Stuck at home during the Covid pandemic, Megan Crozier needed a way to entertain her two young children. She bought an inflatable pool from Sam’s Club.
The pool started leaking air after only a few uses.
For Crozier, chief merchant of WalmartThe membership-owned club, that scrap group – and the frustration that came with it – helped kick off a years-long quest to catch up with its arch-rival. Costco and the popularity of its private label, Kirkland Signature.
As Sam’s Club opens more locations, it’s trying to raise the bar for its brand, Member’s Mark. Improving the label has become critical for Sam’s Club as it aims to close the gap with Costco, which has roughly the same number of U.S. clubs but about twice as much annual revenue. Net sales for Sam’s Club totaled $86.2 billion in the last fiscal year, compared with $176.63 billion for Costco’s U.S. clubs.
Sam’s Club CEO Chris Nicholas told CNBC that the rebrand was inspired, in part, by the retailer’s archrival.
“The club model survives because you have great dealers who focus on creating or buying exceptional items,” he said in an interview. “Costco did such a great job over the years with Kirkland, and we saw that he was successful.”
The success of Member’s Mark will help define what Sam’s Club looks like as it expands, with plans to open more than 30 stores over the next four years. At least some stores will be in regions where potential customers belong to a competitive club like Costco or BJ’s Wholesaleor in areas where customers may have a compelling need to pay an annual membership to be able to purchase.
Overtaking Costco and its beloved private label won’t be easy for Sam’s Club, he said Michael Baker, a retail analyst for DA Davidson.
“Never say never,” he said. “Who knows? But I think it will take a long time.”
But he added that Costco’s success with Kirkland Signature created a formula that Sam’s Club can follow.
The popularity of Kirkland’s brand, which includes a diverse range of items such as vodka, drums and dress shirts, has helped drive membership sign-ups and renewals. It’s one of the features Costco highlights when the retailer offers members.
In this photo illustration, Sam’s Club’s Member’s Mark private label is seen against Costco’s Kirkland Signature label.
Natalie Rice | CNBC
The private label wars heat up
Sam’s Club has more reasons than its rivalry with Costco to up her private label game.
The brand stigma of inferior quality or cheaper losses of national brands has faded as retailers including Kroger, The aim AND Walmart have introduced their labels with unique flavors and exclusive items.
Baker credits Kirkland with helping with that since Costco launched the brand in 1995.
“They didn’t invent the idea of private label,” he said. “But I think what they changed or revolutionized is that it can be a high-quality product.”
Jordan Vonderhaar | Bloomberg | Getty Images
Other factors have turned the tide. Consumers experimented with new brands during the Covid pandemic when they couldn’t find their typical purchases on the shelves. Several fast-growing grocers, including Trader Joe’s, Aldi and Lidl, have driven growth almost entirely through their own brands. And stubborn inflation also pushed more consumers to shop brand to save a few bucks.
Private label sales grew 34% between 2019 and 2023 to $236.3 billion, according to the annual report from the Private Label Manufacturers Association, which is conducted by market research firm Circana.
Exclusive deals, such as products you can’t find anywhere else, are even more essential to 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-level membership: $120 at Costco and $110 at Sam’s Club. (Costco is widely expected to raise its annual fee soon, based on its operating history.)
At Sam’s Club, Member’s Mark accounts for approximately 30% of sales in dollar terms and more than one-third of sales in terms of units. Kirkland accounts for about 28% of Costco’s annual sales.
Costco declined interview requests for this story.
Sam’s Club is striving to increase the quality of the Member Brand. It showed apparel, food and other items from the private label to investors and reporters in early June at an event near its headquarters in Bentonville, Ark.
Melissa Repko | CNBC
A change to the Member Brand
Over the past several years, Sam’s Club has consolidated its private labels from more than 20 different brands into a single one: Member’s Brand. It announced new goals for food and commodity standards 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 Brand items by providing feedback on flavors, design and more before the retailer lights an item to shelf.
Nicholas said customers don’t hold back. “They’re looking, like, ‘Hey, this seam isn’t good enough or the stitching here needs to be better or this needs to be double stitched or you don’t have enough lobster in your lobster mac [and cheese]”, he said.
Myron Frazier, Sam’s Club senior vice president of private brands and sourcing, said the company wants to turn Member’s Mark into a well-known lifestyle brand. He said the store brand plans to go deeper into home categories, such as offering more indoor furniture and creating its own line of small appliances.
To find popular items, he said marketers have been looking for products that solve customer problems, such as snacks like chicken bites and baby clothing sets that can help parents on a busy morning before school.
Like Costco’s Kirkland Signature, Sam’s Club has a private brand that shares categories including grocery, home decor and apparel. Its private label, Member’s Mark, also carries seasonal items such as patio sets and beach towels.
Melissa Repko | CNBC
Some signs show that the moves are paying off. Sam’s Club doesn’t share its membership numbers, but it has reported a record number of members in each consecutive quarter for more than a year.
Customer transactions were up 5.4% and the average ticket was down about 1% in the latest quarter, which could indicate shoppers are opting more for Member Brand items. Products tend to cost less than national brands.
Nicholas said private label sales growth has outpaced the rest of the store. He added that as his items gain popularity, the club gains power to push suppliers to lower prices or increase innovation.
In an earnings call last month, Walmart chief financial officer John David Rainey credited the Member Brand for driving the quarter’s high-single-digit growth and said it’s “a growing reason why members join and renew.”
Product quality will help determine whether growth continues.
Since 2020, the year Crozier’s group broke up, Member’s Mark has launched, modified and improved more than 1,200 articles.
One of those reformulated articles? Her inflatable pool.
Crozier said it works fine now. And she added that Sam’s Club sells a lot of them.