COSTCO TO ENTER MAGAZINE CATEGORY

Wendy Toth

ISSAQUAH, Wash. -- Costco is about to get into the magazine business, a source close to the retailer confirmed to SN.

Costco has been in negotiations for about a year to begin selling magazines nationwide and is working on the appropriate business plan to present to publishers, according to the source.

"It looks like things are getting closer to reality," the source said. Costco executives were unavailable for comment.

Costco is potentially a very important retailer for the magazine industry, presenting an opportunity to increase category sales, according to retail analysts. The retailer did not previously have a magazine program, the sources said.

"It is likely that when Costco enters the magazine business, sales will be incremental and will not really represent a share loss for traditional magazine sellers," said Bill Bishop, president of Willard Bishop Consulting, Barrington, Ill.

Rather, Costco is likely to prompt a whole new set of magazine buyers who will probably expand their purchasing to other stores, Bishop said. "In a sense, magazine sales will be good for Costco and good for the magazine business," he said.

Negotiations have proved difficult because the way in which magazines are sold in other channels is not a natural fit with Costco's traditional warehouse merchandising and retailing model, the source said. "It's not something that fits neatly into their business and there has been some questioning by management as to whether magazines were a good fit," the source continued.

But after having completed "some tests" in the U.S., Costco executives are convinced that magazines would be an asset because of the category's ability to promote in-store traffic. "Costco is looking at this because people who only visit the store once in a while will come in more frequently, and magazine profitability is pretty attractive as well," the source told SN.

Costco does not currently carry any magazines at its 340 U.S. warehouse stores, the source told SN. Meanwhile, Costco is testing magazine sales in Canada.

A limited number of Costco stores in Canada are carrying different configurations of magazines with varied price points and assortments, the source said. "But the Costco stores in Canada are smaller than the U.S. stores and don't have the same intensity of traffic," so those test sites are not being taken into consideration during U.S. negotiations.