Retail Media: The New Wild West for Ad Tech?

Ian Whittaker 27 June, 2023 

Last month, I wrote about the potential for consolidation in the ad tech space following on from comments by Ciaran O’Kane of ExchangeWire. I mentioned then that there was a related theme here, namely how retail media may be the next big major opportunity for the ad tech players so that will be the focus of this piece (by and large, I like to keep my promises). If the ad tech sector plays its cards right, this could be a very lucrative source of revenues for years to come.

First, the basics. It is stating the obvious that retail media is one of 2023’s hot (if not the hottest) topic. It is also a topic that has been adopted with gusto by the retailers themselves. Retail media advertising is nothing new. Amazon has been benefiting from it for years and strong double-digit advertising growth has continued, with 23 percent growth in Q1 2023 (and likely more on FX-neutral terms). Amazon probably generates at least half of its profits from advertising now, which is particularly important as growth in AWS slows.

However, Amazon is considered to be a tech stock and, as such, retail analysts and investors did not really follow the story. That changed back in November when Walmart stated that its ad sales had grown c. 30 percent to $2 billion and – crucially – these revenues were high margin. That growth has continued into the latest reported quarter, with advertising growth over 30 percent. Although Walmart has not given an exact margin figure – and, from an accounting standpoint, different advertising revenues are treated in a different way – the ANA has stated that advertising margins for retailers can be 50 percent to 70 percent. For businesses that typically earn mid to high single digit margins, even a relatively small amount of revenues can make a disproportionate impact on the bottom line.

It was at this point retailers and their analysts and investors realised the potential scale of the opportunity. Again, focus on the margin part. While $2 billion is not a major part of Walmart’s revenues (just over 1 percent in the last financial year), at a 60 percent margin, that would have been over 15 percent of adjusted operating income. If there is a belief that such revenues are permanent in nature and will show continued growth, that has the potential to lead to a fundamental re-rating in the shares of these companies.

So where does ad tech fit into the equation? Well, go back to what I said about increasing investor pressure on retailers to outline their retail media strategies – and, more importantly, their financial targets. Retail companies are going to be under significant pressure to meet those targets and, when such guidance is not met, it usually leads to unpleasant consequences for management teams. So there is going to be significant pressure from management at the top to those in charge of the strategy to deliver the numbers – and in a relatively short amount of time.

Retailers are not though, by nature, advertising experts and it take years to build up such skills (Walmart has been working on its strategy for several years and it is only last week at Cannes that they seemed to be making a full-blown effort to appeal to advertisers). They will therefore need a lot of help including hand-holding. This is where the ad tech industry can come in if it seizes the opportunity. The retail media environment is likely to be complex, especially as the parameters between what is and is not retail media advertising becomes blurred.

This complexity is probably the biggest opportunity for the ad tech players. The point to remember is that the management teams at the top do not really care about the subtleties, they want results. Teams will be under pressure to deliver. Moreover, retail analysts and investors also are unlikely to understand the vagaries of the advertising market and its different revenue sources. All this leads to the likelihood that retailers are likely to need whatever help they can get.

One final point. While everyone seems to have a retail media strategy at the moment, the simple fact is many retailers will not have the scale to make the strategy a big success. As with search (where there are many parallels), scale counts immensely. Over time, a number of smaller players are likely to look to band together to provide the scale that advertisers want and this will also present opportunities for ad tech to bundle such platforms into one offering.

So, for ad tech – and its share prices – retail media could represent the next major opportunity just as questions are starting to be asked about what exactly is the long-term growth potential of CTV. It might be argued the timing is fortuitous to say the least.

As usual, this is not investment advice.

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About the Author:

Ian Whittaker is founder and Managing Director of Liberty Sky Advisors. For further insights and articles, subscribe at
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