Brick and mortar retailers are pushing to exploit their customer data to boost their own sales and profits.
Over the past few years, major retailers like Amazon Inc. (AMZN) – Get Free Report and Walmart Stores Inc. (WMT) – Get Free Report and even grocery delivery firm Instacart have been rapidly building their own digital ad networks, directly challenging Alphabet Inc. (Google) (GOOG) – Get Free Report, Meta Platforms Inc. (Facebook) (META) – Get Free Report, and news media organizations for lucrative ad dollars.
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Retailers selling ads is nothing new. Sears used to have rows of televisions in its electronics department that showed specific commercials, what it called the “Wall of Eyes,” said Brian Kelly, a former retail consultant and marketing executive with Sears.
However, DeAnn Campbell, chief strategy officer for Hoobil8 consulting firm, said selling ads is a completely different business from retail.
For example, retailers have to make sure the ads don’t conflict with the companies’ values, customer demographic, and image, she said.
“With a Build-A-Bear store, you don’t want a liquor ad,” Campbell said.
In addition, it was difficult to determine whether ads in a physical store were actually working, she said.
Amazon Changed Everything
But the Internet changed everything. With e-commerce booming, retailers discovered that they could make lots of money directly selling ads on their websites and mobile apps to vendors. And they had the digital tools to measure not only how many people saw an ad but also whether those views generated sales of products and services.
Kelly said Amazon was the first to discover it was sitting on a gold mine of data worth lots to advertisers. With so many people using Amazon sites to research and buy merchandise, why couldn’t it sell advertising to vendors the same way Google did with its search engine?
“Amazon broke the code,” Kelly said.
McKinsey & Co. consulting firm estimates the growth of retail advertising networks in the United States could reach as much as $100 billion in ad spending by 2026. In addition, those ads are highly profitable, generating operating profit margins between 50 to 70%.
“Companies across the retail spectrum are fully awake to the economic potential,” the McKinsey report said.
Inflation Drives the Move
Even more so now. With inflation high and consumers cutting discretionary spending, retailers, especially Amazon, are looking high and low throughout their operations to boost profits, whether by cutting costs like closing stores, selling assets, and laying off workers or finding additional revenue like charging vendors more fees.
“Retailers are trying to monetize anything that still has some dribble of value,” Kelly said.