If you were wondering WTF is connected commerce, then you are not alone.
It could easily be mistaken for another buzzword that rolls multiple trends into one abstract buzzword, but it actually makes a lot of sense when you dig into it.
And that’s precisely what we will analyze below, as the catalysts are now in place thanks to the retail media boom.
Connected commerce is booming precisely because marketers are pouring more money into retail media networks
Digiday
What is Connected Commerce?
Connected commerce blends the physical and digital touchpoints in the retail world into a unified, high-touch customer experience.
In line with some of trends discussed around:
Connected commerce enables customers to navigate their physical and digital worlds seamlessly – from a commerce perspective – and enable the brands they love to meet them on that journey in a bespoke way.
Spending is ramping up too.
According to Winterberry Group, over nine in 10 (92.5%) of the 214 enterprise and middle-market leaders surveyed across the U.S. and U.K planned to increase their connected commerce spending in 2025 after already ramping up in 2024.
Digiday
The spend is a mix of marketing and trade budgets, as cross-functional teams are being designed and trained to tap into real consumer behaviors.
All this is happening as Retail Media becomes the main growth lever for a host of major retailers, big box stores, and even publishers.
Retail Business Model <> D2C Business Model
The retail business model has been under siege for the last several years resulting in compressed margins, declining profitability, and slumping share prices (for most public companies).
Concurrently, D2C (Direct to Consumer) brands have also seen their business models stress tested, with declining margins due to factors such as increased CAC (Customer Acquisition Costs) and inflated prices for inputs.
Retail business models typically see single-digit profit margins, while D2C businesses have profit margins in the 50% range. Naturally, retailers bring in inventory from multiple different retailers and drive volume through physical stores, whereas D2C is mostly online (although Nike does have its own stores).
The Nike Fall from Grace
As a specific example that illustrates how both sides work in unison, we have Nike who oustered their CEO (in Q4 ’24), the man responsible for their major D2C pivot several years ago.
What happened?
- several years ago, they shifted their entire strategy from one of brand building and relationships with their wholesale partners, a pivot towards performance marketing and cutting relationships with about half of their retail wholesalers
- as a result, gross margins stagnated, their brand value became diluted, they missed massive new market opportunities (ie. running), and their competitors ate their lunch (especially in North America)
Rewinding the clock, why did Nike initially pivot away from the model that made them the preeminent shoes and apparel brand, especially in sports?
- better brand control
- better margins
- an ‘all-in’ eCommerce move, essentially
This came during a time period where D2C brands of all sorts rose to prominence, worldwide. And in the last few years, many of those same brands have come back down to earth, and in some cases completely crashed.
As we can see below, even following the shift away from the Wholesale channel, the majority of Nike’s sales still were derived through wholesale channel.
The problem is that as they shifted away from investing and prioritizing their wholesale partners, their brand value diminished, especially in the core North American market. This in turn created inventory gluts, which forced discounting and eventually caused a lot of the downward pressure on their business, as discussed above.
“Research shows that DTC doesn’t always work the way that businesses hope it will. A 2024 study by BMO Capital Markets showed that retailers didn’t actually see an increase in revenues, margins, or other profit markers.”
CNBC
In its totality, the best proxy of the downfall is their stock price since the peak from 2021 (over $160 per share), with about a 60% fall to where it is today ($70), far more than that of their competitors like Adidas.
With the new CEO in place, they have started to reverse course by re-upping their commitment and investment into wholesale retailers such as Dick’s Sporting Goods, JDSports, Foot Locker, and others. They are shifting marketing dollars back to brand marketing around sports, part of a massive turnaround effort in strategy.
Dick’s Sporting Goods Rise to Prominence
On the flipside, we look at a retailer who has gone the complete opposite direction, Dick’s Sporting Goods in the USA. The best way to visualize the rapid ascent is by looking at their share price, at a time when retail stocks haven’t exactly been ‘in fashion.’
The company’s stock has 10X’d since the 2020 lows.
As mentioned above, Dick’s is one of Nike’s top wholesale partners, and yet the company has gone in exactly the opposite direction.
How have they achieved this?
- the company focuses on the omni-channel customer experience, offering an ‘experiential’ approach to in-store sales, which is complemented by their online eCommerce store
- they are effective at identifying ‘on-trend products,’ which in place of Nike became products like Hoka and On
- they have their own private-label brands that help drive higher-margin growth
The company continues to invest in the customer experience, with new concepts such as the House of Sport, which brings in customers across demographics, sometimes just to hang out.
From various qualitative surveys we have conducted at a number of House of Sport locations, we have found that some younger customers are simply coming to hang out. While they may not buy on every occasion, this is still a win as it demonstrates the quality of the experience, and it keeps Dick’s firmly on the radar of the consumers of the future.
Sufficient to say, the market has woken up to the value of the ‘customer experience’ across multiple touchpoints.
Going all in one direction or another for anyone in the retail space – whether retailer or brand – has proven to be unwise. This is the essence of the Connected Commerce model.
Retail Media’s Booming Business
While there are anomalies like Dick’s Sporting Goods, the majority of retailers have been on a downward slope over the last several years.
And thus, the rise of Retail Media represents a huge opportunity for retailers of all sizes, across all market segments and categories.
Much like Search and Social upended the Advertising industry in the 2000s and 2010s, respectively, Retail Media is set to change the complexion Digital Advertising once again.
Amazon (Amazon Ads) is the undisputed leader of the space with more than 75% of the market share, while Walmart (Walmart Connect) has 7.5% of the market share in second place, and Target (Target Roundel) occupies third place.
Walmart, for example, grew its media advertising business by 27% in 2024, and it represented a third of their operating income. Margins on retail media can be 70 – 90% for on-site media, and 20 – 40% for offsite media.
And while these numbers are impressive, they are providing the supply side of the retail media network. The demand itself comes from brands – or the advertiser – who often are represented by agencies.
Brands Are Creating New ‘Media Experiences’ for Customers
In sync with the rise of UGC videos and now Video Commerce, brands are realizing that they can augment their customer experience across multiple channels, from their own eCommerce site through to the displays of their in-store retail partners.
The permutations here are endless, as a Review or UGC video on Instagram (social media) could be used to feed:
- retail media ads across retail partners
- on-site merchandising content for their own site
- in-store videos with retail partners
- print media, such as a connection to the video via packaging or in-store displays
The content can and will evolve over time with the emergence of Live Commerce, from short-form Shoppable Video, to long-form Live Shopping, and eventually merging with Connected TV.
The overall retail media trend?
Premium content is at the heart of the ‘connected consumer’ experience of the future. Static images and display ads will no longer be able to compete in the future of advertising. Video is part of a booming, experiential trend, and from the perspective of video commerce, this trend has only just begun.
Premium inventory based on 1P (1st Party) data from an array of trusted retailers is where the top brand advertising dollars are shifting. Connected Commerce is piggybacking on top that trend by tapping into trade marketing dollars.
They’re [brands] organizing internally, each in their own way but the brand trend is clear; trade and shopper teams merging with retail media teams to form connected commerce teams.
Digiday
Brands have a voracious appetite for premium advertising inventory, retailers are becoming increasingly sophisticated ‘adtech’ players to meet this demand and rewire their own business models, and consumers are craving new experiences across channels.
The Retail Media Boom is the catalyst for the dawn of the Connected Commerce model. Retailers – beyond the big ones mentioned above – including: Home Depot, Macy’s, Saks, Bloomingdales, Nordstrom’s, and a host of others, have entered the Retail Media ads market, and are ready to scale it up via premium media experiences for their customers.
Connected Consumer – The Journey of the Everyday Consumer
Customers are clearly ‘omni-channel beings.’
There is no denying nowadays that most people – worldwide – virtually live on their phones. But that doesn’t mean that retailers have been phased out; in some cases, it is the opposite, as we have seen above.
An example below of that potential journey today. Naturally, there are many other possible permutations, this is just one example.
As the sophistication of retail media and connected commerce increases, the number of possible touchpoints will also increase to:
- in-store digital digital displays
- connected TV
- entirely new video commerce experiences, like live shopping
But the race to position along that journey has clearly begun for brands. As the space itself is so nascent, there is a lot of room for creativity and innovation. Smaller and medium-sized brands have just as much opportunity to capitalize on this trend as larger ones.
Overall, Connected Commerce could be mistaken for another set of bundled-up buzzwords to try and describe a series of abstract concepts, but there is a lot of depth behind this market. 2025 will likely be a year of investment, innovation, and experimentation, but the market will likely accelerate exponentially in the future.