Find exotic deals at big-box retailers

By Kiplinger's Personal Finance Magazine

Renée Tan knew exactly what she wanted in an engagement ring, and she knew exactly where to shop for it. "My dad bought my mom a beautiful princess-cut ring from Costco," says the Culver City, Calif., bride. "So I got it in my head that I wanted a ring from Costco."

Tan and fiancé Adam Einstein visited the warehouse store but found her dream ring -- a one-carat, princess-cut diamond in a platinum setting -- on Costco Wholesale's Web site for $4,000. At the magic moment, Einstein got down on one knee and said, "If you'll marry me, click now."

Tan may be the rare bride who dreams of shopping for her engagement ring amid the dog food and bulk toilet paper at a warehouse club. And yet, about half of all members cruise clubs, both on-site and online, for expensive items such as electronics and jewelry, says a report by newsletter Warehouse Club Focus. Warehouse club members can afford the big stuff: More than half have household incomes of $50,000 or more; about a fifth earn more than $100,000.

Not surprisingly, clubs have responded by expanding their jewelry and electronics sections and by offering exotic package deals. In fiscal 2006, Costco sold 96,000 carats of diamonds -- ranging from tiny chips to three-carat or bigger rocks -- and $1.8 billion worth of TVs. Sam's Club recently enticed one family to buy a $30,000 package that included VIP tickets to a Jimmy Buffett concert, an autographed guitar and first-class airfare and hotel rooms.

Score on savings

Why would you buy fashionable, high-priced merchandise at a place that offers the ambiance of a plane hangar and the coddling of a carwash? For the same reason you buy everything else there: the savings.

Costco, Sam's Club and BJ's Wholesale Club rely on bare-bones presentation and a small, high-turnover inventory to keep costs down. Costco has just 4,000 items at each warehouse, compared with the 40,000 to 60,000 at other retail discounters. (See also, "In praise of Wal-Mart.")

The small markup on merchandise sold at warehouse stores basically pays the overhead. Profits come from annual membership fees -- $50 for a household membership at Costco, $40 at Sam's Club and $45 at BJ's. In its last quarterly report to investors, for instance, Costco reported membership fees of $400 million, the same as its profits.

With these profits, clubs can afford to cut prices. Markups hover around 10% to 15%, versus 30% at big discounters and 50% or more at department and specialty stores. Although seasonal sales elsewhere occasionally beat the warehouses, says retail consultant Don Delzell, "in general, you will get a bargain."

Understand the game

Still, trying to get a Costco price for that 50-inch HDTV you spotted at Best Buy can seem like trying to match socks in the dark. Clubs differentiate their products -- and discourage price comparisons -- by tweaking the mix of components, packaging items together or altering the model number.

"If you know exactly what you want and you go to Costco and they've got it, great. You're a happy camper," says W. Frank Dell, a retail-management consultant. "More often than not, you're not going to see the model you're looking for."

Rather than look for a SKU number, focus on features and keep an open mind, says George Andrews, of Delta Associates. "You're better off saying, 'I want a luxury watch for Christmas' than trying to find a specific model."

Continued: Selection is ever-changing

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