An article today in Atlantic entitled, The Privilege of Buying 36 Rolls of Toilet Paper at Once, looks at who buys in bulk, on sale. When I read this title, my thought is they might as well have been named Who Shops at Costco?.
Their research found that most shoppers who buy toilet paper in bulk, on sale are high income earners:
They found that high-income households (those making $100,000 or more a year) bought their toilet paper on sale 39 percent of the time, whereas low-income households (those making $20,000 or less a year) only did so 28 percent of the time. High-income households were also more likely to buy more rolls of toilet paper at a time, which meant not only that they were saving money on each roll, but that they didn’t have to make as many trips to the store. “Low income households,” Orhun and Palazzolo write, “are less likely to utilize these strategies even though they have greater incentives to do so.”
So what’s the demographic of the Costco shopper, from CBS News:
The average member is college educated, owns a home and earns about $100,000 a year, CNBC reports.
Members are extremely loyal, with an overall renewal rate at 90.6 percent, research firm Trefis reports. A third of those members are at the executive level, which means they pay double the standard $55 annual membership fee and get 2 percent cash back on their purchases. You have to spend a lot at Costco to make that executive-level membership pay off, and those customers do.
Millennials aren’t Costco Shoppers
People who have money tend to be more savvy than those who don’t have free cash. However, the Costco demographic may prove problematic for them in the future. If you have been in Costco you can see that most shoppers are not only higher earners, they are also older. The Motley Fool points out that Millennials — those between 18 and 32 — aren’t flocking to Costco. For a variety of reasons, including a difficult job market for many of them are not doing much shopping at Costco. But the biggest reason that this largest generation isn’t shopping at Costco is probably the same reason they aren’t shopping at other retail establishments; they prefer to do their shopping online. And who can blame them. Those who are working, tend to work many hours. The last thing they want to do is spend their weekends shopping. It’s easy enough to place your orders online and have your toilet paper, etc. delivered to your home.
Location, location, location…
Location probably plays a large part in the determination as to who shops at Costco as well. There are many Costco locations, but most are in affluent suburban areas. Lower income and Millennials who live within the city limits might make it hard to get to many Costco locations. Costco is trying to entice health-conscious young adults by offering an ever-increasing array of healthier, organic food options. Costco has embraced organics; they are now the biggest seller of organic food having surpassed Whole Foods last year.
While Costco may be the largest provider of organic foods in the USA, that’s not where most people buy their toilet paper. The Atlantic article points out that most people — well-to-do or otherwise — buy their toilet paper at grocery stores.
Over 40 percent of both wealthy and low income people buy their toilet paper at the supermarket. From the chart though, you can see the huge discrepancy in the left-most and right-most categories. Lower income folks shop at “dollar stores” and higher income people shop at “warehouse stores” (i.e. Costco.) So again, why are the wealthy buying their toilet paper at lower prices and it greater quantities than lower earners? Economists have opposing opinions. From The Atlantic:
One on hand, there are academics who have documented the ways in which an environment of poverty—all of the uncertainty and stress that comes from not having enough money—makes people worse decision makers. The argument isn’t that they’re inherently less sharp, but that they become, as a result of their circumstances, more prone to making irrational, present-biased choices. On the other side, there is a body of evidence supporting the idea that those without much money are simply making the best possible decisions they can make, given their crummy circumstances.
The research seems to indicate that the situation may be primarily circumstantial. The research found that lower income folks take advantage of sales and buy in larger quantities closer to the first of the month rather than later in the month. The thinking here is that many of them receive their wages at the beginning of the month and have more available cash then. As the month wears on and they become strapped for cash, they need to make due; if they are running out of toilet paper, they may buy a few rolls at whatever price they have to pay.
You can always grab one data point and argue that there is a definitive reason why something is happening. Oftentimes, there are extenuating circumstance which could muck up the works.