What Is a Wholesale Club?

By Rebecca Lake · November 17, 2022 · 12 minute read

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What Is a Wholesale Club?

Wholesale clubs or warehouse clubs offer shoppers the opportunity to buy items in wholesale quantities, based on the premise that buying bulk saves money. In exchange, shoppers typically pay an annual membership fee in order to be able to browse the latest deals.

Shopping wholesale is a tactic favored by the frugal and thrifty, since in theory, bulk buying usually results in a lower unit price. But are wholesale clubs worth it? Can you truly save enough to make it worthwhile to have massive packages of soap and cereal in your closets?

Understanding how warehouse club shopping works can help you decide if it makes sense for you. Read on to learn more, including:

•   What are wholesale clubs?

•   How do they differ from grocery stores?

•   What are the pros and cons of wholesale clubs?

•   What are tips for shopping at wholesale clubs?

How Does a Wholesale Club Work?

What is a wholesale club and how does it work? Simply, a wholesale club works by offering consumer goods in large quantities at wholesale prices. So, rather than buying a six-pack of toilet paper for $8.99, you might have the opportunity to purchase 30 or 50 rolls in a single package for $29.99.

You don’t have to do too much math to see right away that you’ll save money by buying in bulk. But you might be wondering how wholesale clubs and warehouse clubs make money if they’re charging low prices for their items.

The simple answer is that they offer these deals exclusively to shoppers who purchase an annual membership. The wholesale club gets your membership fee and in exchange, you get to buy items at a discount. Some wholesale clubs even offer additional incentives, such as discounts on home and auto insurance.

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Wholesale Clubs vs Grocery Stores

Wholesale clubs and grocery stores differ in a few ways.

•   Selection. While both can offer food, household items, and petcare items, the range of products available at a wholesale club may be different than what you’re used to at a grocery store. For example, you may be able to find frozen vegetables in bulk at a wholesale club, but you’ll need to hit the grocery store for fresh veggies.

•   Sizing. Instead of buying one can of crushed tomatoes for pasta sauce at a grocery store, you might be buying a case of eight at the wholesale club. Or the 48-ounce orange juice you buy at the grocery store is only available in a 96-ounce size at the warehouse club.

•   Membership. Here’s also another key difference: Grocery stores don’t charge a membership fee. Anyone can walk into a grocery store and shop. Without a membership pass, however, you generally won’t be able to shop at a wholesale club. Not paying a fee might appeal to you if you’re used to grocery shopping on a budget.

Recommended: How Much Should I Spend on Groceries a Month?

Factors That Determine if a Wholesale Club Is Worth It

Now that you know what a wholesale club is, consider if it’s right for you. Plenty of people enjoy shopping at warehouse clubs, but these retailers aren’t necessarily right for everyone. If you’re debating whether joining a wholesale club makes sense, here are some factors that can determine if it’s worth it to you:

•   Membership fee. The first thing to consider is the fee you’ll pay to shop. If you can’t easily make the fee back in savings, then a wholesale club might be a waste of money.

•   Discounts. Next, it’s important to weigh the size of the discounts. This can involve a little homework as you’ll need to compare unit prices for the items you typically buy at the grocery store to unit prices for the same items sold at wholesale clubs.

•   Time savings. In addition to the financial aspect, consider whether shopping at a wholesale club would save you time. Will you be able to get in and out and make fewer trips by buying in bulk? Or will you eat up an entire day wandering the aisles of a giant warehouse full of stuff?

•   Returns. If you change your mind about a bulk purchase, it’s important to know whether you’ll be able to return it and get your money back. What if you buy a 12-pack of laundry detergent and discover it’s not the unscented kind you like? Would you be stuck with it? Different wholesale clubs have different policies regarding what they will and won’t take back.

•   Usefulness. Buying 50 rolls of toilet paper or 30 pounds of frozen vegetables at rock-bottom prices might seem like a deal, but it’s important to consider how much use you’ll get out of those items. If you don’t actually use the things you’re buying in bulk at a wholesale club, then you’re essentially throwing money away.

•   Extra savings. Aside from potentially saving money on food and other items, consider whether you can get a break on anything else. For example, some warehouse clubs sell gas at prices that are typically several cents lower than regular gas stations. You might also be able to pick up free samples of items or, as mentioned above, get discounts on home and auto insurance.

If you only plan to hit the warehouse club every few months, then you might not get the full range of benefits from your membership. On the other hand, if you’re a more regular shopper, a wholesale club membership could pay itself back in savings.

Advantages of a Wholesale Club

If you’re wondering what are wholesale clubs good for, they can offer certain advantages to shoppers. Again, whether you reap any personal benefit from them can depend on how you prefer to shop and what kind of money you’re hoping to save. Consider these potential pros:

Lower Prices and Bargains on Certain Products

One of the chief selling points of wholesale clubs is their prices. Wholesale clubs can offer items at bargain price points by purchasing them in bulk, then limiting how much they mark them up. So while a regular big-box store might mark up items 25% to 50%, a wholesale club might cap its markup at 15%. Again, they can afford to do this because they make the bulk of their profits from membership fees.

Wholesale clubs may also offer special deals on certain items that can’t be matched anywhere else. For example, you might be able to take advantage of online-only exclusive coupons or savings.

Brands Can Be Higher Quality

You might assume that just because you’re buying items in bulk or at discounted prices at a wholesale club, they’re cheap and perhaps not top-notch good. That’s not necessarily the case. Warehouse clubs can and do sell quality, name-brand items. This is not limited to grocery or household items. You can also find brand-name tires, electronics, and appliances for sale at wholesale clubs.

Having Access to Services

If you’ve never joined a wholesale club, you might not be aware that they can offer services beyond just shopping. For instance, you might be able to order checks through your wholesale club, get pet insurance, sign up for identity-theft protection, get a garage-door opener installed, or get business cards printed at discounted rates through your membership.

Depending on the club, you might also be able to get access to car-buying programs, vision and hearing-aid services, banking services, home renovation and repair services, or special discounts on travel. All of these things can help to increase the value that you’re getting in exchange for your membership fee.

Disadvantages of a Wholesale Club

Shopping a wholesale club can take some getting used to if you’re primarily used to shopping at grocery stores or big box retailers. And there are a few potential drawbacks to know before signing up.

Membership Fees

As mentioned, one thing that sets wholesale clubs apart from other retailers is the membership fee. The amount you pay and the perks the fee unlocks will depend on which store you join.

Here’s how the fees compare at three of the top wholesale clubs in the U.S. for basic and premium plans:

•   BJ’s – $55/year Inner Circle; $110/year Perks Rewards

•   Costco – $60/year Gold Star; $120/year Executive Rewards

•   Sam’s Club – $45/year Club; $100/year Plus

Keep in mind that you’re not limited to joining just one club. But you’ll need to pay each one’s membership fee. And you’ll need to upgrade your membership in most cases to take advantage of the full range of features and benefits a wholesale club offers.

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Having to Buy Many Items in Bulk

Does buying in bulk save you money? It really depends largely on what you’re buying and what you do with it.

While not every item is sold in bulk at a wholesale club (you wouldn’t buy five air conditioners, for example), many of them do sell in multi-unit packages. So before you shop, you need to be reasonably sure that you’re going to use all of what you buy. If you’re not into stockpiling or you don’t know someone that you could donate the extra items to, they could just end up cluttering up your home and costing you money.

Higher Potential for Impulse Buying

Part of the lure of the wholesale club is the opportunity to get a great deal. But that could lead to impulse buys if you spot something on sale at a price that seems too good to be true. While you might save if you can find true bargains, you’re not really saving if the money you spend isn’t in your budget. If you’re struggling with how to stop impulsive spending, then a wholesale club membership might be a stumbling block to your efforts.

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Tips for Shopping at a Wholesale Club

If you’re heading out to your local wholesale club to shop for the first time, it helps to know some insider tips to make the most of your shopping experience. Here are a few pointers for getting the most value when buying from a warehouse club:

•   Pre-shop at home. Checking out your wholesale club’s website can give you an idea of what’s in stock at your local store and what kind of deals you’ll find once you get there. You can also look for exclusive online-only offers that might be worth scooping up.

•   Compare unit prices. Unit price is everything when buying in bulk to save money. So as you shop, calculate the unit price for each item. You can then compare that to the price you’d pay for the same item at your local grocery store.

•   Watch out for sizing. What’s known as shrinkflation is a real threat to your wallet when prices are on the rise. This practice occurs when companies downsize items but charge the same price for them. Again, you’ll want to look at the unit price to see how much value you’re getting for your money when shopping wholesale clubs.

•   Take advantage of freebies. Wholesale clubs are famous for offering freebies and free samples to shoppers. So be on the lookout for those as you’re cruising the aisles.

•   Shop with a list. Shopping with a list can be an easy way to curb impulse spending. The key is committing to buying only what’s on your list and not being bowled over by any surprise deals you come across.

•   Consider splitting the trip. If you have a friend or family member who doesn’t have a wholesale club membership, you could still take them along with you to shop. You can pick out items together, purchase them using your membership, then split the cost. That way, you’re only getting what you need, and they get a deal at the same time.

Also, consider whether it makes sense to upgrade to a premium membership if doing so could help you to earn rewards on purchases. If you can get 2% of what you spend back, for example, it might be worth it to pay a higher annual fee for that added savings.

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Are Wholesale Clubs Worth It?

Whether a wholesale club is worth it to you or not really depends on your lifestyle and how you spend. For example, if food is your largest expense then you might consider buying staple items like flour, sugar, or oil in bulk so that you can make more meals from scratch versus dining out. And if you’re wondering is it cheaper to eat out or buy groceries, it’s almost always going to cost you less to eat at home.

Looking at your average spending on groceries, household items, and pet care over the last 12 months can help you to decide if a wholesale club membership is justified by the fee. If you believe that you can spend less overall after comparing prices for the same items at the wholesale club and the grocery, then the fee may be well worth it.

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Saving Money With SoFi

Saving money matters, especially if you’re trying to figure out how to budget around rising inflation. Every penny counts and wholesale clubs are one possible solution for saving money on food and other things you buy regularly. It’s important, however, to use a membership to one of these clubs wisely to offset the fee it involves.

Choosing the right bank is another way to up your savings if you’re able to avoid high fees. When you open an online bank account with direct deposit at SoFi, you’ll have access to checking and savings with no monthly fees. You’ll also earn a competitive APY when you sign up for direct deposit to help grow your money faster. And qualifying accounts can get paycheck access up to two days early.

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How do wholesale clubs make money?

Wholesale clubs primarily make money by charging membership fees. Since they don’t charge the same high markups on items as other retailers, they use membership fees to make up the difference in their profits.

What services do wholesale clubs provide?

Wholesale clubs can provide a variety of services, including pet insurance, home and auto insurance, life insurance, home-improvement services, travel services, and vision services. The range of services offered will depend on which warehouse club you decide to join, and whether wholesale clubs are worth it will depend on the fee and how many of the perks suit you.

What are some common wholesale clubs?

BJ’s, Costco, and Sam’s Club are among the most well-known wholesale clubs in the United States. Boxed.com is an online store that sells wholesale items, with no membership fees. Alibaba is another online wholesaler that ships a wide variety of items to buyers around the world.

Photo credit: iStock/nycshooter

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