This is the eighth in a 10-part series that examines Amazon's booming advertising business: The people driving it, the ripple effects on other companies, and what's next.
Retailers such as Macy's, Kroger, and Michaels have started their own advertising businesses as online shopping booms, realizing their first-party shopper data is a gold mine for brands looking to reach consumers as third-party targeting cookies are phased out.
Their businesses pale in comparison to Amazon, which is now the third-largest digital-advertising company behind Google and Facebook, raking in $31 billion in 2021 ad revenue.
To compare, Walmart, Amazon's biggest competitor in the retail-media space, brought in $2.1 billion in advertising revenue last year.
Still, there's money to be made.
Insider Intelligence, which shares a parent with Insider, predicted that retail media would grow 31% this year to $41 billion as advertisers diversify their ad spending beyond Amazon and longer term, and as retailers figure out how to tie online ads to in-store sales. Digital advertising, traditional channels, and trade dollars are expected to fuel the increase.
"Once brands, particularly CPG brands, get visibility into how online ads drive offline sales, huge budgets will be unlocked. This is absolutely the sleeping giant of digital advertising's next frontier," Insider Intelligence's Andrew Lipsman said.
Mike Feldman, the SVP and head of commerce and retail media for Dentsu International, said any retailer with at least 10 million monthly visitors to its online store should consider monetizing its site for search.
"While Amazon is certainly the largest player in the space, and most can't compete at that same scale, there's still a significant opportunity for retailers to monetize their data and properties," Feldman said. "From a retail standpoint, purchase-based data is essential."
Retailers with first-party data from loyalty programs and the ability to track online and offline purchases are well positioned.
"When you look at the future state of digital media, this clock is ticking toward the final expiration date of third-party cookies as a means to target and measure ads online. The first-party shopper data that retailers amass will all but require that brands advertise through them to reach targeted consumers with their billions in shopper marketing spend," said Nich Weinheimer, a general manager at the e-commerce marketing platform Skai.
The proliferation of retail media presents a nightmare for brands since every retailer has its own way of selling and measuring ads.
"When advertising was dominated by social and search, advertisers mainly had Facebook and Google to figure out," said Zach Morrison, the CEO of the performance ad agency Tinuiti. "But the retail-media ecosystem is much more splintered. A brand like Kraft, for example, has figured out ways to advertise in all the places it sells snacks and cookies, which extends far beyond Amazon, and now to Walmart, Kroger, Target, Instacart, and many more."
Adding to the complexity, the retail-media map can be sliced and diced in many ways.
There are the strictly online players, with Amazon at the top; the department-store retailers, such as Macy's and Nordstrom; the grocers, such as Kroger and Albertsons; the pharmacies, such as Walgreens and CVS; the e-commerce aggregators, such as Instacart; the specialty retailers, such as Michaels and Wayfair; and the discount chains, such as Dollar General and Dollar Tree.
The list goes on, and it's only expected to grow, given the low barrier to entry and potential rewards. BCG estimated profit margins for advertising on retailers' own channels to be as high as 90%. It said that over time Amazon's share of retail media would decline to 61% in 2026, from 67% in 2021, as big-box stores, such as Target, and smaller retailers expand their ad businesses.
"The marginal cost of placing another ad on a platform once it's set up is zero. Whether they sell 100 ads or a million ads, it doesn't cost them any money. It's pure profit," said Yves Le Breton, the global head of e-commerce at Oliver Agency.
They're going beyond their websites to areas such as connected TV, product sampling, and in-store placements.
Weinheimer said big brick-and-mortar retailers could scale their physical stores with check-in identification, digital signage, and audio and video ads that target shoppers in-store.
Take Walmart, which, through The Trade Desk, lets advertisers buy ads across connected TV, mobile, and desktop, he said. Walmart also sells ads in its physical stores, on wall-mounted TVs and self-checkout kiosks.
But as the market gets increasingly crowded, each retailer must figure out its distinct value to compete.
Diana Gordon, the SVP of e-commerce and marketplace strategy at the agency 3Q Digital, expressed skepticism that discounters like dollar stores could become big ad sellers, given the low-consideration nature of their transactions. She also questioned the value of ad platforms from pharmacy chains: "There's very little scale and reach. Are the CPM premiums we pay actually worth it?"
Most retailers are still in stage one of selling ads, with little data on what advertisers can expect to get from their spending, said John Lods, the CEO of the media-intelligence agency Arm Candy.
Still, the field is open, and not just to retailers.
BCG said airlines, for example, could generate up to $100 million in additional media revenue because of their wealth of data, customer identification and match potential, robust loyalty programs, and ability to reach consumers from their initial booking to after they travel. BCG also mentioned that airlines already have marketing partnerships with hotels and credit-card companies.
"The retail-media opportunity extends well beyond retailers," Insider Intelligence's Lipsman said. "The near-term examples would be commerce intermediaries like Uber, DoorDash, and Gopuff. But there are also commerce platforms serving industries like travel, entertainment, auto, and financial services that could find a way into the space. These are huge advertiser categories that have mostly been on the outside looking in."