Costco, Target, and Trader Joe's all use this secret weapon for keeping prices so low. Here's how they do it.
- Costco, Target, and Trader Joe's are loved by shoppers for their high-quality, inexpensive products.
- To keep prices so low, these retailers sell private-label brands that help cut costs for the company. The savings can then be passed along to shoppers.
- Private-label brands also help retailers win over younger shoppers that are more cost-conscious, according to The Wall Street Journal. Here's how brands make the most out of private labels.
But the products may not be from the most familiar brands - Costco, Target, and Trader Joe's all have their own labels, manufactured exclusively for them. Private-label brands help stores boost profit margins while still offering customers affordable prices. The brands also help drive traffic to stores and tend to lead to customers buying more because they are so cheap.Retailers are now "more willing to invest in 'store brands'" because the stigma of "generic" goods has lifted, Barclays analysts wrote in a 2017 note.
Costco's well-known brand Kirkland Signature pops up everywhere in the store. Walking through Costco, you can find Kirkland Signature snacks, men's shirts, paper towels, and everything in between.
Trader Joe's also manufactures many of its own products. About 80% of the products Trader Joe's carries are private label, which allows the brand to buy goods directly from the supplier, cutting out the middlemen that can drive up costs in the supply chain.
Many private-label brands are heavily geared towards millennial and Gen Z shoppers, because this younger generation of shoppers is generally less loyal to well-known brands. Instead, they focus more on cost and whether a product is healthy and good for the environment, David Garfield, head of the consumer products practice at consulting firm AlixPartners, told The Wall Street Journal in October.
This growing apathy to brands is creating what the Barclays analysts called a "sphere of despair" for food brands like Mondelez and Nestle and consumer conglomerates like Unilever and Procter and Gamble.Private brands give retailers a better handle on margins, and their unique offerings provide a hedge against big competitors like Amazon.
Here's how stores use private labels to keep costs low and win over shoppers: