Retailers and brands have an extensive history of collaboration. And for most of it, they’ve worked well together toward a shared goal: sell more of the brands’ stuff. Brands created preference and demand for their products, and retailers got inventory to serve their shared customer—a true win-win scenario that fueled growth for both parties. Madison Avenue sprung up in support of the mass consumerism alliance between brands and retailers.
Then came the internet, addressable media, first-party data, mobile apps, and a host of other digital innovations, and everything changed.
Retailers soon realized they could capitalize on media sales by selling ads on their own digital properties and across the web. This shift was transformative: Suddenly, selling advertising became more profitable than selling products.
Today, retailers operate as hybrids—part retailer, part media company. Reports indicate that nearly one-third of Walmart’s profit comes from its advertising division, and Amazon’s profitability is largely driven by advertising and web services rather than traditional retail margins. There’s immense pressure for retailers to build a robust ad program to remain competitive.
The retail media shakedown
With this shift, the once-aligned incentives between retailers and brands have diverged. Where retailers once prioritized selling more physical goods, they now seek to extract maximum ad budgets from brands. As a result, many retailers have created aggressive retail media network divisions, hiring high-powered sales teams with ambitious revenue targets.
One of the primary tactics these RMNs employ is leveraging shelf space as a bargaining chip. Media buys through the retailer’s RMN become a cost of entry for brands to get their products stocked. This approach has led to a “shakedown” dynamic, where brands are compelled to invest increasing sums into retail media, often without a proportional increase in overall sales through that specific retailer.
Retail media does offer powerful new ad products, like advanced targeting, conversion tracking, in-store ad inventory, and engaging shopper experiences. However, the accelerated rate of investment in these products is outpacing the sophistication needed to demonstrate their true sales impact. Many brands believe they can generate more foot traffic and conversions using their own marketing strategies rather than being forced into retailer-led media buys. This disconnect is causing frustration and putting the long-standing retailer–brand partnership at risk.
Bringing back balance
How can retailers start fresh and rebuild the harmonious relationships they once had with brands? While the current situation is fraught, there’s good news: Retailers and brands still share common ground they can use to realign their interests; despite the landscape shifts, endemic advertisers (brands who advertise with RMNs that sell their products) and retailers do still share the goal of driving product sales.
