The retail industry has traditionally shied away from digital marketing, mainly driving traffic through mail advertising and location advantage. However, we are beginning to see that shift with larger retailers, leveraging their position as the epicentre of day-to-day consumerism to build out media or advertising arms. You see, retailers have privy to enormous amounts of data - in the form of consumer shopping habits, budgets, and preferences. Just as Walmart and Kroger have a specific loyal audience base, so does Wholefoods. The first company to make a breakthrough in this industry was e-commerce retailer, Amazon, which acquired the brick-and-mortar-based grocery chain, Wholefoods Market in 2017. Amazon revolutionized what is today called "retail media advertising."

In this article, we will get into precisely what retail media advertising is and how it's changing how retailers do business.

Why are Retailers Becoming Media Companies?

Traditionally, retailers paid big bucks for advertisement placements in locations or high-traffic publications, paying a fee to a media liaison. But soon after the e-commerce revolution took off, retailers like Amazon and Walmart realized that they could run advertising programs through their own valuable first-party data, rather than pay for third-party data from expensive agencies. They knew that they had enough foot traffic going in their physical stores and to their online storefronts, to make a good case to start selling "digital" real estate to brands looking for advertisement opportunities.

Retail Media Ads vs Paid Ads

Retail media ads go directly on the retailer's e-commerce site. Other paid ads refer to the ads you pay for on social media networks or Google Search. Although both can drive significant value, retail ads possess something that paid ads lack: relevancy.

With retail ads, you can display ads to people who have routinely bought that same product or show them a competitor brand for the same product. If Sally goes into the store to buy detergent approximately once a month, every first of the month, she might be shown a laundry detergent ad. Ads can also be shown according to what the customer searches for on the retail website. Instead of pushing irrelevant information to the customer, the customer is guided toward their final purchase through helpful reminders.

Paid ads, on the contrary, can sometimes be perceived as irrelevant or even annoying. Ad managers can use demographic and interest targeting on platforms like Facebook; however, this can be too broad. For example, Facebook might assume because a woman who's interested in lip balm, will also like ads from Sephora. However, that individual may have no interest in purchasing makeup products.

For a Newly "Minted" Industry, how much is Retail Media Worth?

Retail media theoretically took off in 2012 when Amazon launched their retail media Network. Last year, the total spent on digital retail media was $31.06 billion. According to eMarket, that growth is projected to reach $61.15 billion in 2024, putting retail ads at nearly 20% of digital ad spending. As a relatively new industry, only a few prominent contenders are in the game alongside Amazon.



But this is expected to change as newcomers enter the retail media field. The biggest players are Amazon, eBay, Etsy, Instacart, and Walmart, with Instacart making significant headways last year with a +44.5% increase in growth. Amazon's recent earning reports revealed that their revenue from retail ads was higher than that of Prime memberships fees, audiobooks, and digital music combined. Walmart, the largest retailer in the world, reported that its ad revenues increased by 30% in the recent quarter, attributed to the expansion of its retail media network, Walmart Connect. It's on track to generate $2.2 billion in revenues from advertising just in the U.S. alone.

Retailers get Creative with Offline Channel Marketing

In the physical world, retailers are finding creative ways to convert physical spaces into advertising hotspots they can sell to marketers. Such examples include video displays, in-store radio stations, and attractive displays. Tesco recently installed 500 smart screens at their entrances through a partnership with JCDecaux. Because brands may only reach about 20% of the total addressable market on Walmart or Target, Retail Media 3.0 will target the expansion into the offsite ecosystem and tie that in with how to meet brand objectives. Brands can collaborate with retailers to run different media activations—including, but not limited to, connected T.V., video, display, and mobile- to target the other 80%.

On top of the conventional "razor-sharp margins," retailers face additional pressure from inflation and supply chain disruption this year. Retail advertising thus provides a great source of margin cushioning. For marketers, the results are favourable too. According to the Adweek Retail Media Report Q3, nearly three-quarters of retail media marketers reported either achieving or exceeding their retail media expectations last year. Only 2.4% of respondents said they had poor results.

Limitations of Retail Media Advertising

Retail media advertising primarily benefits retailers who demonstrate the sheer volume of customers on their e-commerce sites. However, this excludes many of the smaller retailers. Smaller and medium-sized retailers can turn to offsite options to reach a larger audience and drive website traffic. Offsite and onsite advertising reinforce each other quite well, and both are essential to establish a mature retail media network.

Amazon holds the most outstanding market share of retail media, with an estimated 76.2% ad spending on their U.S. e-commerce channel (2021). Meanwhile, digital marketplaces like eBay, Etsy, and Instacart have flourishing retail media businesses, while brick-and-mortar leaders like Walmart, Target, The Home Depot, Best Buy, Walgreens, and CVS are also entering the space. Recent entrants include DoorDash, Gopuff, and Uber.

Good News for Customers

The end user of retail media is positioned to benefit greatly from advancements. Customers will be shown more relevant ads that help them make regular purchasing decisions and will be met with a greater browsing experience and user interface on the e-commerce sites they're visiting. Ideally, customers will also have a better and more seamless in-store experience.

Brands can leverage inventory data to place customers in front of items that are in stock. With the additional revenue from ads, retailers have more leeway to lower prices, especially during economic hardship. Brands also can stay connected with consumers at every part of their omni journey.

Conclusion

In today's digital transformation age, retailers quickly realize they have more to offer than just their products. They have the potential to become media companies, leveraging their position as gatekeepers of consumer data and preferences.

Retail media advertising is not just a new way for retailers to monetize their digital real estate but also a powerful tool for brands to reach their target audiences. Unlike traditional advertising methods that rely on third-party data, retail media advertising allows brands to use first-party data to target customers who have already shown interest in their products.

This level of relevancy and precision in targeting can lead to higher conversion rates and more loyal customers. It's a win-win situation for both retailers and brands.

Moreover, as the retail industry continues to face inflation and supply chain disruptions, advertising revenue provides a valuable source of margin cushioning for retailers. This makes retail media advertising even more attractive for retailers looking to diversify their revenue streams and strengthen their bottom line.

However, the rise of retail media advertising does come with its own set of limitations. The high barriers to entry and the dominance of established players such as Amazon can make it difficult for smaller retailers to compete. Nevertheless, offsite and onsite advertising can work in tandem to create a more mature retail media network, benefiting retailers and brands alike.

In conclusion, retailers becoming media companies is a natural progression in the digital age. By leveraging their vast amount of consumer data and real estate, retailers are creating a new advertising paradigm that benefits both themselves and their brand partners. As this industry continues to grow, it will be interesting to see how retailers innovate and evolve to stay ahead of the game.

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Gray, A. (2022, November 23). How retailers are reshaping the advertising industry . Subscribe to read | Financial Times. Retrieved March 6, 2023, from https://www.ft.com/content/3224a3f6-cf02-4e1f-95f...

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