Costco is a good place to buy furniture!

Does it sell high-quality brands?

Does Costco have a good warranty?

Answer:

Costco is an excellent place to buy cheap or mid-range furniture products.

Costco has 4 big advantages over its furniture store competition.

1) Costco sells at lower profit margins than furniture stores.

When a furniture store buyer purchases a sofa at a wholesale cost of $500 and sells it for $1000, this is considered a “Gross profit margin” of 50%.

[Note: Readers who have not worked in retail stores may look at the example above and think the profit margin should be 100%, not 50%.

If you want to understand the difference, check out this article from Investopedia.]

Furniture stores typically aim for a 50% gross margin (markup).

If they actually achieve a 40% gross margin (after price reductions, returns, damages, shrinkage (theft), etc.) that is considered “excellent.”

Other types of retailers work on different gross profit margin percentages.

For example, Walmart’s gross profit margins are closer to 20 – 25%.

If Walmart buys a sofa at a $500 wholesale cost, the selling price will be around $650.

Costco’s gross profit margins are typically closer to 14%.

When Costco purchases a sofa at a $500 wholesale cost, it will be sold for approximately $570.

Costco features “Sale prices” on some of the furniture they sell.

These are typically the result of a supplier offering a special discount to Costco from the wholesale price.

Most “Sale prices” at furniture stores do not start with a supplier’s special discount. (This will be explained in detail in the next section of this article.)

Although Costco occasionally offers discounts for discontinued or slow-selling furniture, they offer far fewer of these than furniture stores.

How is Costco able to sell furniture so much cheaper than furniture stores?

Membership sales provide a major source of additional income.

Lower marketing, administrative, and operational costs.

Higher sales per sq. ft. of showroom space.

2)Warranty

Costco is the only furniture seller that allows its customers to return furniture for a full refund, with no questions asked.

Costco’s Risk-free 100% Satisfaction Guarantee.

The Risk-Free 100% Satisfaction Guarantee states that (with a few exceptions) Costco will refund the purchase price to you, if not completely satisfied. 

There is no time limit on this guarantee.

The “few exceptions” noted in the 100% Satisfaction Guarantee are for items such as electronics, appliances, diamonds, cigarettes and alcohol.

There is no exception for furniture.

Furniture is completely covered under the 100% Satisfaction Guarantee.

Furniture suppliers who sell to Costco are expected to accept returns for 3 years.

The furniture isn’t actually returned to the manufacturer, but the cost is deducted from the next invoice.

After 3 years, Costco still accepts furniture returns, but does not bill the supplier.

There are no other furniture sellers that offer full refunds for returned furniture with no time limit and no questions asked.

For a detailed explanation of the tricks and traps found in furniture store warranties, read my article, What do Furniture Warranties Really Protect?

3) Costco’s limited product selection has advantages for its shoppers.

4) Costco does not “merchandise” its furniture.

“Merchandising” is a very common strategy in retail stores. It involves pricing specific products either higher or lower than the average for similar items purchased at the same cost.

There are dozens of different ways to “merchandise” furniture.

Some of them are extremely complex, but here is a very simple example:

The retailer buys a sofa from a manufacturer at a cost of $500.

The average retail selling price for other sofas purchased at a $500 cost is $1000.

The store buyer puts the sofa in his showroom with a price tag of $1500. The sofa may or may not actually sell at that price to any of the store’s customers.

The store announces a “Holiday Sale” and places a Sale Tag of $900 over the original $1500 price tag.

The sofa is now advertised to the public at 40% off.

From the store’s perspective, the price has been lowered only 10% from the average sell price.

For more information about buying furniture at Costco, see Clark.com’s article, 7 Things to Know About Buying Furniture at Costco.

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