Costco and theft

This went massively viral:

And:

This was in response to @JamesSurowiecki, who questioned Munger’s view that requiring memberships at Costco serves as an effective deterrent against theft. Note: Charlie Munger did not found Costco, although he was a major investor. Here’s the original post, which sparked a firestorm of criticism, and is still drawing heat days later:

Steve chimed in, too:

A few things: It’s notable how Steve’s reply got 4.9k ‘likes’, vs 330 for the original post by @JamesSurowiecki he was replying to. This is one of the worst ratios I have ever seen. This was from disagreeing with Charlie Munger about Costco. Not anything to do with Epstein, Iran, Trump, Israel or any other hot-button issue.

The common argument is that criminals are dumb and have high time preference. I am not sure how this relates to avoiding Costco though. If the original argument is that memberships are a deterrence against shoplifting, then isn’t it rational for criminals to avoid Costco? This is the opposite of criminals being dumb, if they are acting rationally by avoiding Costco.

But James Surowiecki is right though. A habitual shoplifter or other criminal will not be deterred by a statutory fee, and people for some reason, who hold themselves up as being rational, cannot bring themselves to seeing why this is. A shoplifting gang or crew can easily steal thousands of dollars of merchandise at once per store; a $50 fee is nothing.

Hence, I don’t think the membership fees are an effective deterrent. Rather, it has more to do with Costco being an unsuitable target for shoplifters compared to other stores. The warehouse layout and low price density of goods makes it hard to quickly swipe a lot of valuable goods at once.

Costco also has much worse selection compared to Walmart or Target. From Grok, “Costco typically carries only about 4,000 distinct stock-keeping units (SKUs) or items per warehouse. This curated approach offers much less variety than the 30,000–40,000 items found in average supermarkets, allowing the company to focus on high-volume sales, bulk pricing, and increased inventory turnover.”

Huge, cumbersome packages and parcels of paper towels, steaks, or bags of sugar are among the worst possible things to steal and resell from the perspective of a thief, who needs to get in and out as fast as possible to avoid detection, the cops being called, and a possible arrest. Criminals would much rather target expensive, compact items that can be quickly concealed or stuffed into a bag, common examples being baby formula, OTC medicine, or sanitation products. In the case of Lowes or Home Depot, power tools, despite being bulky, are much more expensive and hence suitable for resale, compared to bulky but inexpensive goods typically sold at Costco.

Overall, it’s antithetical to debate or the ‘free exchange of ideas’ that famous or successful people are held as above reproach. This literally makes us dumber, as knowledge is an iterative process that rests on revisions of earlier beliefs or assumptions. Munger was brilliant in many regards, but it’s still possible he was wrong here.