This is the first post in our new blog series designed to help retailers and advertisers make sense of the biggest opportunity in advertising: in-store advertising.
1. What is Retail Media and How Did Amazon Innovate It?
Retail media, at its core, is about integrating advertising directly into the shopping journey—whether in a physical store or an online environment. It's the idea of turning the store itself into a media channel, showcasing ads where shoppers are making purchasing decisions, ultimately driving sales and brand awareness. This is the essence of retail media as we understand it today.
But who came up with the concept, and how did it start? Advertising in stores isn't new, so why did we give it a new name? In today's context, Amazon is often credited with pioneering retail media. Back in 2012, Amazon launched their first, and still primary, retail media product: Sponsored Products. Their aim was to capture the trade marketing dollars that brands had long been paying to traditional retailers for preferential shelf placement and merchandising in physical stores.
To understand this evolution, we need to consider physical vs. digital aisles. In the online world, store aisles are the equivalent of search results—the space where shoppers browse and compare products before adding them to their digital carts. Amazon's vision was to replicate the preferential treatment brands paid for in physical aisles within their digital ecosystem. The result was Sponsored Products, an advertising product integrated directly into search results. This innovation worked incredibly well—to this day, Sponsored Products generates the vast majority of Amazon's ad revenue. Amazon recognized that the trade marketing dollars spent on physical shelves could be extended to their digital shelves.
But that’s not the whole story. The other key part of the story is digitization and measurement. With Sponsored Products, Amazon unlocked capabilities that traditional in-store shelf placements and cardboard signage simply couldn't match. This was possible due to two reasons: digital scalability and measurable outcomes. By creating a digital advertising platform, Amazon could display ads in every single "aisle" of their entire store and auction those spots to the highest bidder at any time of day—something impossible in a physical store, where products can't be moved from shelf to shelf every hour. Moreover, digital ads allowed Amazon to track exactly how many sales resulted from a click on a sponsored listing, attributing those sales directly to the advertising campaign. Brands now had immediate, trackable results that they could reinvest in.
This gave Amazon an edge that traditional trade marketing couldn't match, and the impact was undeniable. Within five years of launching Sponsored Products, Amazon was generating $1 billion annually from this initiative. In ten years, that figure grew to $37 billion.
2. The Retail Media Chasm
It became clear that by creating a digital equivalent to trade marketing, Amazon unlocked value for brands that traditional analog trade marketing never had. And other retailers began to take notice. In 2014, within two years of Amazon launching Sponsored Products, Walmart Connect was born. But has Walmart seen the same success as Amazon in the ten years it has existed? Let's look at the numbers. Last year, after nine years, Walmart earned just $3.4 billion from advertising, about one-tenth of what Amazon was earning in a similar time frame. Today, for every $5 brands sell on Amazon, Amazon earns $0.75 from Sponsored Products listings, while Walmart earns just $0.02. Said another way, Amazon is outearning Walmart Connect by 37.5 times, even after Walmart has been at it for almost ten years and started only 2 years after Amazon. As a percentage of Amazon's total store sales, their advertising revenue is now equivalent to 20% of store sales. Walmart connect is 0.4%. The earnings gap between Amazon, Walmart, and the rest of the retail media industry isn't just a gap—it's a chasm.
For traditional retailers, this chasm represents a missed opportunity.
3. The Big Lie
So why haven't traditional retailers been able to replicate Amazon's success? The problem lies in the differences between their distribution channels and the myth that retailers were sold. Amazon conducts 85% of its sales online, while traditional retailers still conduct 85% of their sales in-store. This fundamental imbalance means that what works for Amazon’s digital environment doesn’t automatically apply to retailers running primarily brick-and-mortar operations. Yet, retailers were told that online retail media and data partnerships were the key to replicating Amazon's success.
While Amazon's data certainly enables its ability to measure results and achieve success with Sponsored Products, the real value creation comes from advertising where shoppers are actively shopping—monetizing nearly every product search or purchase and doing it programmatically to the highest bidder. While Amazon makes money selling data through various products, those are more recent efforts; Sponsored Products still generates the lion's share of ad revenue. Similarly, auctioning ads in aisles and high-traffic areas of physical stores, where the vast majority of shoppers spend their time and attention, offers traditional retailers the potential for significant revenue. Recent studies, along with our own experience, have shown that shoppers actually appreciate relevant advertising in the store context, often viewing it as beneficial rather than ignoring it.
Another factor is Amazon’s marketplace model. Amazon draws significant advertising revenue from small brands and third-party sellers who compete for visibility on the platform. Traditional retailers don’t have the same dynamic, although Walmart is making strides toward building a similar marketplace. For this reason, traditional retailers need to focus on maximizing their unique advantage: their in-store environment. They need to explore ways to make in-store shopping as attractive for advertisers as Amazon’s digital aisles—leveraging their physical footprint to create new ad opportunities where shoppers can see, feel, and touch products, while extending in-store shopping to online items that might not be available on shelves. Imagine placing a 20% off coupon for a robot mop in the robot vacuum aisle when a shopper purchases a robot vacuum in-store, since the store only carries the robot mop online. Or promoting the Franks Red Hot Scholarship Challenge in the hot sauce aisle with a QR code that allows shoppers to sign up for the sweepstakes and share their information with Frank's. Omnichannel advertising across online and in-store properties will unlock a new level of value for advertisers and retailers.
4. The Path Forward: Digital In-Store Advertising as the True Essence of Retail Media
The path forward for traditional retailers is clear: they need to leverage their in-store aisles and high traffic areas to create digitized advertising experiences.
Putting a digital interface into stores is the analogy that traditional retailers need to focus on if they want to replicate Amazon's success. Knowing what ads were displayed in each location allows for deterministic attribution on par with online retail media. Online, this linkage is done via logged-in account IDs; for traditional retailers, this will be done via locations. If you know when an ad was displayed in a location, you can analyze the sales that occurred shortly after that ad was displayed.
Retail media is at a turning point. Succeeding in retail media will come down to one fact: advertising works best when it’s placed where shoppers are making their decisions and brands will pay top dollar to influence shoppers at this moment. The opportunity is there, waiting to be seized.