Picture a Costco (Nasdaq: COST) warehouse store, stocked with super-size packages of toilet paper, meat, and shampoo, as well as fax machines, books, watches, and a grand assortment of other items. Now imagine buying all those products online.

Possible? Not quite, but the Issaquah, Washington-based company is trying. Last month, Costco expanded its Web presence with a new service in hopes of attracting more business customers. Curious about such plans, I spoke to David Sinegal, the company's vice president of business centers and e-commerce.

Mr. Sinegal claims the Web offers a way for Costco to reach new customers and spur existing ones to spend more money. "If we can harness our 34 million members and get a greater share of their wallets, I think that's a great opportunity for us," he tells me.

The new service is accessible by clicking on a tab designated for business users on the Costco.com Web site. Essentially, commercial customers may set up shopping lists, keep order information on file, check if inventory is in stock, and request delivery via UPS. In areas around San Francisco, Los Angeles, and Seattle, customers may receive orders via one of Costco's 100 delivery trucks (the company will only deliver direct to commercial addresses).

SPREE MENTALITY Competition for business customers both online and offline is fierce, particularly in the market for small to medium-sized companies. Costco competes with Wal-Mart (NYSE: WMT), Office Depot (NYSE: ODP), Staples (Nasdaq: SPLS), office-supply catalogers, and a myriad of other merchants.

Costco's great blessing and perhaps its biggest curse is its network of 352 warehouse stores, which includes 253 in the U.S., 60 in Canada, 19 in Mexico, 11 in the United Kingdom, 4 in Korea, 3 in Taiwan, and 2 in Japan. (The company plans to open an additional 12 to 14 new warehouses by fall.) Those locations serve as paragons of American consumerism, where a Saturday shopping spree may yield a six-month supply of tissue, a year's worth of pancake syrup, and a notebook computer. Unfortunately, that spree mentality doesn't translate well online.

Personally, I'm not a Costco shopper and generally am against the idea of such mass consumption, but many of my friends swear by the company. For them, a single trip to Costco saves several trips to a variety of other stores. There lies Costco's Internet challenge. Selling a wide range of general merchandise on the Web hasn't been proven viable. Today, Wal-Mart still struggles with its Web strategy and determining what to stock on its cyberspace shelves, for not all items offered in stores are cost-effective when bought online.

Mr. Sinegal acknowledges this difficulty, explaining how it doesn't make sense to sell items, for example cola or frozen foods, in which shipping nationally may account for 35 percent or more of the cost. There's more flexibility for customers who receive orders via Costco's own trucks, although they must pay an 8 percent premium for products directly delivered and minimum orders must be $250. About 110 Costco employees are dedicated to e-commerce. Orders shipped via UPS are fulfilled at the company's Lynnwood, Washington, location.

CRUCIAL CHANNEL? Still, if e-commerce can generate increased sales or margins, it'll be an important channel for Costco, whose business has recently been pummeled by lower-than-expected sales, rising energy costs, and higher gas prices.

Mr. Sinegal wouldn't discuss sales figures for Costco's Web site. In the future, he envisions expanding local delivery for Web business orders through other warehouse locations, which would mean acquiring more trucks.

Jeffrey Feiner, a managing director at Lehman Brothers, believes Costco's new Web strategy will be a plus. It'll "allow Costco to gain market and grow its demographic base," he says.

I'm less optimistic. Costco may have successfully taken the bricks-and-mortar idea to the extreme, but the Web is proving to be a different world, especially for commoditized products.

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