Introduction
A large retailer owns three things that brands, members and banks will pay for, none of which sits on its shelves. It owns shopper traffic and purchase data, which brands buy as advertising. It owns customer loyalty, which some retailers charge for through paid memberships. And it owns customer relationships that card issuers pay to reach through store and co-brand credit cards. Each produces income with little cost of goods attached, so a stream worth a percentage point or two of sales can be worth far more of operating profit.
The numbers are now large. Walmart's global advertising business grew 46% to nearly $6.4 billion in its fiscal year to January 2026, including its VIZIO television business, according to Walmart's fourth-quarter results release. This article explains how each of the three streams works and how they change the way bankers value retailers.
Retail Media Networks
Brands have always paid retailers for visibility, through promotional allowances, end-of-aisle displays and circulars. Digital retail turned that into an advertising business.
- Retail Media Network
A retailer's advertising business, which sells brands ads on its website and app, in its stores and across other sites using the retailer's shopper data. Brands pay because they can target shoppers close to the moment of purchase and measure which ads led to sales.
The core product is the sponsored product: a brand pays to appear higher in search results or on product pages on the retailer's site, much as advertisers pay for search ads. Networks add display ads, video, in-store screens and offsite advertising, in which the retailer's data is used to target its shoppers on other websites and streaming services. The selling point is closed-loop measurement: because the retailer sees both the ad and the purchase, it can show a brand how many sales its spending produced, which most other media cannot.
Why retail media is so profitable
Advertising carries far higher margins than selling goods because there is no product to buy and little incremental cost per ad. That makes the profit effect large even when the revenue is small.
The economics have limits. Part of the money brands spend on retail media comes out of budgets they once spent on trade spend and promotions with the same retailer, so not every dollar is new. Networks also need scale: brands want to buy audiences across many retailers at once, which favors the largest networks.
Building a network or joining one
Large retailers usually build their own networks, with in-house sales teams, ad technology and data science, and some buy media assets to extend their reach, as Walmart did with VIZIO's television platform. Smaller and mid-sized retailers often partner with specialist ad-technology firms that run the network for them in exchange for a share of revenue, or join groups of retailers that sell their audiences together. The choice trades control and margin against speed and reach, and it affects valuation: a retailer that owns its ad technology and data keeps more of the economics, while a partnered network is cheaper to launch but earns less per dollar of ad spending.
How retail advertising fits into the wider digital ad market is covered from the platform side in the TMT guide's digital advertising ecosystem.
Loyalty Programs and Paid Memberships
Loyalty programs come in two broad forms, and they earn money in different ways: one through customer data, the other through fees.
Free loyalty programs
Free loyalty programs reward shoppers with points, discounts or personalized offers in exchange for identifying themselves at each purchase. The retailer pays for the rewards but gains customer data: who buys what, how often and in response to which offers. That data feeds personalized marketing and the retail media network, so loyalty and advertising reinforce each other. The cost is real, though: rewards are a discount by another name, and a program that gives away more than it earns in extra visits and data is a margin leak.
Paid memberships
Paid memberships charge a fee for benefits such as lower prices, free delivery or access to the store itself. Warehouse clubs are the clearest case: Costco's membership fees came to $5.32 billion in its fiscal year to August 2025, a stream with almost no cost attached, as discussed in how retailers make money: the retail P&L. Mass merchants and online sellers have added memberships that bundle delivery and other perks.
Paid memberships also change shopper behavior. A member who has paid upfront tends to concentrate spending with that retailer to get value from the fee, which lifts traffic and sales per customer. The format built on this logic is covered in value retail: clubs, dollar stores and off-price.
Store and Co-Brand Credit Cards
Many retailers offer credit cards in partnership with a bank. A private-label card can be used only at the retailer; a co-brand card carries a payment network's logo and can be used anywhere.
- Co-Brand Credit Card
A credit card issued by a bank in partnership with a retailer or other brand, carrying both the partner's name and a payment network such as Visa or Mastercard. The bank funds and owns the card balances, while the retailer markets the card and receives a share of the program's economics.
In most programs the bank owns the receivables, funds the loans and takes the credit risk, while the retailer markets the card to its shoppers and may service the accounts. The retailer is paid through a profit share tied to the program's performance and fees for services. Macy's shows how material the income can be: its credit card revenues, net of program costs, were $669 million in its 2025 fiscal year, up from $537 million the year before, under an agreement with Citibank that runs to March 2030 with a possible three-year renewal, according to Macy's annual report.
The risks in card income
Card income depends on factors the retailer does not fully control, which makes it the most cyclical of the three streams. When credit losses rise, the bank's profit falls and so does the retailer's share. Regulation of fees and interest charges can cut program profitability, and renewal negotiations can shift the split between bank and retailer. The bank's side of these programs is covered in the FIG guide's consumer finance: credit cards, personal and auto lending.
For a retailer, the card also has strategic value beyond the profit share. Cardholders tend to visit more often and spend more, and card data adds to the picture built by loyalty programs. A retailer that sells or renegotiates its card program is therefore deciding about customer relationships as well as a financial stream.
How These Income Streams Change Retail Value
Advertising, memberships and card income share three features: high margins, recurring revenue and a link to the size and engagement of the retailer's customer base. They differ in what drives them and what can go wrong.
| Stream | Who pays | Main driver | Main risk |
|---|---|---|---|
| Retail media | Brands and sellers | Traffic, data and measurement | Shift of existing trade funds, competition from larger networks |
| Paid membership | Shoppers | Value of member benefits | Falling renewal rates, resistance to fee increases |
| Store and co-brand cards | Partner bank | Card usage and credit performance | Rising credit losses, regulation, renewal terms |
Together these streams shift a retailer's profit mix away from the thin margins of selling goods, which can justify a higher valuation multiple if investors believe the income will last. How margin mix and growth feed into multiples is covered in what drives consumer valuation multiples.
When analyzing these streams, bankers focus on a short list of questions:
- Size and growth of each stream, and its share of operating profit rather than of sales
- Incrementality: how much advertising is new spending rather than shifted trade funds
- Renewal rates and fee changes for memberships
- Card program terms: profit share, expiry date, renewal rights and sensitivity to credit losses
- Data assets: how many shoppers are identified and how the data is used across streams
For a coverage banker, these income lines change how a retailer should be presented. A chain whose profit increasingly comes from advertising, memberships and cards is selling access to its customers as much as it sells goods, and the banker who can show how durable that access is will shape both the valuation and the buyer universe.
