Stuck at home during the Covid pandemic, Megan Crozier needed a way to keep her two young children entertained. She bought an inflatable pool at Sam's Club.
The pool started to leak air after just a few uses.
For Crozier, the main merchant of the WalmartOwned by the membership club, that shattered group, and the disappointment that came with it, helped fuel a years-long effort to catch up with the chief rival. costco and the popularity of its private label, Kirkland Signature.
As Sam's Club opens more locations, it is trying to raise the bar for its own brand, Member's Mark. The rebranding has become critical for Sam's Club as it aims to close the gap with Costco, which has about the same number of clubs in the United States but about twice the annual revenue. Sam's Club net sales totaled $86.2 billion in its most recent fiscal year, compared with $176.63 billion for Costco's U.S. clubs.
Sam's Club CEO Chris Nicholas told CNBC that the brand's revamp was inspired, in part, by the retailer's main rival.
“The club model survives because you have brilliant merchants who focus on creating or purchasing exceptional items,” he said in an interview. “Costco did a great job over the years with Kirkland and we saw it be a success.”
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 in regions where potential customers belong to a competing club such as Costco or BJ wholesaleor in areas where customers may need to be convinced to pay an annual membership in order to purchase.
Overtaking Costco and its beloved private label won't be easy for Sam's Club, he said Michael Baker, retail analyst at 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 created a formula that Sam's Club can follow.
The popularity of the Kirkland brand, which includes a wide range of items such as vodka, batteries and dress shirts, has helped drive membership sign-ups and renewals. It's one of the features Costco highlights when the retailer addresses its members.
In this photo illustration, you see Sam's Club's Member's Mark private label versus Costco's Kirkland Signature label.
Natalia Rice | CNBC
Private label war intensifies
Sam's Club has more reasons than its rivalry with Costco to step up your private label game.
The stigma of substandard brands or cheaper imitations of national brands has faded as retailers like kroger, Aim and Walmart They have introduced their own labels with unique flavors and exclusive items.
Baker credits Kirkland for 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 made revolutionary 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 shelves. Some fast-growing grocers, including Trader Joe’s, Aldi and Lidl, have driven growth almost exclusively through their own brands. And persistent inflation also pushed more consumers to buy a store’s own brand to save some money.
Private label sales increased 34% between 2019 and 2023 to $236.3 billion, according to the Private Label Manufacturers Association's annual report by market research firm Circana.
Exclusive deals, such as products that can't be found anywhere else, are even more essential for clubs, which require shoppers to pay a membership fee. Annual fees are $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 expected to raise its annual fee soon, based on 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.
Sam's Club is trying to improve the quality of Member's Mark. It showed off the private label's clothing, food and other items to investors and journalists in early June at an event near its headquarters in Bentonville, Arkansas.
Melissa Repko | CNBC
A makeover for Member's Mark
In recent years, Sam's Club has consolidated its private labels from more than 20 different brands into one: Member's Mark. It announced new goals for the food and merchandise standards it aims to reach by 2025, such as switching to antibiotic-free poultry and certified fair trade coffee beans.
And it recently launched a program that allows customers to help co-create Member's Mark items by providing feedback on flavors, design and more before the retailer greenlights an item for the shelf.
Nicholas said customers don't hold back. “They're picky, like, 'Hey, this stitching 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, 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 delve deeper into home categories, such as offering more interior furniture and manufacturing its own line of small appliances.
To create popular items, he said, merchants have looked for products that solve customers' problems, such as easy meals like roast chicken bites and children's clothing sets that can help parents on a hectic morning before school. .
Like Costco's Kirkland Signature, Sam's Club has a private label that spans categories including groceries, home decor and clothing. Their private brand, Member's Mark, also offers seasonal items like patio sets and beach towels.
Melissa Repko | CNBC
Some signs indicate that the measures are working. Sam's Club doesn't share its membership numbers, but it has reported record membership numbers in each consecutive quarter for more than a year.
Customer transactions increased 5.4% and the average ticket decreased approximately 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 the private label's sales growth has outpaced the rest of the store. He added that as its items gain popularity, the club gains leverage to pressure suppliers to lower prices or increase innovation.
On an earnings call last month, Walmart CFO John David Rainey credited Member's Mark for driving the quarter's high single-digit growth and said it's “a growing reason why members they unite and renew.”
Product quality will help determine whether growth continues.
Since 2020, the year Crozier's group broke up, Member's Mark has released, modified and updated more than 1,200 articles.
One of those repackaged items? Your inflatable pool.
Crozier said it works well now. And he added that Sam's Club sells a lot of them.
