Retailing's atomic bomb

Dropping the bomb

Those of you who saw Costco CEO Jim Sinegal being interviewed by CNBC this week, standing right there atop the stairway leading to the fabled vendor meeting rooms at their HQ  in Issaquah, might think he was just a warm, cuddly, typical Washington-state guy.  You would be wrong. 

Sinegal’s casual, folksy appearance masks a strong determination:  one that helps keep this chain on the forefront of trends.  WalMart may be the powerful locomotive, but Costco may just be the speeding bullet.  Or, the atomic bomb…

Sinegal was actually using this term to refer to Costco’s private label program, their juggernaut.  Private label now comprises 20% of their SKUs, but their goal is 35%.  Sinegal stated that in this quest there is “no room for mistakes.”

According to AC Nielsen, U.S. private label consumer packaged goods  accounted for 73.3 billion in dollar sales for the year ended April 2008, up nine percent from the previous year.  In an industry where growth of two to three percent is respectable, this is almost indecent.

To Costco, their private label is all about customer service.  They hire consultants who work around the clock to deliver the best product options.  They run tests constantly, and employ all manner of quality control systems.  All this for the roughly 500 products that comprise the Kirkland brand.

Those of us who shop at Costco have grown to know and love Kirkland.  It is all that the old private labels were not.  Remember the old ugly, yellow, generic product packaging ? 

Store labels were once synonymous with cheap.  Now they have become real brands, with all the baggage that a brand implies, including extensions, but most importantly, defensive strategies.   Thus, the weapon of  choice for Costco:  private label.  This is bomb that Sinegal is using to blow up the world of retailing as we know it.