How Walmart-owned Sam’s Club is trying to take on Costco’s Kirkland private label

Stuck at home during the Covid pandemic, Megan Crozier needed a way to entertain her two young children. She bought an inflatable pool at Sam’s Club.

The pool started leaking after only a few uses.

For Crozier, chief merchant of the WalmartOwned by a members’ club, that trashed pool — and the disappointment that accompanied it — helped reignite a years-long effort to catch up with its main rival. Costco and the popularity of its private label, Kirkland Signature.

As Sam’s Club opens new locations, it is trying to raise the bar for its own brand, Member’s Mark. The label’s makeover has become crucial for Sam’s Club as it seeks to narrow the gap with Costco, which has roughly the same number of U.S. clubs but about twice as much annual revenue. Sam’s Club’s net sales totaled $86.2 billion in its most recent fiscal year, compared with $176.63 billion for Costco’s U.S. clubs.

Chris Nicholas, CEO of Sam’s Club, told CNBC that the brand overhaul was inspired, in part, by the retailer’s main rival.

“The club model survives because you have brilliant merchants who are focused on creating or purchasing great items,” he said in an interview. “Costco has done a great job over the years with Kirkland and we’ve seen it succeed.”

The success of Member’s Mark will help determine how Sam’s Club fares as it expands, with plans to open more than 30 stores over the next four years. At least some stores will be located in areas where potential customers belong to a competing club like Costco or BJ wholesaleor in areas where customers may need to be convinced to pay an annual subscription in order to shop.

Overtaking Costco and its beloved private label won’t be easy for Sam’s Club, said Michael Baker, retail analyst for DA Davidson.

“Never say never,” he said. “Who knows? But I think it’s going to take a long time.”

But he added that Costco’s success with Kirkland Signature has created a formula that Sam’s Club can follow.

The popularity of the Kirkland brand, which includes a diverse line of items like vodka, batteries and dress shirts, has helped drive membership registrations and renewals. This is one of the features Costco highlights when introducing the retailer to members.

Sam’s Club has more reasons than its rivalry with Costco to step up its private label game.

The stigma of brands as inferior quality or cheaper knockoffs of national brands has faded as retailers, especially Hooks, Target And Walmart have introduced their own labels with unique flavors and exclusive items.

Baker credits Kirkland for its help since Costco launched the brand in 1995.

“They didn’t invent the idea of ​​private label,” he said. “But I think what they’ve changed or made revolutionary is that it can be a high-quality product.”

Other factors reversed the trend. Consumers have been experimenting with new brands during the Covid pandemic when they couldn’t find their usual purchases on the shelves. Some fast-growing grocers, including Trader Joe’s, Aldi and Lidl, have fueled their growth almost entirely through their own brands. And stubborn inflation has also pushed more consumers to buy a store’s own brand to save a few dollars.

Private label sales grew 34% from 2019 to 2023 to $236.3 billion, according to the Private Label Manufacturers Association’s annual report, conducted by market research firm Circana.

Exclusive deals, such as products not found anywhere else, are even more essential for clubs, which require buyers to pay a membership fee. Annual fees cost $60 at Costco and $50 at Sam’s Club. Each also has a higher-tier membership: $120 at Costco and $110 at Sam’s Club. (Costco is expected to raise its annual fees soon, given its history of doing so.)

At Sam’s Club, Member’s Mark represents approximately 30% of sales in dollar terms and more than a third of sales in unit terms. Kirkland accounts for about 28% of Costco’s annual sales.

Costco declined interview requests for this story.

In recent years, Sam’s Club has consolidated its private labels from more than 20 different brands into one: Member’s Mark. It has announced new food and merchandise standards goals it aims to achieve by 2025, such as switching to antibiotic-free poultry and Fair Trade-certified coffee beans.

And it recently launched a program that lets customers help co-create Member’s Mark items by providing feedback on flavors, design and more before the retailer greenlights an item for the Ray.

Nicholas said customers don’t hold back. “They’re picky, like, ‘Hey, this seam isn’t good enough or the seams here need to be better or this needs to be double stitched or you don’t have enough lobster in your lobster mac and cheese (and cheese) ‘” he said.

Myron Frazier, senior vice president of private brands and sourcing at Sam’s Club, said the company wants to make Member’s Mark a well-respected lifestyle brand. He said the store brand plans to deepen its business in home product categories, such as offering more indoor furniture and making its own line of small appliances.

To offer popular items, he said merchants are looking for products that solve customer problems, such as easy meals like roast chicken bites and mix-and-match children’s clothing sets that can help parents during a hectic morning before school.

There are signs that these measures are working. Sam’s Club doesn’t share its membership number, but it has reported record numbers of members in each consecutive quarter for more than a year.

Customer transactions increased 5.4% and the average ticket decreased about 1% in the most recent quarter, which could indicate that shoppers are opting more for Member’s Mark items. Products tend to cost less than national brands.

Nicholas said private label sales growth had outpaced that of the rest of the store. He added that as its items gain popularity, the club gains influence to push suppliers to lower prices or step up innovation.

During an earnings conference call last month, Walmart Chief Financial Officer John David Rainey credited Member’s Mark for driving the quarter’s high-single-digit growth and said it was “a growing reason for which members join and renew”.

Product quality will help determine whether growth continues.

Since 2020, when Crozier’s pool broke, Member’s Mark has launched, tweaked, and improved more than 1,200 articles.

One of these rephrased elements? Its inflatable swimming pool.

Crozier said it works well now. And she said Sam’s Club sells a lot of them.