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Report On Business Costco set to open its first Canadian office, business supplies store

A customer shops inside a Costco store in Miami on Dec. 5, 2016.

Scott McIntyre/Bloomberg

Costco Wholesale Corp. is taking its no-frills, bulk-buying strategy to the office and business supplies market, threatening to shake up a retail segment that has already felt the pinch of digital disruption.

U.S. retail giant Costco, which has stolen away customers from rivals ranging from food to fashion retailers, is set to launch its first Business Centre store in Canada in a commercial area of Toronto in March after having rolled out about a dozen of the stores south of the border.

Costco's business centre will cater to all sizes and types of firms, including restaurants, hotels and convenience stores, offering them supplies for their back office as well as their store aisles and other key operations.

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Its vast stock of goods and services, from oversized packs of Reese's chocolate bars to commercial freezers and pallets of garbage pails, will provide businesses with even bigger packages than those at Costco's mainstream outlets – and a one-stop shopping destination.

"We almost see that it's going to re-establish the category," said Susan McGibbon, co-founder of retail consultancy Three Sixty Collective.

"They're taking it to a whole new level."

Costco, which draws crowds of customers to its 94 bricks-and-mortar superstores in Canada despite the rise of e-commerce and discount titan Wal-Mart Canada Corp., will now focus more tightly on the office and business-supplies sector, putting more pressure on incumbents in an increasingly competitive retail landscape.

"The arrival of this new concept in Canada will enable Costco to better respond to the needs of Canada's business owners," Andree Brien, senior vice-president at Costco Wholesale Canada, said in a statement.

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The new Costco centre, a members-only concept as is its traditional warehouse club stores, will take on competitors such as office supplies specialist Staples Inc. and e-commerce powerhouse Amazon.com Inc., which launched a business-supplies cyberstore this year in Canada.

Amazon is expected to eventually bring its own full Amazon Business e-commerce site to this country, which it launched in 2015 south of the border to cater to business customers' supply needs, Ms. McGibbon said. Costco's new entry is a bid to head off that inevitable new competition here, she predicted.

Costco's new business centre focuses on e-commerce and deliveries more than do its conventional stores, while targeting businesses rather than consumers by not carrying products such as fashions, toys and pharmacy and optical services, she said.

"That would put them head-to-head with Staples and Amazon," added Maureen Atkinson, senior partner at retail consultancy J. C. Williams Group.

Costco Canada has a track record of outperforming its U.S. home market on the sales front. In its most recent quarter, ended Nov. 20, its Canadian same-store sales at existing stores rose 4 per cent – and 5 per cent excluding the effects of gas deflation and currency – compared with a 1-per-cent gain at its U.S. stores.

Richard Galanti, chief financial officer at Costco, recently called out Canada for its strong performance, noting it has posted annual sales increases at existing stores of between 5 per cent and 9 per cent (in local currency) over the past few years. This year it plans to roll out seven more stores in this country, which is an acceleration of its usual one to three outlets a year.

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"The fact that we're opening so many right now has to do as much with very strong sales over the last few years," Mr. Galanti told analysts in September.

Still, e-commerce has not been a big part of its mainstream business. Customers "buy a lot less when they're doing it online than when they come in and part of that is the experience of walking in and seeing it all there," Mr. Galanti told an analyst conference call last week.

Costco's business centre, on the other hand, is mostly about e-commerce delivery and "that is part of their future," said Jim Danahy of retail consultancy CustomerLAB. "They must do this to keep up with Staples and other office competitors who are ahead in delivery and adding wider assortments like food. But like Wal-Mart, they must go slow and not over-promise in pilots."

Costco Wholesale Canada says 80 per cent of its business centre's product offerings will be unavailable at its regular stores. It will tout next-business-day delivery of orders placed by 3 p.m, and "business-friendly" hours that will start at 7 a.m. rather than the regular 10 a.m.

At 127,000 square feet, the business centre will be roughly 15 per cent smaller than a conventional Costco and easier for business customers to shop without apparel and other consumer-oriented goods, Ms. Atkinson said. The U.S. centres generate higher customer transactions than those at regular outlets – $250 (U.S.) to $350 compared with $100, Costco has said in the past.

The centre's annual membership fee will be $55 (Canadian) or $110 for executive privileges, which include a 2-per-cent reward, up to $750 a year, on qualifying purchases.

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Still, in the United States, Costco business centres face tougher competition with Wal-Mart-owned Sam's Club warehouse stores, which cater heavily to businesses but don't operate in Canada, as well as Amazon Business, Ms. McGibbon said. Sam's Club retreated from Canada in 2009 after only five years here and six locations in Ontario, feeling the heat of archrival Costco.

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