New digital storefronts shake up online retail—and advertising

Last month, Walmart and Netflix launched a hub on Walmart.com offering an assortment of themed merchandise from Netflix hit shows available exclusively through the retail giant. It’s Netflix’s first “digital storefront” with a national retailer and an example of how e-commerce is shaking up the $650 billion global advertising industry.

Marketers in business-to-consumer and business-to-business markets alike have been buffeted recently by regulations intended to safeguard customer privacy and end intrusive tactics like stalking customers online through the use of third-party cookies. In true Silicon Valley style, those restrictions are now unleashing a wave of marketing innovation that Boston Consulting Group recently called “a once-in-a-generation sea change, not unlike the move from traditional to digital media.”

Retail media networks are springing up like daisies, turning e-commerce sites into boutique advertising venues. BCG estimates they could rake in as much as $100 billion annually within just a few years. That’s a windfall for an industry with notoriously tight margins and a potential bonus for customers who could see lower prices as a result.

All about data

Here’s how it works: Most retailers, airlines, and other businesses that do a significant amount of business online have memberships and loyalty programs that they’ve used to gather a lot of data about customer behavior and preferences over time. This is entirely legal because customers opt into these programs.

That data is gold to businesses that sell through retail channels—like firms that sell consumer packaged goods—or that have complimentary products like car rentals and hotel rooms. By advertising through customer-facing partners like e-retailers, they can take advantage of the opt-in data those businesses collect without running afoul of regulations.

The deal is essentially a digital version of the store-within-a-store concept that has been so popular with retailers recently. In the same way that Samsung buys space within Best Buy retail outlets to sell gadgets, online merchants can do the same with the brands they sell in their stores. The relationship can span multiple digital and even physical properties. Brands get detailed data on how their ads translate into sales, and retailers get a much-needed additional source of revenue.

The model is “based on buying behaviors rather than media viewing,” said Marty Kahnle, director of U.S. enterprise sales at InfoSum, which makes a security data-sharing platform. “Every brand is trying to find every opportunity to monetize consumers.”

Flywheel effect

Retailers have produced their own media for years, turning businesses like Home Depot and Lowe’s into prime destinations for do-it-yourselfers seeking advice on how to fix leaky faucets or hang drywall. But in the past, “the whole idea was to push the consumer into the store,” Kahnle said. “That has changed post-pandemic to become more of a communication wheel,” in which advertising partnerships yield insights that marketers can use to fine-tune their messages and deliver more sales to the retailer.

Amazon.com was an early mover in this area and still controls a staggering 89% of the retail media advertising market. However, BCG estimates an additional $75 billion in non-Amazon advertising business is in play and others are moving quickly to cash in. BCG estimated that a single airline could generate up to $100 million in additional media revenue at an average profit margin of 75% through such programs. That bonus revenue stream could even translate into lower fares for customers.

Numerous specialty agencies have sprung up around this burgeoning industry, including Criteo, PromoteIQ (which was recently acquired by Microsoft), and Quotient Technology. Some big retail brands, including CVS, Walmart, Amazon, and Walgreens, have also launched their own wholly-owned agencies, many offering self-service features that let marketers target their retail ads with the same precision they expect in search engine marketing.

Ad buyers believe

Ad buyers appear to like what they’re seeing. A survey by digital marketing firm Merkle found that 85% of consumer packaged goods companies are moving more marketing dollars to retail media networks, and 95% say their spending on retail media advertising is incremental to existing shopper and trade programs. The same study found that half of retailers said finding the right partner is a problem, and an equal number said internal organizational barriers and data siloes prevent them from cashing in on the opportunities.

That’s typical of a new market, but the confusion isn’t likely to last for long. “The top three or so companies in each submarket will dominate, while others will find themselves largely shut out,” BCG wrote. “Time is short for those that want to play.”

If your business spends money on search engine marketing or traditional advertising, retail media opportunities deserve a look. In some markets, they arguably offer the best source of data about what informs a purchase decision. And in marketing, that’s what it’s all about.

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