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It's no secret that private labels have witnessed massive success in recent years. It's now a $236.3 billion industry, but one stands out from the rest. Kirkland Signature is one of the biggest and most popular store brands, with more than 300 products ranging from vodka to laundry detergent, batteries, and clothing. Its fans are fiercely loyal. I just got the first ever Kirkland Signature driver. Let's unbox it.

Kirkland has a cult following. There's a reason why people buy the t-shirts and shoes with that brand name on them. It's similar to what you see from shoppers at TJ Maxx, who proudly talk about getting a great deal, like “this is Kirkland brand,” though it's not a perfect comparison. In 2023, Kirkland Signature surpassed the combined net sales of consumer packaged goods behemoths Kraft Heinz and Kellogg's.

However, nearing three decades old, the seasoned label is facing an old competitor with a fresh approach: Sam's Club's Member's Mark. Member's Mark is one of their catalysts for growth, aiming to connect the entire life for their members, offering food, clothing, home cleaning, and styling products. As a percentage of sales, Member's Mark is as successful as Costco's Kirkland. While overtaking it may take a long time, it remains a possibility.

Historically, private labels were always thought of as low-quality, cheap alternatives to national brands. However, sales of private labels increased 34% between 2019 and 2023. Some of the biggest companies have invested heavily in the category, like Amazon with its more than 100 private labels and its Whole Foods 365 brand, as well as Aldi, Trader Joe's, and Wegmans. Today, many consumers consider private labels as good as or better than name brands.

The competitive landscape has changed, with European brands like Aldi and Lidl offering private labels and changing public perception. Customers tried these brands during the pandemic when they couldn't find their favorite national brands, discovering they liked them more. Additionally, inflation has driven people to seek more value for their money, often turning to private labels.

It's difficult to compare private labels as a whole. Some focus solely on one product or category, while others, like Costco's Kirkland, thread many categories. Costco realized early on it could differentiate its private label, launching Kirkland Signature in 1995 with 30 products. Now, there are more than 300. Costco typically carries two versions of each product, one national brand and one Kirkland product, a business decision that limits consumer choices but maximizes shelf space. A typical Costco carries 3,800 products, compared to a supercenter's 100,000.

If you go to a club, you're going to get a great deal and a high-quality product at a good price because you've already paid your membership. However, there’s no expectation of a huge array of choices. Private labels are exclusive offerings that you can't find elsewhere. Memberships can be easily canceled, so the stakes are high to offer a brand that's above the rest. Today, Kirkland is one of the biggest singular private label brands in the country. Costco confirmed that Kirkland sales were about $58 billion in 2023. Aldi had about $26 billion in sales in 2022, while Member's Mark sales were between $22 and $25 billion in 2023.

Sam's Club has rebranded its multiple private labels into one: Member's Mark. Sam's Club CEO told CNBC that Kirkland was an inspiration for their brand revamp. Brand recognition and member acceptance have improved, and the business is in a better place. The company revitalized more than 1,200 items since 2020, and as of June 2024, Member's Mark accounts for 30% of Sam's sales, higher than Costco's, though the two clubs have vastly different SKU amounts.

Costco uses national manufacturers to produce many of its private labels, often resulting in the same or better quality than national brands. Sam's Club, however, primarily works with smaller suppliers. This flexibility allows Member's Mark to adapt and develop quickly, launching programs where members help co-create products.

Sam's Club is prioritizing quality and expanding Member's Mark into new categories like home goods and small appliances. They are responding to member feedback to create new products and bring prices down. However, strengthening Member's Mark comes with risks. If the quality in one category falters, it may undermine overall consumer confidence. Even Costco faces quality issues; for instance, Consumer Reports ranks many Kirkland products higher than Member's Mark, but not all. Everyday consumers know the Kirkland Signature brand more so than Member's Mark, but the potential for growth is there.

Member's Mark is relatively new, and Walmart, with nearly $650 billion in revenue, has vast resources. Sam's Club has 69 million members shopping at 600 US locations, compared to Costco's 73 million worldwide. Sam's Club is deliberate in getting customers to help develop new products, hoping they become product evangelists. Expansion is a priority, with plans to open 30 new warehouses by 2028, making Member's Mark critical in attracting new members in new markets.

Despite Sam's Club's efforts, Costco's domestic revenue is still twice as large. While Sam's Club may eventually catch up, it won't be in the next couple of years. The true test will be up to shoppers, and Member's Mark will play a crucial role in whether people sign up for or renew their Sam's Club membership.