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As Kirkland Signature marks its 30th anniversary, the private label has become a powerhouse, accounting for a third of Costco’s annual revenue — surpassing even industry giants like Procter & Gamble and Kraft Heinz. Given its success, why haven’t more retailers consolidated their store brands under a single name?
According to a videoed case study from the Wall Street Journal exploring Kirkland’s success, the only other major retailer employing a similar strategy is rival Sam’s Club, which consolidated its 20 proprietary brands into Member’s Mark in 2017.
WSJ’s case study pointed out that using a single name went against best practices at the time, illustrated by Sears’ success in hard lines with Kenmore, Craftsman, and DieHard but also the continued use of multiple labels across grocers, department stores, home improvement, and other channels.
Having multiple private labels enables retailers to tailor names to categories, such as Target’s use of Good & Gather for food & beverages, All in Motion for activewear, Cat & Jack for children's apparel, and Brightroom for home organization.
One risk is that a bad experience with the brand in one category may cause the consumer to lose trust in the brand across categories. Claudine Adamo, Costco’s EVP and COO of merchandising, said in the video, “If they don't trust the brand in the golf ball, they don't trust the mixed nuts.”
The motivation to develop its own private label offering came after Jim Sinegal, co-founder and former CEO, read a 1991 Forbes article that showed Europeans were increasingly buying products manufactured directly by stores. At the time, national brands were increasing prices despite costs coming down to meet Wall Street’s demands for growth.
Costco’s move was designed to preserve margins. With its focus on value, Costco caps its markups at 14% for outside brands and 15% for store brands.
Costco initially developed a wide range of names for its private labels across categories. The decision to consolidate all of Costco’s private labels under the Kirkland name came after Sinegal found a warehouse manager who didn’t know a legal tablet the retailer was selling under the Pinnacle name came from Costco.
Sinegal said, “It was like a bell. Hell, if we don't understand within the organization what we're doing with our label, how are the customers going to? We decided we need to get one name.”
A single private label may be more appropriate for the warehouse club model supported by membership fees and limited assortments. Costco offers around 4,000 items in-store in contrast to 140,000 offered at other major retailers, according to Sinegal.
With only one or two brands per category, adding private labels created a fierce negotiating tool for Costco. National brands may be forced to reduce prices or upgrade the quality of their offering or be kicked off Costco’s shelves.
Sarah George, SVP of food merchandising, said in the video, “I think the limited-SKU environment is a very misunderstood or under-understood secret of a lot of things about Costco, including private label.”