Target is cashing in on a shift that's creating a 'sphere of despair' for brands

Sales are exploding for Target's private brands.

On Wednesday, the retailer reported that same-store sales at locations open at least a year increased 1.3%, beating analysts' estimates of 0.7% growth.

A crucial part of Target's success was its private label brands, according to executives.

Cloud Island, the baby brand that Target launched in May, generated double-digit comparable sales growth in the quarter. And, kids' apparel brand Cat & Jack reached $2 billion in sales just one year after its launch.

"Exclusive new brands like Cat & Jack in kids clothing, Pillowfort in homewares, and Cloud Island in baby have all performed well," Neil Saunders, managing director of GlobalData Retail, wrote in a note to investors. "Not only are these brands credible and compelling, but they are also helping to differentiate Target from rivals."

Target is doubling down on this strategy with plans to launch 12 new brands over the next 18 months.

The company is debuting four more private label brands this fall: women's apparel brand A New Day, menswear line Goodfellow & Co., homewares brand Project 62, and athleisure brand Joy Lab.

Private label brands have been dominating retail recently. Retailers are now "more willing to invest in 'store brands'" because the stigma of "generic" goods has lifted, according to a recent note by Barclays.

However, while investing in private label brands has been paying off for retailers like Target, it's bad news for companies that have long banked on customers' willingness to pay top dollar for a brand they know and love.

Barclays said that the shift in customers' mindsets is creating a "sphere of despair" for food brands like Mondelez and Nestle, as well as for consumer conglomerates like Unilever and Procter & Gamble.