Ever wonder what the real innovation is behind big-box stores like CostCo? Sure, they buy in bulk and pass the savings on to you, and they don’t have to “break bulk” - break up the bulk packaging. In many cases they don’t even break the pallet, just putting the whole thing right out on the floor. So this saves them labor and again passes the economy of quantity on to you.
I’d say there’s another somewhat more subtle mechanism at work here - transfer of rent. A pallet of four-packs of 1-gallon Ziploc bags allows CostCo to both warehouse and display (another innovation - they don’t have to have separate warehouse space) something like 640 four-packs or 2560 individual retail boxes — 256000 1-gallon bags — on about 16 square feet of floor space, or 16000 bags/sq ft. If you take home one of those four-packs, and you are will find those 400 bags taking up about half a square foot, or 800 bags/sq ft. And once you open the four-pack and put one box in the kitchen and leave the other three in the garage, you’ve increased the space usage to something like 500 bags/sq ft.
Now, what’s rent per square foot vs. that of CostCo? My rent is about $2.5/sq ft/month, so I’m paying about $2/month to store my supply of 400 Ziploc bags. If we’re charitable and guess that CostCo might be paying $1/sq ft/month, they are paying $16/month to store 256000 bags, or $0.025/month for the same box of 400 bags they sold me. Let’s say I paid $4 at Costco for four-pack of 400 bags that would have cost maybe $7 at Safeway, so I “saved” $3 at time of purchase — but I’m paying $2/month to store that savings! At the rate I use 1-gallon Ziploc bags, I will probably store that box for a year, for a total cost of $24 + $4 = $28.
This goes some way towards explaining why big-box stores have been so successful, but should also show that you’re not always saving what you think you are, and that it may well be less expensive to buy what you need, when you need it, instead of buying bulk and storing it yourself. I haven’t touched on the time factor (fewer trips to the store), which is often a benefit of buying bulk - but even so, next time you stop in at CostCo, think about who’s paying the rent.
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August 1st, 2008 at 9:16 am
This is an interesting way to look at it. But you did not factor in the economic cost or benefit of the alternative of not buying in bulk. The same space on your shelf costs you whether it is occupied by something or not. If you did not buy something else to take up the space on the shelf, you would still be paying the same $2.5 sqft/month for the space that is empty. So your assumptions above only compute if the space is needed by something else. That would yield a opportunity cost. You would loose the opportunity of storing a different item at your house rather than the box of bags.
So as for most people, their houses are not full of stuff and they have space on the shelf that they are already paying for. So the true cost to them in buying in bulk is only the cost of the product. And it yields the benefit of convenience and less trips to the store. Using this logic, you do save the $3 per box times four gives you a $12 savings over time. Now if you wanted to complicate things you could look into what you might have made with the original money for the three boxes that did not get used right away if you had invested the money in the market or something. You could figure at what point you would have to pull out the money to buy another box and if the interest would have made up for how much more the box cost. You would have to make up the extra cost and some for your time in management of the money. Also the gas to go and get the boxes and fees for entering and exiting investments. I doubt that you would be able to make it work out to be even close to the money saved with buying in bulk. So it could be said that buying in bulk is better than most traditional investments.