✦ Costco VelocityThin moat

Retail media — selling advertising placements to the brands whose products a retailer already stocks — is the most profitable revenue line invented in retail this century. It is close to pure margin, it grows with traffic rather than with capital, and Amazon and Walmart have built multi-billion-dollar businesses on it.

Costco has been late and small. Its network, Costco Velocity, is estimated at roughly $500 million of annual revenue and a fraction of a percent of the market¹. In 2026 it began building out: a "Reserved Display" format described by the company as personalised "digital end caps," placed on top pages of Costco.com including the homepage and search results, built on the Velocity stack with Moloco supplying the AI, with a beta in the second calendar quarter of 2026 and a wider rollout later in the year².

The financial prize is easy to size and hard to dismiss. Costco's merchandise operation earned $5,060 million in fiscal 2025³. An advertising business of even $1.5 billion at typical retail-media margins would be a meaningful fraction of that, arriving with no cost of goods, no freight and no shrink — which is to say it would look exactly like a second membership fee.

The reason Costco has not sprinted at it is the reason to take the business seriously as a moat company. A member pays $65 a year for the belief that Costco has already chosen the best version of each item at the lowest price it can manage. Paid placement is, definitionally, a company being paid to change what a member sees. Do too much of it and the fee gets harder to justify — which is a genuine strategic constraint that Amazon, whose customers pay for delivery rather than for curation, simply does not face.

There will be no separate line to read; Costco reports it inside warehouse ancillary and other businesses. What will show is the gross margin commentary, which has already credited "our co-branded credit card program" and, in the third quarter of fiscal 2026, "pharmacy and e-commerce"⁴ for offsetting weakness in core merchandise. Watch for advertising to be named there. That will be the moment the trade-off becomes real.