A weaker environment for consumer spending is playing right into one of Costco ‘s biggest strengths: Kirkland Signature. A string of recent consumer and industry data shows that adoption of private label products has been accelerating, including at Costco, where its store brand is becoming a larger part of its overall sales. That’s great news for Costco investors because those Kirkland Signature products tend to carry a higher margin than other branded items — and Wall Street wants to see the company become more profitable to help boost earnings, without sacrificing its identity. “Costco, specifically, has been a leader in the private label arena with its Kirkland Signature brand,” UBS analyst Michael Lasser told CNBC at the firm’s consumer and retail conference in New York City earlier this month. “It’s found newer and newer ways to design and create products under the Kirkland Signature brand, and the consumer has responded well to it,” added Lasser, who has a buy rating on Costco stock. The economic picture has added to the appeal of store bands. In a recent survey, investment bank Stifel found consumer spending intentions in February and March weakened from where they were in January, even though they overall remained positive. A clear bright spot in the survey: willingness to spend on private label brands remained elevated. About 48% of respondents said they’re planning to buy more private label, based on a two-survey average, which is three percentage points above the 12-month average. In general, the respondents indicated they’re shopping most frequently at the largest retailers, including Costco, Walmart and Target. The Stifel data suggests a yearslong trend has not run its course with value-conscious shoppers whose budgets have been strained by years of high inflation. In 2024, sales of store brand rose to a record $271 billion, up 3.9% on an annual basis, according to the Private Label Manufacturer’s Association . National brands, meanwhile, saw a 1% increase in sales in 2024, to roughly $1.03 trillion. Store brands accounted for 20.7% of dollars spent in 2024, a record share of the market, according to the PLMA. That’s up from 19.1% in 2021. At Costco, Kirkland Signature continues to grow at a faster pace than its business as a whole —a positive for profitability while still being able to offer customers a great deal. Executives have said Kirkland Signature products “average 20% value” to the national brand. And yet, as the mix of Kirkland Signature sales grows, “it definitely creates some overall tailwind in our margin overall,” CFO Gary Millerchip said last fall on an earnings. Costco does not offer up private label penetration as an official metric, but it’s periodically discussed on earnings calls. Kirkland Signature products represented about a third of Costco’s sales, CEO Ron Vachris said in December on its first-quarter earnings call. On the prior in September, he said it was in the “high 20s” percentage — evidence of…
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