Costco reported its fourth quarter on Wednesday: $93.9 billion in net sales for the 16 weeks, up 11.2%, and $3 billion in net income. Fourteen analysts got a question. I read the whole transcript looking for the phrase “retail media.” It isn’t in there. Neither is “ads,” “media network,” or “Velocity,” which is the name of the retail media network Costco launched in February.
That would be unremarkable for a company without one. Costco has one. It has an AVP of Retail Media, Mark Williamson. It runs sponsored products through Criteo, it signed Moloco in March to serve personalized display units on Costco.com, and it has an offsite program. The network exists. It just doesn’t get a sentence on the earnings call.
Compare that to the two grocers everyone benchmarks against. Walmart’s ad business grew 46% to $6.4 billion last fiscal year, and its CFO told analysts that advertising plus membership fees came to nearly a third of operating income. Kroger’s ad arm grew profit 24% in a quarter where Kroger cut its sales guidance. Both companies lead with ads because ads are the story. Costco led with renewal rates.
The fee does the job the ad network does everywhere else
Membership fee income was $1.85 billion for the quarter and $5.9 billion for the year, up 11%. There are 84.1 million paid members, 42.3 million of them Executive at $130 a year, and the renewal rate in the U.S. and Canada is 92.3%. Costco has raised the fee three times in fifteen years, in 2011, 2017 and 2024, and CFO Gary Millerchip said the 2024 increase accounted for less than 1% of this year’s fee growth. The growth is people joining and people upgrading.
That $5.9 billion is what the ad business is for at every other retailer. Grocery margins are thin, the supplier’s marketing budget is fat, and the media network is the pipe between the two. Walmart’s CFO said as much when he put ads and membership in the same sentence as operating income. Costco built a different pipe. The member pays the margin up front, once a year, and in exchange Costco doesn’t need to squeeze it back out through the shelf. Sixty-five dollars buys you a store that doesn’t have to rent you out to a cereal company.
Same vendors, different scoreboard
Costco is running the same machinery Walmart Connect runs. Moloco’s units are described as personalized digital end caps. On the call, Millerchip said 10% of Costco.com orders now include a personalized item, sales from personalization grew triple digits in the quarter, and traffic from AI search grew triple digits for the second straight quarter with the highest conversion rate of any source. Site and app traffic is up 30%. That is a retail media stack. The difference is what it’s measured against.
Williamson put it this way in March, as quoted by eMarketer: “We aren’t building a media network to hide margin. We are building an engine to move merchandise.” Every retail media exec says a version of that. Williamson works for the one company where the income statement backs him up.
One more line from the call, in an answer about AI shopping agents. Millerchip said Costco doesn’t do any paid digital advertising. It shows up in ads because members talk about it. So the company neither buys ads nor talks about selling them, and it did $94 billion in sixteen weeks. Somewhere a CMO is looking at a $60 million media plan and feeling a little sick.
If you sell to Costco, or you sell retail media
If you’re a brand: the Costco joint business plan has no media line, so stop looking for one. You pay in price, pack size and velocity. The ad is the pallet position, the roadshow, and the person handing out samples on toothpicks. When your retail media budget gets carved up for next year, Costco’s share is zero, and Costco’s sales will not notice.
If you sell retail media, Costco is the account your prospect’s CFO will raise: the one retailer growing 11% without monetizing its shelf. Have the answer ready. Costco can afford restraint because 84 million people pay it before they buy anything. Most retailers don’t have that, which is why they have you. Retail media is real growth for Walmart and Kroger, and it is also a transfer of margin from suppliers. Costco looked at that trade and picked the member.
Velocity will grow. Moloco’s beta goes wide later this year, and the reporting so far says the internal north star is the renewal rate, not ad revenue. Watch for the day an ad revenue number shows up on a Costco earnings call. That is the day the model changed. It didn’t happen Wednesday.