Sam's Club, owned by Walmart, is attempting to compete with Costco's private label Kirkland.

• The competition among private label brands has intensified as customers seek affordable and distinctive products.
• Sam's Club, owned by Walmart, is striving to improve the quality of its private brand, Member's Mark.
• Kirkland Signature, the brand of Costco's chief rival, has a devoted fan base.

During the Covid pandemic, Megan Crozier was stuck at home with her two young children. To keep them entertained, she purchased an inflatable pool from Sam's Club.

The pool began leaking air after just a few uses.

The disappointment over the trashed pool at the membership club owned by Crozier, the chief merchant, motivated him to launch a years-long campaign to catch up with his chief rival, and boost the popularity of their private brand, Kirkland Signature.

As Sam's Club expands its locations, it is crucial for the brand, Member's Mark, to improve its image in order to compete with Costco, which has a larger revenue despite having the same number of U.S. clubs. In the most recent fiscal year, Sam's Club's net sales were $86.2 billion, while Costco's U.S. clubs generated $176.63 billion in revenue.

Chris Nicholas, CEO of Sam's Club, revealed to CNBC that the brand's revamp was influenced, in part, by its main competitor.

"The club model endures due to exceptional merchants who focus on acquiring or creating unique items," he stated in an interview. "Costco's success with Kirkland is a testament to this approach."

The success of Member's Mark will impact Sam's Club's growth plans, which include opening over 30 new stores in the next four years. Some of these stores will be located in regions where customers may be members of competing clubs like Costco or , or where they may need to be convinced to pay an annual membership fee to shop.

It won't be easy for Sam's Club to overtake Costco and its popular private label, according to retail analyst Michael Baker of D.A. Davidson.

""I think it's going to take a long time," he said."

Kirkland Signature's success at Costco inspired Sam's Club to adopt a similar formula.

Kirkland's brand, with its wide selection of products including vodka, batteries, and dress shirts, has contributed to the increase in membership sign-ups and renewals. This aspect of Costco's offerings is often emphasized in their pitch to members.

Private label wars heat up

Sam's Club has more reasons than just its competition with Costco to improve its private label offerings.

Retailers such as , and have introduced their own labels with unique flavors and exclusive items, causing the stigma of inferior quality or cheaper knockoffs of national name brands to fade among the brands.

Since Costco launched the brand in 1995, Kirkland has been credited with assisting Baker in that regard.

"He stated that they did not invent the concept of private label, but what they revolutionized was the ability to produce high-quality products."

During the Covid pandemic, when consumers couldn't find their usual brands on shelves, they experimented with new brands. Some fast-growing grocers, such as Trader Joe's, Aldi, and Lidl, have fueled growth almost entirely through their own brands. Additionally, stubborn inflation has pushed more consumers to buy a store's own brand to save money.

The annual report by the Private Label Manufacturers Association, conducted by market research firm Circana, shows that sales of private label increased by 34% between 2019 and 2023, reaching a total of $236.3 billion.

Exclusive offerings are even more crucial for clubs, which demand members to pay a membership fee. While Costco charges an annual fee of $60 and Sam's Club charges $50, both clubs offer higher-tier memberships for $120 and $110, respectively. It is predicted that Costco may increase its annual fee in the near future, based on its past history of doing so.

At Sam's Club, Member's Mark accounts for approximately 30% of sales in terms of dollars, while Kirkland accounts for roughly 28% of Costco's annual sales.

Costco declined interview requests for this story.

A makeover for Member's Mark

In recent years, Sam's Club has streamlined its private labels from over 20 brands to just one: Member's Mark. The company has set new targets for food and merchandise standards by 2025, including using antibiotic-free poultry and sourcing fair trade certified coffee beans.

The retailer recently introduced a program that enables customers to contribute to the development of Member's Mark products by providing feedback on taste, appearance, and other aspects prior to their release.

"Nicholas stated that customers are very particular, often expressing their dissatisfaction with the quality of the product, such as the seam, stitching, or lobster content in the lobster mac and cheese," he said.

Sam's Club's senior vice president of private brands and sourcing, Myron Frazier, stated that the company aims to transform Member's Mark into a renowned lifestyle brand. He added that the store brand intends to expand further into home categories, including providing a wider range of indoor furniture and launching its own line of small appliances.

To generate popular items, merchants have focused on products that address customers' challenges, such as convenient meal options like rotisserie chicken bites and versatile kids' clothing sets that can assist parents in the morning rush.

Sam's Club has reported a record number of members in each consecutive quarter for more than a year, indicating that its membership strategy is successful.

In the most recent quarter, customer transactions increased by 5.4%, while the average ticket decreased by approximately 1%. This could suggest that shoppers are increasingly choosing Member's Mark products, which are generally less expensive than national brands.

The private brand's sales growth has surpassed the rest of the store, according to Nicholas. He stated that as the brand's products become more popular, the club can use this leverage to negotiate lower prices from suppliers or demand greater innovation.

During a recent earnings call, Walmart's finance chief John David Rainey attributed the quarter's high single-digit growth to Member's Mark and stated that it is a significant factor in why members choose to join and renew their membership.

Product quality will help to determine whether the growth continues.

Since 2020, Member's Mark has made more than 1,200 changes to its products.

One of those reformulated items? Its inflatable pool.

Sam's Club sells a lot of them, as Crozier stated.