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Is Now the Right Time to Join Costco?

By Daniel B. Kline – Jun 3, 2020 at 9:42AM

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The warehouse club has done well during the pandemic, and it might be a good move for you to become part of the family.

Costco (COST -1.91%) has been an essential retailer during the coronavirus pandemic. The warehouse club sells bulk items and all sorts of essentials that make it easier for people to shelter in place or stay at home for long periods of time.

The members-only chain has kept its warehouses open, albeit at limited capacities with customers required to wear masks and maintain social distancing. Costco has at times struggled to keep some items in stock, but it has largely done a good job making it easy for its members to get what they need.

Much of the Costco experience is lost during the current crisis. The treasure hunt aspect of visiting the chain and fun asides like free samples, as well as the chain's cheap food court, were missing or greatly curtailed, but that does not make joining a bad idea.

The exterior of a Costco.

Costco customers have to have a membership. Image source: Costco.

The case for joining Costco

Food prices -- and prices in general -- have increased due to the pandemic. That's largely due to it costing more money to produce many items because of increased cleaning costs, and lowered production due to having to socially distance workers. Meat costs have, of course, risen due to the major problems COVID-19 has caused at many meat and poultry processing facilities.

Above all else, Costco offers low prices. That does not make the chain immune from rising costs. It's likely that it has had to raise prices on some items as its costs go up, but the warehouse club marks its items up minimally.

Costco makes roughly two-thirds of its profit from selling memberships. It rewards those members by selling items at very low margins. That means that while prices may be up compared to what the warehouse club normally charges, they will still likely be lower than your local grocery chain.

To keep prices low, the retailer also offers a limited selection. You won't be able to pick from half a dozen brands of paper towels in a variety of configurations. Instead, you'll get a few bulk options. That's done by design. By buying fewer SKUs in high quantities, the chain can further keep prices down, passing on those savings to its members.

The bulk nature of shopping at Costco also lends itself well toward shopping during a pandemic. Members can leave the house once, buy in quantity, and be set for a few weeks. That's especially relevant for vulnerable populations who can shop at the warehouse club during dedicated hours and minimize their trips out.

Is now the time to join Costco?

This may be the smartest time in recent history to spend $60 for a basic one-year membership to the warehouse chain. It's easy to make that money back and come out well ahead if you become a dedicated Costco shopper.

The retailer also offers multiple delivery methods, and while they are not as robust as what some rivals have, they are a way to stock up on staples without leaving your house.

Costco offers good value to members, and it stocks the staples people need to get through the current crisis. And once conditions return to normal, it will still offer those things, as well as a fairly fun shopping experience. It makes sense to become a member now and stay as the world slowly returns to some form of normal.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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