Why Sams and Costco Suck

[Homeslice]

10 Things Warehouse Clubs Won't Tell You
Below is an excerpt from the book "1,001 Things They Won't Tell You," which was published in May 2009 and highlights popular columns from SmartMoney's long-running "10 Things" feature.
By SmartMoney Staff (Author Archive)



1. "You paid your dues? Good, now get in line."

More than 100 million Americans now shop in warehouse clubs including BJ's, Costco, or Sam's Club each year. That's 50 million more than in 2002. The attraction? For the annual membership price of $35 to $100, discount hunters can spend their weekends stocking up on 36-roll packages of toilet paper and nuclear-canister-size boxes of detergent. Too bad they also spend plenty of time doing anything but shopping. Michelle Wilkes says she usually waits in lines of no less than 15 minutes on the weekend at her Lake Zurich, Ill., Costco. There are often four to five shoppers ahead of her at the register, she says-and that's despite what Costco CFO Richard Galanti claims is a company-wide checkout policy of "no more than one in line and two behind." What further frustrates Wilkes is that her store never has all its registers open. "I have never seen it fully staffed," she complains. Galanti agrees that "There's nothing worse than having half the 20 registers open. Shame on us."



2. "You'll need a hard hat when you shop here."

Heads up: Warehouse clubs are notorious for letting products drop on unsuspecting customers. In 1998, a woman in Cincinnati was hit by five 38-pound containers of kitty litter while shopping in a Sam's Club. She sustained head, neck, and shoulder injuries. And during the summer of 2001, a woman shopping in a Maryland Sam's Club barely avoided serious injury when a sofa fell from a shelf.

Plaintiff attorney Jeffrey Hyman says injuries often occur when unsecured merchandise slips from shelves, either because a store employee stocking an adjacent aisle accidentally pushes it or because another customer is trying to take down an object. Hyman says that despite the accidental nature of the incidents, "If you know you have a problem and you know you have a dangerous condition, you need to fix it." A Sam's Club spokesperson insists: "Our shopping environment is very safe. But when something like that happens, it causes us great concern." The company, he adds, tries "to put in safety rules to prevent anything from happening."


3. "Our credit card will burn your savings away."

Since Sam's Club honors only the Discover card, Mastercard, and debit cards, many shoppers decide to get a Sam's Club personal credit card. But before you sign up, beware: The standard card comes with a 23.15 percent APR, which is about nine percentage points higher than the current average for variable credit cards, according to Bankrate.com.

Worse, once you sign up for the Sam's card, you may find your phone ringing off the hook with eager telemarketers. Unless you opt out by calling a toll-free number or mailing in your request, the privacy policy on Sam's Club's credit card application says your information can be made available to "third parties, who are interested in offering special products or services to you"-precisely the folks you want calling you at dinnertime. A spokesperson for GE Money, which services the Sam's Club card, denies the use of telemarketing for any product cross-selling, saying, "What we have the right to do and what we do are two different things."


4. "Jewelry experts trash our gems."

Survey the landscape at a Costco or BJ's. There are stacks of cornflakes, mountains of mayonnaise jars, and... diamonds. Diamonds? You bet. A jewelry counter is now standard at most club stores. BJ's even offers a diamond appraisal guarantee. The $1,800 band you fell in love with at BJ's, for instance, comes with an appraisal certificate stating that it's valued at $3,730. Not even Tiffany offers that.

BJ's says it has a simple explanation for why it can guarantee the value of its gems despite the discounted price: bulk. A BJ's spokesperson says that because the store purchases jewelry in volume from dealers, it can provide "tremendous savings" to its members without skimping on quality. There's just one problem: Jewelry experts say the stores' appraisal guarantee is sketchy at best. As Edwin Baker, a former executive vice president of the American Society of Appraisers, puts it, "If the clubs consistently sell an item for $1,000, then it's obvious the market value of that item is $1,000, not $1,500." Joyce Jonas, jewelry appraiser on the PBS series Antiques Roadshow, agrees. She calls the guarantees "misleading. You're not dealing in the kinds of goods that could ever be appraised for more than what they're selling it for."


5. "You'll leave when we tell you to."

Ed Fritz and his family had just finished shopping at a warehouse club in northern California. As Fritz got to the store's exit, an employee stopped him and said, "I have to check your receipt." When Fritz declined to show it (he says he wanted to safeguard his credit card number), the employee grabbed his cart and then his arm to prevent him from leaving. Once Fritz freed himself, he headed to the parking lot, followed by six other employees. As one of them took down his license-plate number, Fritz was told never to return to the club. "I said, 'After this treatment, I never want to come back here,'" he recalls.

That may be an extreme example, but as club members have long known, it can often be a hassle just leaving a warehouse store. You'll wait for one of the club's employees to inspect your receipt, a procedure that will usually add several minutes to your outing. Obviously, when you join a club, you agree to follow its rules. But why such scrutiny? Galanti says that at Costco the review helps make sure "the right price is on the right items" and "is a measure of inventory security." While warehouse stores do have the right to check your receipt, Washington, D.C., attorney Donald Temple, who specializes in retail discrimination law, says employees cannot cross-check it with the items in your cart.


6. "We have more animals than a small zoo."

Warehouse stores don't advertise having pet departments. But looking through health-inspection reports, you'd sometimes think they did. Between 2000 and 2002, two Sam's Clubs in Maricopa County, Ariz., were cited for having birds in the rafters and nesting under the bakery display. And in September 2002 the Georgia Department of Agriculture fined a Sam's Club in Atlanta $80,000 when more than a dozen mice were found in the store. They'd been snacking on food and leaving behind their droppings.

A Sam's Club spokesperson assures us that "the problem is taken care of now." Although she can't comment on the Arizona cases, she says, "At all times one of our [top] priorities is to maintain a safe shopping environment for members. If there are birds in the club or rodents, we work as fast and diligently as we can to get them taken care of."


7. "Try our website. It will try your patience."

So you went to the trouble of joining a club store-forked over the annual dues and then endured the long lines-all in the name of saving a few bucks. Well, you could have avoided the crowds and possibly even saved some money by shopping online. Costco's website, for example, features everything from laptops to patio furniture. But unlike shopping at the store, you don't have to be a member to buy items from the site; you're simply charged an extra 5 percent. Which is the better deal? All told, you'd have to buy about $1,000 of merchandise before the nonmember surcharge equaled the cheapest membership fee-and that's without considering the price of gas.

But online shopping comes with its own set of hassles. First, shipping costs could eat up any potential savings. Rachel Caspi of Bethesda, Md., ordered six items from the Costco online pharmacy for a total of $78.10. When she was charged $26.50 for shipping-or 34 percent of the total purchase-she ended up canceling her order. Then there are the logistics of placing orders online. Paul Cohen, a Valley Cottage, N.Y., resident ordered two PCs online from Costco: The first arrived on schedule, the other was MIA. Only after two weeks of repeated calls to Costco's customerservice department-which at one point could not even trace the missing PC-was his order fulfilled.

Costco's Galanti admits that "there will be mistakes made. When we find out there has been a problem, we fix it as best as we can to the customer's satisfaction." Still, he adds, "I've had friends e-mail me saying they ordered something and it never showed up or they had a problem."


8. "That warranty is valid-in Italy perhaps."

Ever hear of the "gray market"? Your club store has. The term refers to merchandise that was designated by the manufacturer for distribution in another country but ends up being sold in the U.S. Club stores are often big buyers of gray-market products, either because the goods are priced cheaply or because the manufacturer will not sell directly to the store.

Unfortunately, the warranties that come with gray products don't have to be honored in the U.S. Bret Diamond found that out when he purchased a Seiko diver's watch at his local Costco. It was $75 less than he had seen it for in other stores, but he had to pay more than $100 to have it repaired when the watch stopped working three and a half years later. His five-year warranty was not valid because the watch was graymarket merchandise. If Diamond had known that, "I never would have bought it," he says.


9. "Your backyard would make a beautiful warehouse."

In addition to the demand of costconscious shoppers, club stores keep blossoming (at a clip of more than 20 new ones per year) because civic leaders see them as a way to encourage development and jump-start the local economy. But opponents of the buildup contend that politicians take shortsighted measures to gain these quick hits. Al Norman, an activist and editor of SprawlBusters.com, says, "Unfortunately, local officials hand over a rezoning without much scrutiny because they think this means jobs and taxes."

That's what Donald and Sophie Mason believe happened in South San Francisco in the late 1990s. The Masons figured that by virtue of the city's General Plan, a 15-acre plot near their home could be developed only for high-density housing. The city council, though, changed the plan to allow for retail development. The Masons and members of their group, the Concerned Citizens of South San Francisco, say the change was made specifically to lure a Costco to the area. They forced a referendum to approve the changes; to the Masons' disappointment, voters okayed them. The store opened in 2001, and ever since, the traffic near the Masons' home has been, according to Sophie, "an absolute mess."


10. "You'd better like what we like."

Warehouse membership may have its privileges, but it doesn't provide much variety. The most mammoth clubs carry only 4,000 to 7,000 different products, one tenth of what your average supermarket stocks. A BJ's spokesperson admits that what customers see in stores is "an edited selection of top quality. So you might not find 30 laundry detergents, but you're going to find the top laundry detergents."

The thing is, warehouse clubs have mastered how to make their aisles look more varied than they are. "Clubs like to rotate items during the year to keep the shopping trip exciting," says Christie Briggs, a senior research analyst at AMR Research, a business research firm. "This means that an item a member is fond of could be gone the next time they go." That's what got Suzy Neal so annoyed. After a year of buying Wow potato chips at a Sam's in Albany, Ga., Neal one day couldn't find the item. Only after she filed a complaint with PlanetFeedback.com, a Web outfit that acts as a middleman for written consumer complaints, did Sam's restock the chips.