just walking around sampling the fare is enough to give you a decent lunch. Those were the days when a visit or two to Costco was part of the ritual of the preparation to visit India. You had to stock up on the candy and shampoo to be distributed to family and friends.
I think that there is something quintessentially American about Costco. It has something to do with the American spirit of entrepreneurship, freedom and private enterprise. As an economist, I see how the Costco model makes sense. The most important thing about Costco is that it makes the market more efficient. That warms the cockles of an economist’s heart. Here’s why.
When you buy stuff at Costco, you are protected by a simple guarantee: if you don’t like what you purchased, for whatever reason, you can return it for a full refund. Period. And you have thirty days to do so, and on some items the full refund policy gives you six months. It is good if you have a receipt but even if you don’t, they will take it back without insisting that you justify your return. So when you see something on the shelves that you are not sure that you actually would like, you don’t hesitate to buy it. You check it out fully knowing that you risk very little. You can always bring it back for a refund the next time you visit. This allows the market to discover what is of value. The customer finds out if something is worth buying; and the retailer discovers whether something deserves to be on the shelves. Too many returns signals that fact that the product is shoddy and should be removed from the store.
Not often but occasionally I have returned food stuff that I didn’t care for, or maybe a pair of shoes that did not appear to fit after a couple of weeks of wearing. (State law prohibits the refund of alcoholic beverages, however.) The other favorite store of mine is Trader Joe’s. Again the same return policy: don’t like it, return the unused portion for a full refund.
India is missing efficient retailers. That is because the Indian economy is a sellers’ market, not a buyers’ market. Decades of socialism has maintained shortages which result in sellers dictating the terms. Consumers are the supplicants and the retailers are the king. This may change but I think it will be a few decades. Socialism dies hard.
For an informative story on Costco, check out this NY Times article.