Black Friday kicks off a period of elevated consumer spending around the holidays that ends up taking up a big chunk of people's annual shopping budgets. On average, Americans plan to spend just over $1,000 during this period, mainly on gifts for family and friends, according to the National Retail Federation, up about 4% compared to 2018.
If you want to do some of that shopping at Costco (NASDAQ:COST), you'll start at a disadvantage compared to most retailers. That's because the warehouse giant requires membership for access to its stores. But is the $60 subscriber outlay worth it, even if you're hoping to get those savings completely through Black Friday deals? Let's take a closer look.
The ease of offsetting that annual membership fee on one shopping trip depends on what you're in the market to purchase this year. Costco's customer demographic tilts toward the higher incomes as compared to Walmart's (NYSE:WMT) Sam's Club. As a result, some of its biggest deals are on splashy consumer discretionary purchases. Costco's 2019 Black Friday ad currently lists a $330 discount on a new Apple iMac, $10 off AirPod headphones, and $200 off its MacBook Air laptop, for example. You could also easily score more than $100 off of high-end appliances like a Wi-Fi-enabled washer and dryer or a stainless-steel refrigerator.
It still pays to comparison shop, though. Walmart, in some cases, is offering better deals this year, including with a $15 discount on second-generation AirPods. Given how eager most retailers are to win your business on Black Friday, you can afford to be picky about the places you choose to patronize. Yet you could easily rack up savings of $60 or more with just a few purchases from Costco.
The real benefit
The savings potential is much greater if you think you might use your membership beyond just the holidays. Costco earns most of its profits from membership fees and not product markups. That's how the retailer can be a "price leader" on just about everything it sells, whether we're talking gasoline, hot dogs, or detergent.
As a result, you can be reasonably certain that most items you buy at the warehouse are priced at or below any price you could find at a competitor. Just be aware that the impact of that savings ability is lessened as you venture more into discretionary purchases that carry higher profit margins for Costco and have the potential to poke a big hole in your budget. Someone bought a $400,000 diamond ring earlier this year, after all.
Nothing to lose
Yet the best reason to sign up for a Costco membership if you're in the market is that there's no risk involved. The retailer has a famously generous cancellation plan that allows for a full refund if you're dissatisfied with your subscription at any time during the year. In practice, that effectively makes your membership purchase a trial that you can opt out of over the next 12 months.
A retailer wouldn't offer such a cancellation policy if it wasn't confident that it could overcome the temptation of shoppers to buy a subscription just for a holiday like Black Friday before asking for a refund.
But the warehouse retailer's record renewal rate, with more than 90% choosing to pay for another year of shopping access, suggests you'll likely find a few good reasons to keep your membership card long after the peak holiday shopping season has passed.