1) Costco’s private-label reigns while Amazon’s owned brands fumble.

WHAT HAPPENED: Costco’s private-label brand Kirkland is responsible for almost one-third of the retailer’s sales.

Why it matters

  • In Costco’s latest annual report, the company stated that Kirkland sales rose $4 billion between 2017 and 2018—a higher growth rate than sales across Costco’s overall brand assortment. Kirkland offers products in a wide variety of verticals, from groceries and gas to apparel and household goods. The financial firm UBS estimates Kirkland’s total value at $75 billion, and gas sales aside, the private label comprises 25% of Costco’s total sales. Such strong performance of an owned brand means that Costco can capture higher margins, while also pressuring its third-party brands to lower prices—a win for the company and a win for shoppers.
  • Kirkland also provides a foil to Amazon and its growing number of private-label brands. First, Kirkland’s branding is much stronger—there are dozens of verticals under the single Kirkland umbrella, while the majority of Amazon’s approximately 148 private labels are not named after the brand itself, making them difficult to differentiate from third-party brands, aside from Amazon’s efforts to advertise them. There’s also the question of quality. About 68% of Amazon’s owned brands are apparel-focused—an area where Amazon continues to struggle, even as it gains market share over the clothing category overall. Similarly, a study by Marketplace Pulse found that the success of AmazonBasics batteries, a private-label product that quickly usurped Duracell and Energizer sales on the platform, was an outlier to most of its owned brands, which fail to make an impact. While Amazon inherited the successful Whole Foods 365 private label and its Echo brand continues to see growth, it has yet to crack the code on many of the categories Kirkland has.

2) The beauty samples market is growing, but brands still need to find a way to build customer loyalty in the face of poor unit economics.

WHAT HAPPENED: In 2018, cosmetics samples comprised $1.2 billion in U.S. sales—a 13% increase YOY.

Why it matters

  • Brands and retailers are taking a variety of approaches to indoctrinate the growing samples market into their businesses. While Sephora and Ulta Beauty have long allowed customers to choose a handful of samples with any purchase, more brands, such as Kat Von D and Smashbox are selling travel-sized products directly. Drunk Elephant, founded in 2014, also sells what it calls “skincare smoothie samples,” that shoppers can mix together themselves. These smaller product sizes come at a larger manufacturing expense, but work to fill out shopping carts further and ideally convert to full-sized product sales.
  • Other companies predicate their businesses on samples entirely through a subscription. Ipsy and Birchbox were both trailblazers in this arena, offering launching a monthly subscription box filled with a handful of samples. But their business models suffered as the subscription market subsequently exploded. Birchbox struggled in particular after an acquisition by QVC failed to materialize in 2017 and the company continues to face high customer acquisition costs and low sample-to-full-size conversions. Curiously, nascent brands are now entering the samples market, undeterred by Birchbox. Scentbird sells 30-day fragrance supplies via a $14.95 monthly subscription, and newcomer Skylar offers a similar product, but is trying to circumvent what caused Birchbox’s decline with the help of IRL, community-building events. Only time will tell if it works, but Skylar’s meetups are more likely to achieve customer loyalty than running a sample subscription business and hoping that shoppers purchase full-size products later on.

3) Square debuts Square Online Store, powering ecommerce and competing for the merchants that Shopify has left behind.

WHAT HAPPENED: Together, Square Online Store and an updated Square for Retail aim to help small merchants integrate their ecommerce and offline businesses.

Why it matters

  • Square Online Store is a product of Square’s 2018 acquisition of Weebly, a web hosting service for ecommerce companies. The new system allows merchants to use Square to create a site, merge prices and data with Square for Retail (its offline counterpart), enable shipping and in-store pickup, and connect to social platforms where it can get in front of more shoppers.
  • Square made its name providing a point-of-sale system to so-called “micro-merchants.” But with the persistence of ecommerce, online systems remain crucial, which Square Online Store attempts to provide. This is increasingly important now that more brands are building out multi-channel retail strategies. But in doing so, Square is increasingly overlapping with other POS systems such as Shopify, which dominates the ecommerce realm and has more than 600,000 customers across 175 countries. In recent years, Shopify has serviced a number of major digital brands, including Kylie Cosmetics, but offers much less to smaller companies or those seeking to establish a brick-and-mortar presence. In fact, while its POS can serve as a starting point for offline retail, it cannot operate at scale. If Square continues to provide a system for smaller merchants with both online and offline stores, Shopify’s lack of attention to this demographic might hand it a promising opening. But Square will have to remain wary of fast-changing merchant dynamics. For example, as Instagram’s in-app checkout takes hold, smaller brands will be less inclined to build an ecommerce presence with Square, which only integrates with Instagram’s “link in bio” feature—a less seamless option for shoppers.

4) Google enters the video game streaming market, mimicking Netflix’s takeover of TV and film streaming.

WHAT HAPPENED: Stadia, a cloud-based video game streaming service distributed through Google, is set for a 2019 release.

Why it matters

  • Other content—music, film, TV—has moved to online streaming platforms, so why should video games be any different? With the video game market estimated to grow to $180 billion by 2021, Google plans to be the first to distribute video games from one centralized, cloud-based system. Stadia won’t require a console or PC—its device-agnostic system allows players to play on devices they already own using Google Chrome and a Stadia Controller that connects to the chosen game via WiFi. All in all, this means instant access to games, without downloads or updates, and a higher-quality, seamless experience for gamers, much like Netflix achieved for TV and film.
  • Aside from the benefit of being the first-to-market, one aspect of Stadia that stands out is its social factor, enabled by the Google ecosystem. Google will allow Stadia users to create and post clips of their games on YouTube, which it also owns. Additionally, it will let players share links to an exact moment in a game and match them with other gamers who publish their content on YouTube. Even Google Assistant will be available via a button on the Stadia Controller when gamers get stuck. But Google’s ability to become the Netflix of video games is reliant on a few factors: 1) consumers, who still don’t know whether Stadia will be a subscription service or how it will be priced; 2) infrastructure strong enough to operate this vision at scale, 3) how Google will license actual video games; and 4) competition from other cloud-based game streaming devices such as Sony’s PlayStation Now and additional in-the-works projects at Amazon and beyond.