Retail Media is on the rise in a multitude of ways as the media business model merges with the retail business model. Wait, what?!
Spending on retail media – or ad networks owned by retailers – accounts for about 21% of global digital ad spend, or a little over $160 Billion
Amazon Ads is the big dog of the space, accounting for more than 75% of retail media spend, while Walmart has about single-digits market share (7.5%) with Walmart Connect; Target’s solution Target Roundel rounds out the top 3 in terms of dollars spent
Notorious brick-and-mortar retailers like Macy’s, Bloomingdales, Nordstroms, Saks, and a host of others have also entered the retail media arena, offering targeted advertising to brands using first-party (1P) data from their customer segments
And on a category-by-category basis, there are major players for everyday staples down to small niches: home improvement (Home Depot – Orange Apron Media), grocery (Kroger), electronics (Best Buy), pets (Chewy.com) and many more
Outside of the US market, Europe has a plethora of its own retail media players in the same categories; thus brands can tap into a global network of participants for their advertising campaigns
For their own websites, these retailers have their own “on-site retail media” where they serve up their own inventory; some are custom built in-house and self-serve (Orange Apron Media), many use a technology stack to be self-serve (like Amazon Retail Ad Service), and some are simply run by an in-house team of media experts (like Nordstrom Media Network)
This is coupled with a network of partner publishers who comprise “off-site retail media,” giving brands the ability to scale campaigns beyond retailer’s own websites, which they obviously don’t want to be saturated with ads for the sake of their customers’ experience
In its complex and sophisticated totality, Retail Media spending continues to grow exponentially YoY (year over year) and cut into the total combined market share of Google and Meta
Retailers see huge margins (70-90%) for on-site advertising and material margins (20 – 40%) for off-site advertising, which can add a huge amount to their bottom line
Advertising now accounts for almost a third of Walmart’s $6.7 billion operating income.
While the retail business model has been under significant pressure – single-digit profit margins – the media business model is growing exponentially and causing some companies to reorient their entire strategy around emergent media + adtech business models.
The Retail Media Ecosystem
Before going deeper, let’s try to clearly define what Retail Media is and how it works.
The major difference between Search/Social Ads and Retail Media Ads, is that of third-party data (3P) and first-party data (1P), respectively.
Tech giants like Google (Search) and Meta (Social) have infamously relied on ‘cookies’ and other third-party (3P) aggregation tactics to track user behavior, and then use that data in buckets to enable advertisers to target customers – they do not have a direct customer relationship.
Retailers, on the other hand, deal directly with their customers and gain first-party data (1P) from website actions, subscriptions, transactions, etc. They essentially own this data and can use that to enable advertisers to target segments with more precision.
In the Retail Media ecosystem, the retailer can earn money on both sides of the transaction:
Ad Revenue (High Margin) – from the sale of the ad unit via either on-site or off-site media to advertisers (brands)
Sales Revenue (Low Margin) – from the sale of the good to the customer directly, as the margin they make between the customer’s purchase and the cost of the inventory, etc.
As of late 2023, 42% of brands work with between 4 – 6 retail media players, while 40% work with between 1 – 3. Various gaps exist in the delivery, measurement, and overall value from one player to another.
To service these gaps and reduce the complexity, there are platforms that aggregate the various offerings and measurement data into their own platforms:
DSPs (Demand Side Platforms) – enable brands to have their ad inventory listed on various Retail Media channels (on-site and off-site)
SSPs (Supply Side Platforms) – give retailers the tech stack to develop their own bespoke advertising models on their own websites (on-site)
Publishers – such as major media organizations or streaming platforms, connect into the SSPs as part of the off-site media offerings to their viewers
Thus, of the $160 Billion or so expected to flow through Retail Media Ads in 2025, there is an opportunity for many retailers and the publishing counterparts to reinvent their respective business models, which is why Retail Media is shaping up to be a huge market.
Retail Media Use Cases
Since consumer brands themselves are the major end customers of Retail Media, it typically manifests in the following ways on a retailer’s or publisher’s website:
Sponsored Products
On-site Display
Off-site Display
When a consumer is scrolling through a retailer’s website (or app), the ads themselves may be almost indistinguishable from the core customer experience, as many retail media teams go out of their way to make the ads blend in.
With the rapid evolution of the retail media model, the way campaigns can be constructed goes beyond just targeting a certain customer segment and serving them an ad:
Digital coupons
Loyalty & rewards programs
Product Launches
Market leaders Walmart and Target are now building out influencer and creator offerings, as the demand for new ways to connect with audiences heats up.
Beyond that, the customers themselves are looking for new ‘experiences;’ at its core, this is retail that we are talking about, and consumers love immersive and rich customer experiences. The last thing the average consumer wants is to be inundated with more display ads or clickbait like they are on many other platforms.
The quality of the end-user experience drives the flywheel; the better the experience for the customer, the more demand for ads there is, the more everyone in the retail media ecosystem profits.
Retail Media, Shoppable Video & Connected TV
Now we come to the point where the intersection of Retail Media & Video Commerce happens; framed within the context of the “premium internet” by The Trade Desk, the breadth of the opportunity starts to become much clearer.
Contextually, we know that consumers much prefer to spend time online where there is premium content. Time on social media (~2.5 hours per day) has stagnated relative to time on more premium destinations such as podcasts, streaming, etc.
Similarly, average daily CTV viewership in the U.S. doubled from 58 to 115 minutes over the same period, according to GlobalWebIndex and Nielsen.
Yet a significant gap exists between the flow of those advertising dollars for Social and Retail Media, which in part can be attributed to the customer experience. For all its faults, social media offers the video-first experience that consumers crave.
Video Commerce itself is a technology oriented towards D2C eCommerce brands and retailers.
In its current state – with all the competition – the retail media marketplace requires investment and innovation in the core, end-user experience. That means video, and more specifically shoppable video.
To keep revenue up, he expects retailers to invest in new types of content experiences and ad technology next year and make organizational changes.
Thus, Video Commerce technology plays a direct role in the relationship between the two sides of the retailer business model, commerce (sales) and media (ads).
A retailer looking at their merchandise ‘inventory’ on a PDP (Product Description Page) or Category page can begin experimenting with Video Commerce technology, with the expectation of several potential benefits for the commerce side of the business.
Simultaneously, there is a strategic imperative to improve their ‘pitch’ to the market on the media side of the business. Retail Media will inevitably evolve away from static display images and sponsored products, to more dynamic video-driven experiences.
Beyond new names and brand awareness plays, retailers are spending more time tightening up their pitches in measurement, off-site capabilities and partnerships
Examples of this intersection – between Video Commerce + Retail Media – can already be seen in several niches of the market, but it is still very nascent. Closing gaps in attribution, measurement, and overall returns will take time. But the digital infrastructure and pipelines are being built, the future of advertising is taking form in real-time.
The Future of Ads, Live Shopping & Retail Media
We have seen the rise of short-form, UGC (User-Generated Content) as a new form of advertising on social media. Instagram, TikTok, and other social platforms leverage catchy content to reach certain audiences; but as we know, these users tend to skew younger and are mainly being targeted for impulse purchases with a lower AOV (Average Order Value).
“We’ve seen this playbook with search. We’ve seen it with social. We’re writing it again for retail media,” said Trade School’s Mayo.
If we think back to the glory days of HSN/QVC, we had people hawking jewellery, and a range of other higher-priced goods. It wasn’t $Billions of dollars of lipstick, like we have seen in China, but more sophisticated goods across an array of categories – beauty, fashion, home improvement, hard goods, etc.
Undoubtedly, ‘Live Shopping’ is a type of content that has scope within the future of Retail Media on Connected TV. The major category players are already positioning themselves around influencers + content creators, as was mentioned above, and those same players are driving the demand for this new form of media at scale.
Walmart, Target, Kroger, Instacart, The Home Depot and others are fueling a sector that’s growing at twice the pace of social media (16.3% vs. 8.7% in 2023, according to the IAB) and is expected to overtake linear TV over the next couple of years.
How long until we start to see this type of content ‘on the TV,’ delivered via streaming platforms?
The vision is there and the groundwork is being laid.
When all the pieces come together, Video Commerce + Retail Media facilitates a more ‘experiential’ type of advertising for the modern era; we aren’t going to be buying sandwich makers and brooms on TV, we will be buying the products that match our lifestyles and aspirations.
