Yahoo and Costco partnership leverages first-party data for advertisers

Yahoo DSP and Costco this month announced a strategic partnership that enables advertisers to leverage Costco's first-party data. This collaboration represents a significant development in the retail media landscape, particularly as privacy regulations continue to reshape digital advertising.

The partnership announced on April 8, 2025, positions Costco to catch up with competitors who have already established retail media networks. According to Beth Gross, Senior Director of Global Commerce Media at Yahoo DSP, "We're excited to partner with Costco to empower Yahoo DSP advertisers by leveraging Costco's rich first-party data to deliver meaningful, privacy-centric ad experiences."

This collaboration arrives as Costco undergoes leadership changes. In October 2023, the company named Ron Vachris as CEO, succeeding Craig Jelinek effective January 1, 2024. Vachris, who began his career as a forklift driver more than four decades ago, has since held various senior executive positions within the company.

During Costco's recent earnings call, CEO Ron Vachris acknowledged the company's advertising efforts, stating they have "a significant program now with retail media, and we see some great upside potential." This statement indicates the strategic importance of advertising to Costco's future revenue streams.

Technical capabilities and infrastructure

The partnership offers several technical capabilities designed to help advertisers reach Costco's substantial membership base. These include:

1. Costco Audiences: Advertisers can target high-value Costco members across segments including Frequent Shoppers, Tenured Shoppers, and Category Shoppers. This segmentation utilizes Costco's extensive first-party data from its 80+ million US cardholders.
2. Identity Integration: Costco's first-party data integrates with Yahoo ConnectID, creating what the companies describe as a "future-proof identity" solution. This integration enables targeted and measurable campaigns in what Yahoo terms an "identity-constrained world."
3. Omnichannel Capabilities: The partnership allows brands to engage Costco members across multiple digital channels, creating cohesive advertising experiences regardless of where members spend their time online.
4. Measurement Infrastructure: Advertisers gain access to advanced measurement tools that provide deeper insights into campaign performance and sales impact specifically within Costco audience segments.

Mark Williamson, AVP of retail media at Costco, who joined the company in September 2023 in this newly created position, explained the data advantages: "Not only will we help you reach a Costco member, we will help you reach the right members in the right context based on past behavior."

The financial opportunity for Costco

The financial implications appear substantial. BMO Capital Markets estimates that Costco generated approximately $225 million in digital advertising revenue last year—significantly less than competitors like Kroger, which reportedly earned about $910 million during the same period.

Williamson acknowledged this gap, noting that "it's entirely possible to quadruple or more the size of our [media] revenue today, just by operating differently, by unlocking the power of the data that we have."

Costco's retail media ambitions face certain constraints, particularly its limited product assortment compared to other retailers. Williamson identified this as "the biggest constraint to our business today," potentially limiting the number of advertisers interested in the platform.

Industry analysts view Costco's entry into retail media as potentially lucrative. Kelly Bania, a BMO Capital Markets analyst, characterized Costco's current advertising revenue as "really, really, really small compared to their size." Similarly, Mike Feldman, SVP and global head of retail media at VaynerMedia, stated, "I believe they are leaving significant revenue on the table."

Technical implementation and data usage

What distinguishes Costco's approach is its comprehensive membership data. Unlike many retailers, Costco requires membership cards for all purchases, enabling the company to tie individual transactions to specific households, both in-store and online.

This transactional data creates significant targeting opportunities. Williamson provided an example: "A brand that sells baby products would likely prefer to advertise in front of customers who buy baby products."

The technical infrastructure for this targeted advertising is still being developed. Costco is currently conducting beta tests using its audience data to target users on external websites, with plans to eventually implement targeting on its own e-commerce platform. The company is also evaluating potential ad-tech vendors to support this expansion.

The broader retail media landscape

Costco's move comes amid explosive growth in retail media. Industry forecasts project the retail media sector to reach $166 billion by 2025, representing approximately 20% of all digital media spend this year, according to eMarketer data.

The retail media space has become increasingly fragmented as more companies launch advertising networks. Major retailers including Target, Walmart, Sam's Club, Best Buy, and Kroger have established significant advertising operations. Non-retail companies such as Uber, Marriott, and Chase have also developed their own advertising networks.

This proliferation occurs as privacy regulations and platform changes from companies like Google and Apple make cross-platform targeting and measurement more challenging. Retailers with first-party transactional data are positioned to offer valuable targeting capabilities that circumvent some of these limitations.

Revenue allocation and business strategy

Costco plans to reinvest profits from its advertising business to benefit customers. According to Williamson, these revenues could help offset shipping costs or maintain the retailer's famous $4.99 rotisserie chicken price point.

The company already generates some advertising revenue through its Costco Connection magazine and basic contextual website advertising. Ad-tech company Criteo currently manages portions of Costco's website monetization, including sponsored search and product advertisements.

Williamson suggested that Costco's delayed entry into retail media may stem from the company's traditional restraint in advertising and marketing, noting this has "created a lack of expertise in the paid media space."

Implications for marketers and advertisers

For marketers, Costco's entry into retail media offers access to a valuable customer base characterized by strong purchase power and brand loyalty. The membership model provides accurate first-party data that could enable precise targeting based on actual purchasing behavior rather than inferred interests.

The partnership with Yahoo DSP gives advertisers immediate scale and technical capabilities while Costco develops its advertising infrastructure. Advertisers will be able to activate Costco audience segments across Yahoo's premium inventory supply.

Despite not yet formally pitching to media agencies, Williamson reported significant interest: "I've never had as much incoming demand from suppliers, brands, and agencies who have just been champing at the bit and have been so curious, like, 'What's taking Costco so long?'"

Timeline

• September 2023: Mark Williamson joins Costco as AVP of retail media, filling a newly created position
• October 19, 2023: Costco names Ron Vachris as CEO, effective January 1, 2024
• January 1, 2024: Ron Vachris assumes CEO position, succeeding Craig Jelinek
• April 8, 2025: Yahoo DSP and Costco announce partnership to leverage first-party data
• June 2025: Costco reveals it is conducting beta tests using audience data for targeted advertising
• 2025 (Projected): Retail media sector expected to reach $166 billion globally