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04/15/2021

Ad Explosion: Retailers poised to become the next media moguls

Expect more retailers to build out their online ad platforms.

By any measure, online retail sales are booming during the pandemic. According to the National Retail Federation, online shopping increased over 21.9% last year and is expected to grow between 18% and 23% in 2021. This explosive growth in online sales is serving to radically transform the retail landscape.

While stores like Walmart have historically relied on in store revenue, the last year has seen Walmart invest heavily in its online ad offerings, shifting to drive more revenue through digital advertisements. Walmart isn’t the only one: it’s almost every major player in the space. Target, Kroger, CVS, Walgreens, Instacart and many more have all created their own advertising self-service offerings and it’s likely that in the next few years they will become important players in the media industry, competing with established platforms such as Amazon for brands’ ad dollars.

Taking a step back, why have advertising platforms become so important to retailers? It comes down to the bottom line. All of these stores have large digital presences, where millions of shoppers buy products online. These websites are prime advertising spaces, with potential to reach those millions of shoppers. 

For brands that are trying to advertise their own products, this is a huge opportunity to get in front of consumers. As most consumers who visit Walmart.com are ready to purchase, these shoppers are also more likely to click on an ad and make a purchase through another digital channel. 

The basis for investing in digital ad platforms comes from the obvious frontrunner in the space: Amazon. Amazon, the world’s largest e-commerce retailer, has an extremely successful ad business. In 2020, Amazon made $15.73 billion in advertising revenue. That kind of success is simply impossible to ignore, and retailers are seeing Amazon’s strategy as a playbook for their own digital advertising.

Another factor contributing to the rise of retailers in the media space is the COVID-19 pandemic. While shopping in physical stores decreased in 2020 due to social distancing, e-commerce has boomed for the same reason. Consumers spent more than $860 billion online in 2020, a whopping 44% jump from 2019. This incentivizes major retailers to focus on their online presence as a driver of sales rather than their physical stores -- and with a focus on e-commerce, digital advertising only becomes more relevant. 

The final piece of the puzzle is the upcoming cookie deprecation. In the next year, we will see Google retire the cookie tracker that allows advertisers to target specific individuals with ads across different websites. This data source is crucial to online advertising. Advertisers naturally love data, allowing them to reach their audience across the web, precisely track how successful their ad campaigns are, and test different types of campaigns to optimize ad spend. 

With cookies phasing out, however, there is not an obvious replacement for cross-website identity tracking. Instead, first-party data will likely become much more important, with brands advertising on specific websites, and internet advertising becoming a series of “walled gardens” with consumer data-sets not linked to any other website’s data-set. Essentially, when cookies are finally retired, first-party data’s value will skyrocket.

Retailers have been accumulating a formidable stash of first-party data for years. As first-party data becomes more valuable in the cookie-less world, companies that have this data will be more attractive to advertisers. 

With tons of shopper data and insights, advertisers can more accurately target consumers who are interested in their products, and more easily track consumer behavior. Walmart, Kroger, Target and the other major retailers have the data required to uncover these insights, setting them up to become essential for online advertisers.

Combining the explosion of e-commerce with the upcoming cookie deprecation sets retail media to become media powerhouses. While the space will likely see maturity and consolidation in the mid-late 2020s, it is currently in a growth boom phase, with more and more retailers buying into the concept and building out their ad platform offerings.

The future of advertising is clear: First-party data will be a winner. Platforms that are best able to utilize this data will become the new media moguls. During the next two years, expect to see more and more digital retailers launch their own ad platforms, and expect existing platforms to expand and improve. 

Also, in terms of advertising presence, Google and Facebook will continue to face more competition for advertisers’ wallets with the rise of retail media and we will continue to see more opportunities for advertisers to market to their customers wherever they are.  Competition ultimately makes us all better, forcing product innovation and performance results.  

Melissa Burdick is co-founder and president of Pacvue, an advertising platform that began on Amazon, but has integrated with Walmart, Instacart, Target and other retailers Pacvue is the enterprise platform for brands, sellers, and agencies to manage their e-commerce advertising.

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