IADS Press Release: IADS White Paper - Retail media and department stores: an opportunity, or a lifeline?

More than just an opportunity, retail media could become a driving force for department stores’ physical flagships and their perenniality.

The surge in interest in retail media, highlighted by extensive media coverage over the past three years and concrete results in companies such as Amazon or Walmart, indicates its growing significance in the retail sector. Many see the $100bn worldwide retail media market as a lifebuoy for an industry where margins are tight. Going beyond, retail media could also represent a transformative force for department stores: the convergence of digitalization and advanced in-store technologies can transform them into effective media companies, leveraging customer traffic both online and in flagship stores. 

Since its inception in 1928, IADS’ purpose has been to coordinate information between department stores worldwide and research their activities to address their many challenges. Every year, the IADS produces a White Paper on a specific topic relevant to the industry. The 2020 edition reviewed how department stores managed the COVID-19 pandemic. In 2021, digital transformation and how it impacts organizations was explored, and in 2022 the focus was centred around CSR and ESG. The latest 2023 edition is dedicated to the hot topic of retail media which evolved significantly between 2022 and 2024.

The 2023 White Paper aims to identify where the retail media market stands, spell out the opportunities (and potential traps) for department stores, as well as suggest a few routes of reflection for their CEOs to prepare their organizations 
for such a shift. Finally, since retail media is seen as a way to generate incremental, high-margin revenue, the White Paper helps to understand the cost of such new revenue, not only in financial terms but also in terms of people, organizations and needed adaptations.

Retail has never been a stranger to advertising. It started as early as the 19th century with the likes of Sears, Printemps, Jelmoli and Harrods issuing catalogues encouraging brands to advertise. While this helped sales and contributed to brand recognition, both at the retailer and product level, it also generated a new stream of revenue, coinciding with the development of the modern advertising industry, which evolved from selling ad spaces to offering complete brand solutions. This shift enabled department stores to forge new relationships with brands, selling them opportunities to stand out through trade marketing cooperation (B2B2C). The 21st century simply changed the advertising landscape, from a physical form (newspapers, catalogues, stores) to a numerical one (banners, emails, social media). 

However, the eternal challenge in advertising, from the advertiser's point of view (the brand), has always been to make advertising effective, profitable, and measurable. Top-of-the-funnel strategies (national advertising) are difficult to evaluate in terms of ROI, while bottom-of-the-funnel ones (trade marketing) are difficult to scale at a national level. To cope with the lack of visibility of ROI in the upper funnel, brands were sold access to readers or watchers profiled according to an ideal target, a profiling made possible thanks to the navigation history knowledge acquired via tracking (cookies). However, the market is now much harder to navigate, as costs of advertising online have been on the rise for the past few years, and third-party cookies are disappearing in the wake of a stronger concern about personal data.  

This is why retail media networks (RMNs) are a solution rather than a revolution: they are a collection of advertising and promotional tools owned by a retailer, using first-party data to target shoppers and prospects. As such, they offer a significant opportunity for revenue generation without cannibalizing traditional trade marketing activities. 

While initially FMCG (fast-moving consumer goods) retailers played a central role in the development of RMNs for structural reasons - the leading company being Amazon, where retail media generated a revenue of $31.2bn in 2021 (and should reach $45bn in 2023) -, retail media is no longer exclusive to them. Specialty retailers and other retail verticals are also developing their own RMNs to capture a portion of this appetizing market. 

US-based Kroger utilizes its loyalty and POS transaction data to create targeted advertising and measurement tools. This allows for precise campaign planning, personalization, and post-campaign tracking, offering advertisers detailed insights into customer segments and sales uplift. RMNs have shifted the narrative from trade marketing being a "bottom-of-the-funnel" medium to a strategic "top-of-the-funnel" medium, attracting larger marketing budgets and making physical stores valuable again. They provide incremental revenue, which is particularly appealing in the context of shrinking margins in brick-and-mortar and e-commerce channels. 

The landscape of RMNs is dynamic and geographically diverse, with a significant number of players in the US and competitive markets like France, where alliances, such as Unlimitail, allow national retailers to pool resources and therefore achieve a mutualized scale effect comparable to what is available in the US. 

The context matters: despite the growth of e-commerce, 85% of retail sales in the U.S. still occur in physical stores. RMNs enable brands to target customers throughout their entire shopping journey, including in-store interactions. This has led to a renewed interest in physical stores as strategic assets for advertising. Retailers are finding innovative ways to incorporate advertising into the in-store experience, such as digital screens and in-store radio stations. These technologies transform stores from mere points of sale to influential advertising platforms. 

For that reason, department stores have the potential to offer unique advertising possibilities by leveraging their significant online and offline footfall. The digitization of stores and the capability to sell first-party information allows for innovative onsite media propositions. As such, their flagship stores are therefore seen today as major untapped channels for advertising. They offer detailed geo-localized data that can inform brands about shopper behaviour in specific areas. This granularity of data is key for advertisers to optimize their marketing and product strategies. Retail media networks enable brands to reach customers close to the point of purchase, making physical stores an integral part of advertising strategies. In that perspective, retailers can use foot traffic data to create hyper-local segmentations and improve advertising efficiency in local markets. 

But to successfully transition into a new mass media, department stores need to differentiate their RMN products, address organizational challenges, form strategic partnerships, define new standards, and make informed technology choices.

RMNs mark a paradigm shift in retail advertising, offering precise, data-driven advertising opportunities both inside and outside retailers' own media channels. With projections indicating that RMNs could become a $100+ billion market by 2028, major retailers across various categories are launching their own networks to tap into the burgeoning demand for targeted and measurable advertising. 

For them, RMNs present an opportunity to generate new, high-margin revenue streams that can compete with established advertising channels. The integration of brick-and-mortar stores into omnichannel RMN strategies, utilizing location intelligence and digital targeting, further expands the scope and efficacy of these networks.  

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