Retailers like Macy’s want a bigger slice of e-commerce ad sales

Macy’s announced this week it’s hiring a former Walmart executive to head its media network. This is part of a recent push by the department store to reinvent its business. That includes a plan to close 150 stores in coming years and upgrade others to offer a more premium shopping experience. 

But back to that “media network.” This refers to Macy’s growing ad business, as in selling advertising for third parties on its website and other channels. 

That tactic is becoming an increasingly important revenue stream across the retail world, worth about $50 billion.

Even before the internet, retailers were selling advertising, said media consultant Tim Hanlon at the Vertere Group.

“Couponing or endcap display features, shelf-talkers, these are all to incentivize a consumer to make a purchase literally at the moment of decision,” Hanlon said.

But now they’re doing it digitally and collecting a lot more of our personal data.

“What is the first thing you do when you’re on the internet? Type in a search query,” said Nikhil Raj who worked on Walmart’s retail media network and now leads the practice at ad platform Moloco. He said e-commerce platforms know what we’re searching for, clicking on, putting in our carts and when we actually hit that buy button.

“It really predicts what people would do based on what they’re doing right now,” he said. 

He said ads can take the form of sponsored search results, traditional banner displays or, increasingly, video promotions.

Amazon dominates retail media, taking in about three-quarters of all ad dollars.

But almost every competitor with a digital footprint is getting in on it because it’s often worth more than a company’s core business, said marketing professor Koen Pauwels at Northeastern University, who has also worked with Amazon Ads.

“Advertising has a [profit] margin of something like 30 to 40%, so at least 10 times as much as they earn on the products they sell,” Pauwels said.

A recent eMarketer report found retail media was the fastest-growing advertising channel, predicting it would surpass TV and radio and match social media ad dollars in the next few years.

And Pauwels said it can feel less intrusive to consumers.

“I talk to something only on my Gmail, and an hour later, I get Facebook ads. It really is very creepy to me,” he said.  

Retailer ads, on the other hand, get you when you’re already in the shopping mood he said.