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Wal-Mart's Jet.com Carries Costco Products, But Not For Long

Published on Jun 13 2017 3:30 PM in Technology tagged: Walmart / USA / Costco / Jet.com

Wal-Mart's Jet.com Carries Costco Products, But Not For Long

Wal-Mart Stores Inc.’s acquisition of Jet.com last year turbocharged its online business, but one element of Jet’s success hasn’t sat well at the parent company.

Since its 2015 founding, Jet has carried a broad array of products under the Kirkland Signature brand, which is owned by Wal-Mart rival Costco Wholesale Corp. A recent search for “Kirkland Signature” on Jet’s site yielded 229 results, ranging from 40-ounce jars of Kirkland cashews for $20.99 to 40-packs of organic roasted seaweed for $67.63.

That’s about to change. Jet is phasing out Kirkland products, spokeswoman Meredith Klein said by email, although some Kirkland products fulfilled by third-party sellers will remain. The move comes as Wal-Mart’s Sam’s Club chain works to boost sales by focusing on its own main store brand, Member’s Mark, consolidating about 20 different labels under that banner and adding 300 new products like sea salt caramels and all-natural pulled pork.

Jet now carries hundreds of Member’s Mark products, part of a broader effort to integrate it into Wal-Mart, even as it maintains its own distinct web presence separate from Walmart.com.

While it made sense for Jet to initially carry Kirkland, “it’s definitely odd that it’s on there now,” said Laura Kennedy, an analyst at research firm Kantar Retail. “Jet is still moving through full integration with Wal-Mart, and it’s something I’m sure Wal-Mart was aware of when it acquired Jet.”

Close Relationship

It’s no surprise that Jet and Kirkland are intertwined, as Jet co-founder Marc Lore took inspiration from Costco, which popularized the members-only warehouse approach. Jet’s original business model was based on membership fees, with savings from buying in bulk passed onto the customer. Jet accounted for 5.5 percent of Kirkland’s online sales in the first half of 2016, according to analytics provider 1010data, behind Amazon.com Inc. and Costco.com.

Lore is now running all of Wal-Mart’s U.S. e-commerce business, which last quarter saw 69 percent growth in merchandise volume, thanks to a major expansion of third-party products and offers like two-day free shipping.

From now on, though, Wal-Mart will have to get by without a boost from Kirkland, whose name is derived from the previous location of Costco’s headquarters in Washington. (Costco is now based in nearby Issaquah.)

In a phone interview, Costco Chief Financial Officer Richard Galanti said he wasn’t surprised the Kirkland products were being pulled, “given who acquired them.”

Sam’s Club, which Wal-Mart started in 1983, directly competes with Costco in the warehouse club retail format.

Vodka, Maternity Clothes

The Kirkland Signature brand made its debut in 1992 and spans everything from basics like bottled water and paper towels to vodka and maternity clothes. Sales of some Kirkland items exceed $1 billion, the typical threshold for success in the consumer-products world. More than 20 percent of Costco’s sales come from Kirkland products, and they’re now even available in China on Alibaba’s Tmall site, where international brands sell to Chinese consumers.

“Costco’s Kirkland Signature is the best store brand there ever was,” said one writer at foodie bible Bon Appetit in August, the same month Wal-Mart paid $3.3 billion for Jet. “You wouldn’t expect a brand that makes cashmere sweaters, batteries, and 900-count packs of baby wipes to also produce some top-notch food products.”

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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