Nathaniel StoneSaturday, Jul 5, 2025 6:53 am ET

38min read

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 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 retail media revenue is poised to grow from 3% to 5% of its gross merchandise value (GMV), reaching , per Bernstein analysts. This growth is underpinned by three key advantages:

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

Costco, often overlooked in retail media discussions, is despite structural challenges. Bernstein forecasts its retail media revenue to grow from , adding 10 basis points to operating margins—a significant lift for a company with margins hovering around 2-3%. Key drivers:

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

While Walmart and Costco build moats, Target's missteps in 2025 underscore the perils of neglecting ESG and social responsibility. Key risks:
- : Ending diversity initiatives sparked boycotts, causing a 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.
- : The EU's force transparency on emissions and supply chain risks—a challenge for Target, which reported uneven progress on Scope 3 emissions reduction.
- : 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.

Walmart and Costco are winning the U.S. retail media battle by combining —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, . 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.