BUSINESS

Farewell to frills

Shoppers are flocking to spartan warehouses

BARBARA WICKENS August 5 1991
BUSINESS

Farewell to frills

Shoppers are flocking to spartan warehouses

BARBARA WICKENS August 5 1991

Farewell to frills

BUSINESS

Shoppers are flocking to spartan warehouses

The parking lot surrounding the Price Club outlet in Mississauga, Ont., is jammed with cars, many of them expensive imports. In contrast, the interior of the store—a sprawling complex the size of two football fields—is furnished as plainly as a warehouse. The bare concrete floor is lined with rows of 25-foot-high steel shelves displaying everything from toilet paper to televisions. In the central aisle are racks of clothing, piles of

tires and even a satellite dish 10 feet in diameter. For shoppers, however, the main attractions are the deeply discounted prices—in some cases, as much as 60 per cent below those charged by established retailers. “I couldn’t believe what I saw the first time I went in there,” says Paul Studholme, vice-president of a Toronto-based graphics firm. “The prices are amazingly low.” Studholme adds that he now shops at Price Club almost weekly for office supplies, as well as for his home.

That has become a common practice. About one million consumers have paid the $25 annual membership fee to shop at the 11 Price Club outlets in Ontario, Quebec and British Columbia, according to Pierre Mignault, president of Laval, Que.-based Price Club Canada Inc. A similar discount chain, Burnaby, B.C.-based Costco Wholesale Canada, has attracted

350,000 members for its eight outlets in Western Canada, says Edward Maron, the company’s senior vice-president and general manager. Indeed, the concept of stripped-down, membership-only warehouse stores has caught on so rapidly that many mainstream retailers are trying to emulate some of their practices. Declared Toronto-based retail analyst John Winter: “The warehouse chains are shaking up the market.”

In return for bargain prices, shoppers who belong to wholesale clubs sacrifice frills. Customers have to pay by cash or cheque—the stores refuse to accept credit cards to avoid commissions that add to their costs—and they provide minimal service. Selection is also limited because the stores generally carry only one brand in each product category. Many smaller items, such as detergent and mayonnaise, are usually available in bulk quantities only. And the outlets themselves do not advertise and they make little attempt to display their wares attractively.

In the United States, the membership-warehouse industry—founded by California businessman Sol Price, who opened the first Price Club in San Diego in 1976—is the fastestgrowing sector in retailing. Now, four chains dominate the $29-billion annual U.S. member-

ship-warehouse industry, but only Price Club and Costco have moved into Canada. Maron would not reveal expansion plans for Costco, but Mignault said that he plans to open 19 more Price Clubs by 1995.

Wholesale clubs were originally designed to serve small and medium-sized businesses, such as variety stores. By belonging to a club, small businesses can benefit from the same volume discounts that large corporations negotiate with their suppliers. At both Costco and Price Club, however, membership is open to a wider variety of shoppers. They include owners and managers of registered companies, members of certain designated organizations, such as credit unions, and public-sector employees. Once they join, members may do their personal, as well as their business-related, shopping. According to Winter, the memberships enable the wholesale outlets to screen for shoppers who can pay their bills and are least likely to steal.

The rapid growth of both Canadian chains is clearly a challenge to more conventional retailers. In May, Loblaw International Merchants, the private-label division of Loblaw Cos. Ltd., launched a counterattack by introducing socalled Club Packs at its 334 Canadian retail stores. The company’s advertisements feature such bulk-packaged products as toilet paper, dog food and muffins. Still, Loblaw International Merchants president David Nichol insists that Price Club and Costco have had little impact on his business. “There are too few of them, and they are too far apart,” he says.

But Nichol adds that the success of the wholesale clubs does demonstrate the intense new price-consciousness of consumers. Says the Loblaw president: “In the 1980s, consumers were obsessed with convenience. The wholesale outlets have shown us that now people are willing to drive past two or three supermarkets to get a great deal.” In fact, Nichol says that the Quebec company that supplies Loblaws with bulk-packaged bathroom tissue recently had to add two more shifts to keep up with demand. “We can’t figure out what people are doing with that much toilet paper,” he adds.

Several other Canadian companies are also planning to enter the warehouse-style retail market. The Molson Cos. Ltd. recently announced plans to open two 125,000-squarefoot retail outlets, to be known as Aikenhead’s Home Improvement Warehouses, next year, with eight more to follow by 1995. And Canadian Tire Corp. Ltd. said last month that it is experimenting with a warehouse-style store in St-Hubert, Que., which is set to open this fall.

Officials of both Price Club and Costco claim not to be unduly alarmed by the threat of competition from more traditional retailers. Costco’s Maron, for one, says that his organization’s impact on the way that Canadians shop is just starting. He added: “We’re only hitting the tip of the iceberg. There is tremendous room for growth.” Among Canada’s traditional retailers, that approach seems destined to force far-reaching changes.

BARBARA WICKENS