Retail Media's Rise: Dissecting the Perfect Storm Propelling Its Proliferation
Vincent Lootens
Senior Executive & Strategic Growth Leader | Expertise in Omnichannel, New Retail, Market Expansion and Operational Excellence
As Chief Digital Officer, the emergence of retail media appeared as a topic to dig into. With consumer journeys migrating to digital properties and third-party cookie tracking being disrupted, was it time for us to get into this topic? What were the main rationales behind? What could be our expectations?
From that lens, I've closely examined the market forces catalyzing retail media's proliferation across the digital ecosystem. The key insights reveal a convergence of supply and demand factors creating a perfect storm accelerating its ascent as both a marketing cornerstone and income diversification play:
The retail media has been nothing short of stratospheric, with projected spending forecasted to skyrocket to a whopping $160 billion by 2027 according to projections by influential media investment firm GroupM. This monumental growth trajectory represents a seismic shift in the advertising landscape, as retail media evolves from a nascent opportunity into a marketing linchpin with formidable momentum.
At its core, retail media empowers brands to deliver precisely targeted promotional messages directly on retail websites and mobile apps, enabling them to engage and influence consumers at the critical point of purchase decision-making. Concurrently, it provides retailers an enticing new high-margin revenue stream to buttress their increasingly pressurized core business models.
However, retail media's explosive rise hasn't occurred in a vacuum. Rather, it has been catalyzed by the confluence of several powerful market forces that have coalesced to create an environment ripe for its proliferation - a proverbial "perfect storm" fueling its ascendancy.
Eroding Retailer Profit Margins
The retail sector has endured a relentless erosion of profitability in recent years, with pre-tax margins plunging from 6.4% in 2015/16 down to just 4.5% by 2019/20 according to research from consulting firm Alvarez & Marsal. A primary culprit is the tectonic shift toward e-commerce, which has substantially increased operating costs and pressures.
In this increasingly untenable climate, retail media networks have emerged as a tantalizing salve - presenting an opportunity for retailers to establish a new high-margin income stream to fortify their under-siege core operations. While traditional retailing ekes out slim 2-4% margins, retail media businesses can command profits of up to 40%.
The Imperative for Brand Growth
Compounding pressures on the retail sector, many brands - particularly in low-growth, hyper-competitive CPG categories - have found themselves in a relentless battle for market share and avenues for incremental sales growth. According to research by McKinsey, between 2017-2019 a full 90% of overall value growth for the world's largest CPG companies was derived from their small and mid-sized brands, underscoring the stagnation being experienced by legacy product lines.
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In this high-stakes environment where growth is extraordinarily difficult to attain through conventional marketing channels, retail media has rapidly emerged as a potential panacea. By facilitating prominent branded product placements and promotions within the burgeoning digital sales channels of retailer partners, brands can directly inspire desirable consumers along the crucial last mile of the purchase journey.
The Disruption of Third-Party Cookies
Evolving consumer data privacy regulations and browser restrictions have collectively spawned the impending demise of third-party cookie tracking - a disruption that has thrown the digital advertising ecosystem into a transformative era of reformation. Legacy processes that brands relied upon for audience targeting, measurement, and attribution have rapidly become obsolete, triggering an urgent need to adopt new data-driven strategies.
Retail media has ascended as a compelling solution to this quandary. By leveraging the immensely rich pool of first-party consumer data amassed by retailers through email subscriptions, loyalty programs, and historical transaction records, retail media enables brands to reactivate powerful data-driven promotion and targeting practices through a privacy-compliant model that sidesteps the deprecated third-party cookie infrastructure.
The Shift in Consumer Behavior
In parallel to these market undercurrents has been a profound evolution in consumer behavior and preferences that has further elevated the strategic importance of retail media channels. Whereas search engines have long reigned as the primary hub for initiating product research, a momentous shift has occurred with e-commerce platforms and retailer websites displacing them as the predominant starting point.
Research from InRiver revealed that a remarkable 44% of product searches now originate on online marketplaces like Amazon, dwarfing search engines at 19% and even trumping visits to individual brand websites at just 9%. This behavioral pattern highlights a pivotal opportunity for brands to intercept consumers during the crucial exploratory and evaluation phases by delivering promotional content and product spotlights within these preferred retail environments.
The Convergence Catalyzing a Marketing Paradigm Shift
With multiple powerful forces dramatically reshaping both the supply and demand dimensions of the advertising ecosystem, it's clear that retail media has swiftly emerged as an opportunistic solution spanning multiple domains. For brands contending with headwinds to growth, it unlocks a direct pipeline to convert active shoppers. For retailers, it represents a lucrative new business unit to diversify revenue streams. And for the overall marketing economy being disrupted by privacy restrictions, it facilitates a data-driven transition into the revitalized arena of first-party audience targeting and attribution.
While the full implications and staying power of retail media have yet to be borne out, one observation is glaringly evident - the confluence of these converging market currents has firmly established retail media as not just a passing fad, but an enduring pillar of the path forward. Those enterprises that can skillfully integrate and optimize retail media opportunities into their ecosystem will be well-positioned to secure formidable competitive advantages in the years ahead.
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