Who will win the battle of U.S. retail media?

The U.S. retail media market is projected to double to $100 billion by 2028, with Bernstein analysts identifying Walmart, Costco, and Target as key contenders. Walmart is seen as having the greatest upside, with potential for its retail media revenue to reach $10 billion and its e-commerce GMV to double to $200 billion by FY30, significantly enhancing e-commerce profitability. Costco is expected to grow its retail media revenue from $340 million to over $1 billion in five years, adding meaningful operating margin upside despite structural hurdles. Conversely, while Target aims to double its Roundel ad unit to $4 billion by 2029, Bernstein raises concerns regarding its sustainability and scalability. This assessment leads Bernstein to rate Walmart and Costco Overweight, while Target is Underweight.

Analysis

The U.S. retail media market is poised for significant expansion, projected to double to $100 billion by 2028, creating a major new profit center for established retailers. According to Bernstein analysts, Walmart (WMT) is best positioned to capitalize on this trend, with its U.S. e-commerce gross merchandise value (GMV) forecasted to double to $200 billion by FY30. This growth, driven by its expanding third-party marketplace, could translate into a $10 billion retail media business, structurally improving e-commerce profitability and overall earnings quality. Costco (COST) is identified as a strong secondary player with significant upside from a low base, expected to grow its retail media revenue from approximately $340 million to over $1 billion within five years, which could add at least 10 basis points to its operating margins. In contrast, Target's (TGT) retail media strategy faces skepticism. While its advertising unit, Roundel, aims to double to $4 billion by 2029, this implies an aggressive 11% share of GMV, raising concerns about sustainability and potential cannibalization of traditional promotional spending. Furthermore, Target's invitation-only approach to its marketplace may limit the scale required for long-term growth, justifying Bernstein's Underweight rating compared to the Overweight ratings for Walmart and Costco.

Key Decisions for Investors

• Investors should view Walmart as a primary vehicle for exposure to the retail media growth theme, given its strong e-commerce momentum and potential for significant margin expansion driven by its third-party seller ecosystem.
• While Costco's foray into retail media presents a clear opportunity for margin enhancement, its structural hurdles and a more curated marketplace approach suggest a more measured growth trajectory compared to Walmart.
• Exercise caution with Target, as its ambitious retail media growth targets face significant execution risks, including the sustainability of its high revenue-to-GMV ratio and a potentially growth-limiting marketplace strategy.
• Monitor the growth of third-party marketplaces across all three retailers, as this is a key indicator of their ability to scale their high-margin retail media advertising businesses effectively.