March 17, 2022
Ad Tech

The Evolution of Retail Media

Henry Kim

Retail media is more than one of this year’s hottest buzzwords: it’s the evolution of advertising.  Analysts at eMarketer have proclaimed 2022 “the Year of Retail Media.” Media Post says “retail networks need to be in your plan” this year, and Harvard Business Review describes retail media networks as “a new marketing option” that connects the customer journey to a full-growth agenda, scaling data and technology in meaningful ways. Forbes called retail media “one of the most important trends of 2022,” but added that the “rudimentary” retail media of today needs to evolve in order to maintain momentum.

But let’s back up. What exactly is retail media… and how did we get here?

What is Retail Media?

In the past, “retail media” simply meant marketing within the retail environment, close to the point of purchase. Traditional techniques included in-store ads, sampling, loyalty cards, infomercial ads, and coupons. In the Age of the Internet, retail media expanded to include ad placement on e-commerce websites where goods and services were sold.

Today, the term “retail media network” generally describes advertising space on an e-commerce website, app, or social platform. Retailers may own these channels directly—as Walmart, Target, or Kroger’s—or they may be operated by independent media agencies or by companies like Amazon and Instacart. Some retail media networks connect online channels only, while custom-built platforms may include in-store data and experience touchpoints, from retail app and loyalty program engagement, to coupon redemption and in-store purchases.

Why Does Retail Media Matter?

Retail media matters to everyone:

  • Retailers: Nipping at the heels of Amazon’s decade of runaway success, big brick-and-mortar retailers are beginning to launch their own retail media networks. Smaller retailers may realize—that with the right tech partner—they can compete with both larger retailers and popular e-commerce giants by leveraging their audiences of loyal shoppers and vast amounts of purchase data into new (and highly profitable) revenue streams.
  • Brands: With the imminent death of the third party cookie, brands need to shift their online advertising budgets to omnichannel retail media networks that provide a clearer picture of individual shoppers’ purchase  journeys. Brands can get their products in front of audiences—closer to where purchases happen—and collect first party data to create personalized ads that convert.
  • Consumers: Retail media networks enable the delivery of personalized, timely content to shoppers, whether they’re browsing on-platform or off-platform, whether they’re in the early discovery stage of researching online, or on the cusp of buying while exploring the aisles with a smartphone in hand. Consumers find retail media a convenient, straightforward shopping experience, especially when they see ads that are relevant to their purchasing behavior and interests.

Without a doubt, retail media is the future of e-commerce and retail growth. All signs point toward this form of omnichannel advertising that is long-term reputation and revenue for retailers, informative and measurable for brands, and relevant and convenient for shoppers.

2022 Retail Media Statistics

The numbers don’t lie. We can get a sense of retail media’s growing significance by considering the trends.

E-commerce is growing, prompting marketers and advertisers to shift their focus to retail websites and mobile.

  • 230.5M: The number of digital shoppers in the US in 2021.
  • 209.6M: The number of digital shoppers in the US in 2016.

Though e-commerce is on the rise, people still prefer the in-store experience.

  • 80% of purchases still take place in brick-and-mortar stores.
  • 61% of shoppers prefer to buy from a brand that also has a physical location.

Bridging in-store with digital (particularly mobile!) is the only way to own the customer journey and make sure no opportunity to connect gets missed.

  • 63% of consumers prefer buying from companies whose mobile sites or apps offer them relevant product recommendations.
  • 50% of people who visited stores used online search to look up location info.
  • 43% of shoppers use their phones in stores to look for deals or coupons.

Amazon introduced a new way to reach and engage online shoppers—and it really paid off.

  • Amazon launched the first online retail media network in 2012.
  • Amazon revealed their annual ad business will top $30 Billion this year.

Newer players are seeing big revenue gains from their own retail media networks.

  • 50-70%: The average retailer profit margin from its owned retail media network.
  • $100M: Annual revenue experienced by 25% of retailers with retail media networks.
  • $1.55B: Walmart’s US digital revenue in 2021, up 53.5% from 2020.
  • 240%: Walmart’s ad business revenue growth over two years.
  • $300M: Instacart’s US digital media ad revenue in 2021.
  • $1B: Instacart’s retail media revenue prediction for 2022.

Retail media’s popularity is skyrocketing with no signs of slowing down.

  • $13.39B: US retail media ad spending in 2019.
  • $20.52B: US retail media ad spending in 2020.
  • $31.49B: US retail media ad spending in 2021.
  • $41.37B: US retail media ad spending predicted in 2022.
  • $52.21B: US retail media ad spending predicted in 2023.
  • $100B: Retail media ad spending worldwide forecast for 2022.

How Has Retail Media Changed Over the Years?

The general concept of retail media—advertising direct-to-consumer, wherever they are—is nothing new. However, the nature of the retail media landscape has evolved along with technology.

A Timeline of Retail Media’s Evolution: How’d We Get Here?

Print/Radio/TV (1960-2000)

At one time, advertisers were limited to one-way marketing channels like newspaper spreads, TV and radio commercials, or paper coupons delivered by mail. Though somewhat costly, advertisers found they could reach vast populations with predictable frequency. The average advertiser spent just under $50M per year to pump their brand messages out to the masses.

While the nature of advertising was flexible—an underperforming ad could easily be swapped for a more suitable alternative—these early retail ads lacked proximity to the point of purchase and relied heavily on broad audience appeal.

The impact of a particular ad and the desires of the audience were difficult data points to measure. If advertisers were lucky, they could gather data to inform their campaigns through Nielsen phone surveys. But for the most part, the best marketers could hope for was hitting the right person at the right time with the right message by chance.

Digital Advertising (2000-2020)

The internet and widespread use of personal computers through the 1990s ushered in a new era of retail media advertising by the 2000s. New types of digital advertising products included paid, owned, and earned media. From banner, display, and native ads to paid search, video marketing, email, and social, there was no shortage of ways for advertisers to connect with audiences online. The reach was vast and the cost was low.

For the first time, advertisers were able to pinpoint exactly who was seeing and engaging with their ads, what other websites these people browsed, and who was converting from an ad to an online sale. The internet combined with new data analytics tools brought a profound capacity to gather billions of data points on users, increasing the ability to target and personalize search experiences, drive conversions, and drive large returns on investment. At the same time, mobile apps and text were becoming increasingly important channels for retail media consumption, with 20.2% of the US population owning a smartphone in 2010, compared to 72.7% in 2020.

With that said, online retail media brought its own set of challenges. Competition was fierce in this new medium, causing a year-over-year race to the bottom. As the global internet advertising expenditure increased—nearly doubling in less than five years from $156B in 2015 to $299B in 2019—ad efficiency went down. With the average click-through rate on Google display ads an abysmal 0.46% in 2018 and ad fraud up 21% the following year, Google conceded it was likely that up to 56% of its display ads are never seen by human eyes.

As it turns out, consumers don’t appreciate the intrusive nature of pop-up ads or having their every move tracked by anonymous advertisers. This widespread sentiment led to ad-blockers, increased privacy regulations, and the eventual death of third-party cookies. The answer to providing more security, relevance, and personalization came at just the right time.

Retail Media Networks (2012-2022)

Amazon—often credited with launching the first modern retail media network—provides an easy framework for understanding how modern retail media works. Users can login, access their shopping lists, and begin their orders online. Later, they can pick up where they left off by logging into the Amazon mobile app. All the while, Amazon’s complex search algorithms and sponsored ads deliver personalized results to shoppers. Their business model allows for retailers and brands alike to use Amazon as an advertising channel. It wasn’t long before social media platforms began harnessing the power of their audiences for retail media advertising.  

Retailers have started to recognize the limitations of using others’ online retail media platforms, as well as the rewards of building their own advertising channels as a revenue stream. Retailers can create a platform like Amazon, but own the advertising space, the brand relationships, and the customer experience. A shopper accessing retail media through a retailer’s app can access shopping lists, use loyalty program points and coupons, view video ads and lookbooks for inspiration, read detailed product descriptions, order out-of-stock items for dropship, or even scan and pay for items in-store. All these interactions—as well as the interactions that happen online—are captured to inform ultra-personalized advertising campaigns. This shopper-centric future of retail is relevant and convenient for consumers, but also effective at building loyalty and revenue for businesses.

The Future of Retail Media is Omnichannel

In 2020, e-commerce sales increased 45.5% in response to the global pandemic. Because of this, retail shifted heavily to digital retail media as a way of engaging high-intent shoppers close to the point of purchase. Yet, retailers with physical presence understood that speaking to  in-person shoppers was still the most effective way to cultivate loyalty and increase basket size—so they innovated with curbside pickup and home delivery services.

The pandemic revealed that consumers still ultimately place their trust in retailers and appreciate the experience retailers provide. Despite increased online activity, 80% of purchases still happen in brick-and-mortar stores.  

The pandemic accelerated many of the advertising trends of the past decade:

  • Consumer expectations for a seamless and personalized omnichannel experience
  • Increased emphasis on first-party in-store data to inform and validate ad campaigns
  • The rise of mobile-first marketing to meet shoppers where they’re at.

In-store, 82% of shoppers hop on their phones to look up coupons, scan items, make shopping lists, and gain inspiration before purchasing. Speaking to consumers who are in-aisle, on the verge of buying, represents the biggest opportunity for advertisers to increase conversions, basket size, and loyalty. Retailers with great websites and in-app experiences improve their operational efficiency and capture better analytics while offering a more consistent customer experience.

Why Evolve?

Digital transformation is necessary for retail businesses to survive and thrive. The downfall of Toys R Us serves as a painful reminder of what happens when retailers outsource their e-commerce operations to a self-serving partner like Amazon, rather than building their own infrastructure in-house. Similarly, delivery partners like Instacart offer retail media space, but keep the data for themselves and control the customer experience. The only way to truly compete with e-commerce giants and large retail media players is to develop a self-sufficient, independently owned omnichannel retail media network that connects the shopper experience from start to finish.

We’re at a crossroads. Big names like Target, Home Depot, and Kroger’s are just now launching their retail media networks. Rapid retail media expansion across dollar stores, craft shops, mom and pop grocers, fashion outlets, sporting goods sellers, and other sectors can be expected in the coming years as more and more advertisers learn how to leverage their audiences and data in a profitable way.

Obstacles to Retail Media Evolution

For the most part, retailers don’t choose to rely on Amazon or Instacart because they feel it’s 100% in their best interest to do so. Third-party vendors offer a temporary compromise—a way of getting up and running quickly, with tradeoffs in autonomy, data, quality control, reach, and profitability.

Retailers will need the software and technological infrastructure to compete. Most retailers have e-commerce sites, but not all have mobile apps, let alone mobile apps that connect to their e-commerce sites and what they purchase in-store. Many retailers are still publishing physical circulars and lack the internal resources to fully digitize and populate their apps with enhanced product descriptions. They may not have the capacity to synchronize data across all channels, including their back-end inventory and point of sale systems. In other words, retailers need the right partner to help them get started.

Looking to Evolve?

Swiftly has the platform and solutions to help retailers compete and win in the market. We provide the tools and data you need for a completely integrated retail media solution that targets both in-store and e-commerce purchases at the customer level. Even better, we can help get your omnichannel ad network up and running quickly—without needing to hire a team. Contact us today to learn more about how Swiftly can help you thrive and grow in today’s digital world.