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The IADS helps members address multifaceted issues from answering their most operational questions or coordinating information flow to helping them address future challenges by questioning their methodologies and providing a different perspective.

This is the reason why the IADS invited Demet Ikiler, COO EMEA at Publicis Group, to discuss the white-hot Retail Media topic. Retail Media Networks (RMNs) are making the headlines for their ability to generate an additional flow of revenue with high margin yields, while making the most of department stores’ most prized assets: their own sales channels. However, since the press often emphasizes big players’ actions, such as Amazon and Walmart, the purpose of this conversation was to give all department store CEOs a good understanding of the situation and the stakes at hand while discussing what would be needed for a department store company to launch its own RMN.

Demet Ikiler was appointed Chief Operating Officer of Publicis Groupe EMEA in January 2023. She joined after over two decades at WPP, where she was a member of GroupM’s global leadership team as CEO of GroupM EMEA and WPP Country chair, responsible for scaling and delivering more innovative cross-culture solutions for clients. Demet has been recognized by Fortune and The Economist as one of the ten most powerful female CEOs and as an Empower 100 Executive Role Model in 2022. She is also a board member of the United Nations Global Compact, leading its diversity and inclusion chapter. Prior to WPP, Demet Ikiler worked at Zenith and Saatchi & Saatchi.

Introduction: Defining Retail Media

Publicis Groupe defines Retail Media as selling advertisers the possibility to operate online campaigns aimed at the retailer’s own audience, on both its onsite platforms (own website) or offsite (on publisher premise), as a major evolution from pure trade marketing.

The development of retail media has been catalyzed by the progressive disappearance of third-party cookies, as, thanks to this move, retailers’ infrastructures gain more value in the eyes of advertisers (brands): it is no longer only about near-term sales on the platform (the purpose of trade marketing), but also a way to generate visibility, awareness and raise consideration as well.

In short, retail media answers more marketing needs than trade marketing and can provide much more precise ROI evaluation than ever before. CPG brands, for instance, need to reinvent their whole performance marketing approach, and retail media allows them to do so very precisely.

Also, the fact that retailers operate both e-commerce and stores enables advertisers to target customers during their whole journey, starting offsite on a publisher’s website with a co-branded retailer/brand display, continuing in-store with a digital screen, then to social media, and in product search results, all which is happening in real-time.

Ikiler explained that the net new revenue to be expected is capped: 60% to 70% of retail media revenues are new, an already significant and sizable new share. While a fraction of the money comes from the trade marketing budget (30% to 40% maximum for Publicis), its biggest share comes from a reallocation from other digital or traditional channels (print, TV/radio, social media...), i.e. a net gain for the retailer.

An opportunity first seized by the largest players

Retail media is in the headlines now and is generating a lot of noise, justifiably so: Arthur Sadoun, Publicis Groupe CEO, expects retail media to surpass traditional TV advertising spend by 2025, i.e. in 18 months (Ikiler notes that this new budget allocation dispatch is already happening for some of Publicis’ customers).

Such a rise is linked to the continuous e-commerce growth from the past 20 years in an exponential manner, transforming some retailers into “audience hubs” with massive scale:

-    Amazon, which moved early, is the first retail media network to have emerged, and by combining its other assets (grocery and supermarkets) was able to take a dominant position with advertisers.

-    Walmart has an addressable audience (expressed in millions of monthly viewers or users) that surpasses Google’s and Facebook’s. Therefore, they can gather massive amounts of consumer data, which opens opportunities to monetize this audience.

The stakes are high: while there is a ceiling in terms of margins when it comes to retailing physical products (10 to 20%), it can go as high as 40-45% offsite and 80% onsite when it comes to selling advertising inventory, due to the low cost of production. Amazon’s advertising services, which started in 2020, already represent almost $40bn in 2022, i.e. half of AWS, the largest non-retail activity within the company. The advertising activity’s margin is estimated between 70 and 90%, which explains why this activity drew a lot of attention.

Publicis Groupe believes that retail media, even though it is massively growing (US digital media budget allocation to retail media has increased from 16% in ’19 to 25% in ’21, to reach $77bn in ’21 and $95bn in ’22), is still on the rise.

At some stage, Europe (and the rest of the world) will be closing the gap and should contribute to the global growth of this industry. It is not a US and China-only phenomenon, and new players are appearing in other countries, such as Carrefour and Intermarché in France, Boots and Tesco in the UK, and Falabella in Chile. While everybody has Amazon’s success in mind, there is room for other types of retailers, in terms of businesses and sizes, for them to monetize their platform.

Retailers should not take customers’ adhesion to RMN for granted

Some might be wary that customers might not be very happy with retail media, as clients could get annoyed to see a bunch of ads on retailers’ platforms across their journey. 70% of product search results on Amazon are sponsored. While this might not be much of an issue for Amazon, other retailers whose reputations lie on curation and selection might see this, justifiably so, as a risk.

This is why Publicis Groupe advises being extremely careful of the onsite customer journey and leveraging data to target consumers off their platforms, in other words, on publishers’ sites. Retail media is, in that sense, a great way to attract and capture new customers, in a more subtle way than hammering them on the retailer’s website itself. The cherry on the cake is that such customer acquisition is funded by suppliers.

The scale effect: how to compete with giants

Most retailers, especially in Europe, present a very fragmented offer, with a variety of products and different measurement tools, when compared to giants such as Amazon or Walmart. In that perspective, being able to compete with them can be seen as an illusion. However, Publicis believes that this fragmentation might represent an opportunity, and they have already started exploring it through new ventures, such as Citrus, a white label offering for a variety of retailers.

Ikiler argued that retail media is a reality that will end up hitting every market and vertical. Brands will increasingly ask to have access to such capabilities, which is, in itself, a very good reason to get prepared. In other words, this represents an opportunity that should not be shed for fear of competition. The reason is that retail media is inserting itself perfectly in the omnichannel transformation that all department stores are currently going through, as the physical stores themselves represent a competitive advantage compared to Amazon.

CEOs interested in retail media should focus their attention on two vital topics:

-    Systems: the market is increasingly gearing towards self-service proposals, i.e. SaaS offerings to brands, in contrast to managed services in the past. This requires a very significant tech investment. However, this will allow being able to deal with more brands at the same time, with a lower marginal cost. Also, retailers entering this space now will have access to all-in-one solutions available off-the-shelf and already up to date, which will reduce the time to market.

-    Organization: while the trend is moving towards in-house sales teams to have more strategic conversations with brands, which can be resource-intensive, new offerings on the market allow outsourcing services to optimize the ramp-up of activities, which is then progressively transferred to internal teams.

Ikiler concluded by observing that, given the relative similarities of department store companies in terms of size, nature of the business and offering, there would be some logic in teaming up and harmonizing technology and ROI calculation, while tracking across the board  to generate a common approach with brands. In other words, she recommends retailers team up together to generate new revenues out of their current existing assets.

Is the topic of retail media network a strategic one for department stores? There are so many priorities to deal with that it could be tempting to disregard this subject as it is more an opportunity than a necessity (digital transformation, human organizations, addressing AI or dealing with the sustainability requirements are examples of vital necessities for department stores). However, we also believe that any topic helping department stores when it comes to their productivity is crucial to know and to consider, which is the reason why the IADS will be dedicating its 2023 White Paper to Retail Media, in order to dive deeper into the topic and understand in full its ins and outs, and what’s in for department stores.

Credits: IADS (Selvane Mohandas du Ménil)