If Walmart’s colossal $650 billion retail empire didn’t raise an eyebrow, its $100 billion e-commerce prowess surely will. The retail giant has quietly established itself as a significant player in the digital sales arena, tapping into a lucrative market that includes not just online purchases but also in-store pickups. This innovative strategy has propelled Walmart into the realm of digital advertising, attracting big brands eager to reach its vast online audience.
Unlike traditional revenue streams, digital advertising offers Walmart a low-cost, high-margin avenue for profit. In fiscal 2024, Walmart saw its advertising segment grow to a substantial $3.4 billion and continued its upward trajectory with a 24% surge in the first quarter of fiscal 2025. This shift has been a key factor in Walmart’s resurgence in operating income over the past year.
With Walmart setting the stage for success, attention now turns to Costco Wholesale (NASDAQ: COST), a powerhouse in its own right, exploring a similar path.
Deciphering Costco’s Strategy
Costco’s forte lies in its sprawling retail stores, offering a myriad of discounted products across its locations. While this brick-and-mortar model has been consistent, its growth potential is limited. In contrast, Costco’s e-commerce segment has been quietly gaining momentum, showing a robust 21% increase in the latest quarter. Evidently, the company’s online sales are on a promising upward trajectory.
During Costco’s recent earnings call, the topic of retail media surfaced, drawing parallels to retail giants like Amazon. This advertising platform allows retailers to sell digital ad space to third-party brands, leveraging their extensive customer base for targeted marketing opportunities. Costco, with its 73 million paid members, stands poised to capitalize on this revenue stream.
While Costco’s journey towards a billion-dollar retail media business may be a gradual one, the potential for expansion remains undeniable. A strategic pivot towards digital advertising could significantly bolster Costco’s operating income, offering a lucrative avenue for growth in the long run.
Analysts’ Insight and Investor Consideration
Although Costco’s stock is currently trading at a premium, the prospect of increased profitability through ventures like retail media could justify its valuation. A billion-dollar digital advertising business could substantially enhance Costco’s financial outlook, potentially elevating shareholder confidence and supporting its stock price.
Investors eyeing Costco Wholesale might find solace in the long-term prospects illuminated by strategic moves towards digital advertising. While immediate results may not be imminent, the groundwork laid by successful precedents like Walmart hints at a bright future for retail giants embracing this transformative trend.