Raphael Stevens

Private label wars have heated up as consumers look for value and unique items.
Walmart-owned Sam’s Club is trying to raise the quality of its private brand, Member’s Mark.
Chief rival Costco has a strong fan following of its own brand, Kirkland Signature.

Stuck at home during the Covid pandemic, Megan Crozier needed a way to keep her two young children entertained. She bought an inflatable pool from Sam’s Club.
The pool began leaking air after just a few uses.

For Crozier, chief merchant of the Walmart-owned membership club, that trashed pool — and the disappointment that came with it — helped kickstart a years-long effort to catch up with chief rival Costco and the popularity of its private brand, Kirkland Signature.
As Sam’s Club opens more locations, it is trying to raise the bar for its own brand, Member’s Mark. The label’s makeover has become critical for Sam’s Club as it aims to close the gap with Costco, which has roughly the same number of U.S. clubs but about twice as much annual revenue. Net sales for Sam’s Club 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 the brand’s revamp was inspired, in part, by the retailer’s chief rival.
“The club model survives because you have brilliant merchants focusing on creating or buying exceptional items,” he said in an interview. “Costco did such a great job of that over the years with Kirkland and we saw that be successful.”
The success of Member’s Mark will help determine how Sam’s Club fares as its 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 like Costco or B.J.’s Wholesale, or in areas where customers may need convincing to pay an annual membership to be able to shop.

Overtaking Costco and its beloved private label won’t be easy for Sam’s Club, said Michael Baker, a retail analyst for D.A. Davidson.
“Never say never,” he said. “Who knows? But I think it’s going to take a long time.”
But he added Costco’s success with Kirkland Signature created a formula that Sam’s Club can follow.
The popularity of Kirkland’s brand, which includes a diverse range of items like vodka, batteries and dress shirts, has helped to drive membership sign-ups and renewals. It is one of the features that Costco highlights when the retailer’s pitch to members.

In this photo illustration, Sam’s Club’s private label Member’s Mark is seen versus Costco’s Kirkland Signature label.
Natalie Rice | CNBC

Private label wars heat up

Sam’s Club has more reasons than its rivalry with Costco to step up its private label game.
The brands’ stigma of inferior quality or cheaper knockoffs of national name brands has faded as retailers including Kroger, Target and Walmart 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 fueled growth almost entirely through their own brands. And stubborn inflation also pushed more consumers to buy a store’s own brand to save some bucks.
Sales of private label increased 34% between 2019 and 2023 to $236.3 billion, according to the annual report by the Private Label Manufacturers Association, which is conducted by market research firm Circana.
Exclusive offerings, such as products you can’t find anywhere else, are even more essential for clubs, which require shoppers to pay a membership fee. Annual fees cost $60 at Costco and $50 at Sam’s Club. Each also has a higher-tier membership: $120 at Costco and $110 at Sam’s Club. (Costco is widely expected to raise its annual fee soon, based on its history of doing so.)
At Sam’s Club, Member’s Mark accounts for roughly 30% of sales in terms of dollars and more than one-third of sales in terms of units. Kirkland accounts for about 28% of Costco’s annual sales.
Costco declined interview requests for this story.

Sam’s Club is trying to raise the quality of Member’s Mark. It showed off apparel, food and other items from the private brand to investors and reporters in early June at an event near its Bentonville, Ark. headquarters.
Melissa Repko | CNBC

A makeover for Member’s Mark

Over the past several years, Sam’s Club has consolidated its private labels from more than 20 different brands into a single one: Member’s Mark. It announced new goals for food and merchandise standards that it aims to reach in 2025, such as switching to antibiotic-free poultry and fair trade certified coffee beans.
And it recently launched a program that allows customers to help co-create Member’s Mark items by giving feedback on flavors, design and more before the retailer green lights an item for the shelf.
Nicholas said customers don’t hold back. “They are exacting, like, ‘Hey, this seam is not good enough or the stitching here needs to be better or this needs to be double stitched or you haven’t got enough lobster in your lobster mac [and cheese],'” he said.
Myron Frazier, Sam’s Club senior vice president of private brands and sourcing, said the company wants to turn Member’s Mark into a well-respected lifestyle brand. He said the store brand plans to go deeper in home categories, such as offering more indoor furniture and making its own line of small appliances.
To come up with popular items, he said merchants have sought out products that solve customers’ problems, such as easy meals like chicken rotisserie bites and mix-and-match kids’ clothing sets that can help parents on a hectic morning before school.

Like Costco’s Kirkland Signature, Sam’s Club has a private brand that cuts across categories including grocery, home decor and apparel. Its private brand, Member’s Mark, also carries seasonal items like patio sets and beach towels.
Melissa Repko | CNBC

Some signs indicate the moves are paying off. Sam’s Club does not share its membership number, but it has reported a record number of members in each consecutive quarter for more than a year.
Customer transactions rose 5.4% and the average ticket declined about 1% in the most recent quarter, which could point to shoppers opting more for Member’s Mark items. The products tend to cost less than national brands.
Nicholas said sales growth of the private brand has outpaced the rest of the store. He added that as its items gain popularity, the club gains leverage to push suppliers to lower prices or step up innovation.
On an earnings call last month, Walmart finance chief John David Rainey credited Member’s Mark for driving the quarter’s high single-digit growth and said it is “a growing reason why members join and renew.”
Product quality will help to determine whether the growth continues.
Since 2020, the year when Crozier’s pool broke, Member’s Mark has launched, tweaked and upgraded more than 1,200 items.
One of those reformulated items? Its inflatable pool.
Crozier said it works well now. And she added that Sam’s Club sells a lot of them.

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NASA will have a spacecraft from Elon Musk’s SpaceX guide the International Space Station’s destruction after its retirement in 2030.
The agency awarded an $843 million contract to SpaceX to build the so-called “U.S. Deorbit Vehicle.”
The SpaceX-built vehicle will effectively destroy the ISS by pushing the station into reentry from orbit.

A satellite image shows an overview of the International Space Station with the Boeing Starliner spacecraft, June 7, 2024.
Maxar Technologies | Via Reuters

NASA will have a spacecraft from Elon Musk’s SpaceX guide the International Space Station’s destruction later this decade, the agency announced Wednesday.
The National Aeronautics and Space Administration awarded an $843 million contract to SpaceX to build the so-called “U.S. Deorbit Vehicle.” The spacecraft will be designed to guide the football-field-sized research laboratory back into the Earth’s atmosphere after retiring in 2030.

The SpaceX-built vehicle will effectively destroy the ISS by pushing the station into reentry from orbit.
“It is crucial to prepare for the safe and responsible deorbit of the International Space Station in a controlled manner,” NASA said in a press release, with the U.S. Deorbit Vehicle needed to “ensure avoidance of risk to populated areas.”

SpaceX’s Dragon crew capsule “Endeavour” seen from the International Space Station on May 2, 2024.

NASA did not specify whether SpaceX’s design for the U.S. Deorbit Vehicle will be based on one of the company’s existing spacecraft, such as its Dragon capsules. SpaceX and NASA did not immediately respond to CNBC’s request for comment on the design.

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The U.S. – along with four international partner agencies representing Russia, Europe, Canada, and Japan – has been preparing for the eventual end of the ISS, which has been crewed since 2000. The ISS, primarily created as a crewed research laboratory, has seen more than 3,300 experiments conducted in microgravity. That includes research not possible on Earth such as medical sciences and technology demonstrations.

Aging ISS

But the ISS is aging, with NASA and its lead partner Roscosmos, unable to solve a worsening problem of microscopic leaks on the station.

NASA published a study on Wednesday with analysis of why it decided to intentionally destroy the ISS in a controlled reentry. The agency evaluated a variety of alternatives, including disassembling the station in orbit or trying to raise the ISS to a higher orbit with a large spacecraft like SpaceX’s Starship.
“The space station is a unique artifact whose historical value cannot be overstated. NASA considered this when determining if any part of the station could be salvaged for historical preservation or technical analysis,” the agency wrote.
Ultimately, the agency study determined that any attempts to preserve or reuse the ISS were technically or economically infeasible. NASA noted the possibility the ISS’ operational lifetime could be extended beyond 2030, but that is yet to be determined and requires agreement with its international partner agencies.
NASA is planning to replace the ISS through private space stations and is helping fund U.S. companies’ development through the Commercial LEO Destinations (CLD) program.
The ISS totaled about $150 billion to develop and build and costs NASA about $4 billion each year to operate, so the agency sees privately built space stations as a way to replace the ISS at a fraction of the cost. More

Levi Strauss narrowly missed Wall Street’s sales expectations as denim surges in popularity.
Levi’s chief financial officer warned that consumers have been “generally cautious” and aren’t spending a lot on discretionary items.
The denim maker has been working to reduce its reliance on department stores by building out its own website and stores, but the strategy can come with unexpected hurdles.

A shopper leaves the American clothing company brand, Levi´s (Levis) store, and logo in Spain.
Xavi Lopez | Lightrocket | Getty Images

Denim is having a moment with consumers, but it hasn’t led to a major sales boost at Levi Strauss. 
The jeans creator on Wednesday posted fiscal second-quarter revenue that fell just short of Wall Street’s expectations at a time when shoppers are stocking their wardrobes with denim dresses, skirts and ultra low-rise baggy pants. 

Levi’s posted better-than-expected earnings as its direct sales to consumers and cost cutting continue to bear fruit. The company raised its dividend by 8% to 13 cents per share, its first increase in six quarters.
Still, shares fell about 12% in extended trading.
Here’s how Levi’s performed during the quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

Earnings per share: 16 cents adjusted vs. 11 cents expected
Revenue: $1.44 billion vs. $1.45 billion expected

The company’s reported net income for the three-month period that ended May 26 was $18 million, or 4 cents per share, compared with a loss of $1.6 million, or zero cents a share, a year earlier. Excluding one-time items, Levi’s posted earnings of $66 million, or 16 cents per share. 
Sales rose to $1.44 billion, up about 8% from $1.34 billion a year earlier. However, the sales jump was coming off of an easier comparison.

In the year-ago period, sales were down 9% after Levi’s shifted its wholesale shipments from its fiscal second quarter into its fiscal first quarter. The shift reduced sales last year by about $100 million, the company said previously. Excluding the shift, as well as the exit of Levi’s Denizen business, sales would have been up by only about 1% in its most recent quarter compared to the year-ago period. 
Finance chief Harmit Singh attributed the sales miss to unfavorable foreign exchange conditions and weak sales at Docker’s. During the quarter, the khaki and chinos brand saw $82.4 million in sales, up 8.6% from $75.8 million in the year ago period. It’s not clear how sales at Docker’s were affected by the timing of Levi’s wholesale orders. 
“People are generally cautious,” Singh told CNBC in an interview. “It’s not necessarily an environment where people are buying a lot, people are cautious.”
While Levi’s posted a strong earnings beat, it only reaffirmed its full-year guidance, which was in line with estimates. The company continues to expect full-year earnings per share to be between $1.17 and $1.27, which now includes a 5-cent hit coming from the company’s new distribution and logistics strategy. 
Levi’s said it is transitioning from a primarily owned-and-operated distribution and logistics network in the U.S. and Europe to one that relies more on third parties. 
“In the near term, these changes require the parallel operation of new and old facilities for the rest of 2024, resulting in a transitory increase in distribution costs,” the company said. 
The change allows Levi’s to shift the responsibility of final mile delivery to third parties. The denim maker noted that it has new terms with its supplier that result in Levi’s taking ownership of inventory closer to the point of shipment rather than its eventual destination. Levi’s distribution network was built for a business that primarily sold to wholesalers, and now it needs to change into one that’s more focused on selling directly to consumers.
The changes are necessary because nearly half of Levi’s sales these days are coming from its own website and stores.
Direct-to-consumer sales jumped 8% during the quarter, representing 47% of overall sales. Online sales increased 19%.
“Our transformational pivot to operating as a DTC-first company is yielding positive results around the world, giving me great confidence that we will achieve accelerated, profitable growth for the rest of the year and beyond,” CEO Michelle Gass said in a statement. 
During the quarter, wholesale revenue grew 7%, but excluding the shift in timing of wholesale orders, sales in the channel decreased 4%. Singh noted that wholesale revenue improved on a sequential basis, but the company has a “conservative” view of the channel’s growth moving forward.
By building out its own direct channels, Levi’s enjoys higher profits, better data on its consumers and less reliance on shaky wholesalers like Macy’s and Kohl’s, which are continuing to shrink and fall out of favor with consumers. 
However, selling directly can also be more expensive, and can come with unexpected hiccups that can impact sales and drain profits. For example, when someone buys a pair of Levi’s from Macy’s and wants to return them, Macy’s typically bears that cost. Under a direct model, that responsibility, including the cost and logistics, would fall on Levi’s. 
Nike has come to be known as a cautionary tale for retailers long reliant on wholesalers that try to expand direct sales. 
For a while, Nike’s focus on direct sales boosted revenue and profits, but some critics said the strategy shift led to a slowdown in innovation, and ultimately, market share losses. 
Recently, the company acknowledged that it erred when it cut off so many of its wholesale partners and said it has since “corrected” that. 
Read the full earnings release here. 

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