Who Will Win the U.S. Retail Media Battle? Walmart and Costco Lead the Charge

The U.S. retail media landscape is undergoing a seismic shift as traditional retailers pivot to capture a share of the $100 billion digital advertising market by 2028. While Amazon dominates e-commerce, Walmart and Costco are emerging as the strategic front-runners in retail media 2.0, leveraging their scale, curated ecosystems, and margin-expansion opportunities. Meanwhile, Target's sustainability missteps highlight the risks of complacency in this high-stakes game. Here's why investors should overweight Walmart (WMT) and Costco (COST) for long-term gains—and why caution is warranted for Target (TGT).

Walmart's Path to $10B: E-Commerce Dominance and Data Power

Walmart's retail media revenue is poised to grow from 3% to 5% of its gross merchandise value (GMV), reaching $10 billion in the U.S. by fiscal 2030, per Bernstein analysts. This growth is underpinned by three key advantages:

1. E-Commerce Momentum: Walmart's U.S. e-commerce GMV is projected to double to $200 billion by 2030, driven by its 1P (first-party) vendors and expanding 3P (third-party) marketplace. This scale creates a data-rich environment for hyper-targeted advertising.
2. Closed-Loop Measurement: Walmart's integration of its marketplace, ads, and payment systems (e.g., Walmart Pay) enables precise ad ROI tracking, attracting brands seeking measurable outcomes.
3. Margin Expansion: By monetizing its vast customer data and reducing e-commerce costs (e.g., through automation and inventory efficiency), Walmart aims to boost operating margins, which are already expanding as its e-commerce unit scales.

Walmart's stock has outperformed the S&P 500 over the past five years, reflecting investor confidence in its omnichannel strategy.

Costco's Undervalued Upside: Curated Commerce and Margin Resilience

Costco, often overlooked in retail media discussions, is positioned for asymmetric upside despite structural challenges. Bernstein forecasts its retail media revenue to grow from $340 million today to over $1 billion by 2028, adding 10 basis points to operating margins—a significant lift for a company with margins hovering around 2-3%. Key drivers:

1. Curated Marketplace: Costco Next, its 3P marketplace, remains small but highly curated, ensuring customer trust and minimizing operational complexity. This contrasts with Walmart's broader, faster-growing marketplace.
2. 1P E-Commerce Growth: Online penetration of 1P sales is rising from 9% to 15% by 2029, boosting data assets for advertising.
3. Member Loyalty: Costco's 113 million global members spend $1,800 annually, creating a premium audience for advertisers. Its sticky membership model reduces churn risks.

Costco's stock has consistently outperformed Target and trades at a discount to its growth potential, making it a compelling value play.

Target's Sustainability Risks: A Cautionary Tale

While Walmart and Costco build moats, Target's missteps in 2025 underscore the perils of neglecting ESG and social responsibility. Key risks:
- DEI Rollbacks: Ending diversity initiatives sparked boycotts, causing a 9.5% drop in foot traffic and a 34% stock plunge (from $142 to $94 in early 2025). Competitors capitalized: Walmart's DEI commitments drew 8% traffic growth during the same period.
- Regulatory Pressures: The EU's CSRD and CSDDD directives force transparency on emissions and supply chain risks—a challenge for Target, which reported uneven progress on Scope 3 emissions reduction.
- Structural Weaknesses: A 16.88% non-performing balance on commercial loans and declining sales in key categories (e.g., office supplies) highlight operational fragility.

Target's stumble in 2025 highlights the volatility of brands failing to align with evolving consumer and regulatory priorities.

Investment Thesis: Overweight Walmart and Costco for Media-Driven Growth

1. Walmart (WMT): Buy on dips. Its $10B retail media milestone is achievable given its e-commerce scale and data infrastructure. A 5% GMV take rate on $200 billion GMV equals $10B—a conservative target.
2. Costco (COST): Consider this a compound growth engine. Its 10 basis point margin upside is conservative; higher ad pricing or expanded marketplace adoption could boost this further.
3. Target (TGT): Avoid until it rebuilds stakeholder trust. Its stock remains undervalued (P/E 18.5 vs. sector average 22), but execution risks on ESG and margins outweigh near-term gains.

Conclusion: The Retail Media Race Rewards the Curated and the Data-Driven

Walmart and Costco are winning the U.S. retail media battle by combining scale with selectivity—Walmart through aggressive e-commerce expansion and Costco via its curated ecosystem. Both have the balance sheets, customer loyalty, and strategic focus to monetize data effectively. Target's struggles serve as a reminder that in today's market, sustainability and social responsibility are non-negotiable. For investors, this is a clear call to overweight Walmart and Costco for years of margin upside and leadership in retail media 2.0.

The numbers don't lie: this is a race Walmart and Costco are built to win.

Investment recommendation: Overweight Walmart and Costco. Avoid Target until ESG and operational risks are resolved.