business news in context, analysis with attitude

The Wall Street Journal had a story over the weekend about the enduring success of Costco’s Kirkland private label brand, which the company says represents a quarter of its $118.7 billion in annual sales, and the percentage is growing.

According to the story, “The pressure manufactures face from private brands is set to increase. Building successful store brands is a priority at Wal-Mart Stores Inc. and Inc. as they battle to boost margins and attract shoppers. After Amazon acquired Whole Foods, it quickly added the grocer’s store brand, 365, to its online food offerings. Wal-Mart and its warehouse chain, Sam’s Club, are reworking and adding to their store brands.

“Though Costco’s stock price has suffered amid investor fears that its e-commerce operations aren’t ready to go head-to-head with Amazon, the retailer has kept sales growing, in part by using Kirkland to pressure manufacturers to lower prices and bring products to shelves that can’t be purchased elsewhere.”

As successful as Kirkland has been, the story says, “Costco doesn’t aim to become a store that only sells Kirkland products, said Costco finance chief Richard Galanti. Shoppers expect to find brands they know at Costco, and Kirkland looks like a better value next to a higher priced branded version, he said.” While Costco carries 3,800 items on average, the retailer “often introduces a new Kirkland product when its buyers or executives believe a brand isn’t selling at the lowest possible price.”
KC's View:
It is all about differentiation, and to Costco, private label always seems to have been more about creating an alternative to national brands than a me-too version.