Retailers discovered advertising, and it is now their best business

What began as a small experiment — letting a brand pay to appear at the top of a search results page — has grown into a full media operation inside nearly every large retailer. The teams running these businesses now include ad sales, measurement, creative services, and in several cases their own demand-side platforms.

The appeal is arithmetic. Selling a product on a shelf carries the cost of buying it, storing it, moving it, and eventually discounting what does not sell. Selling a placement above that product carries almost none of those costs. Executives describe gross margins on retail media that run several times the margin of the merchandise itself.

That gap has changed how retailers describe themselves internally. A store, in the language of these teams, is inventory in two senses at once: the goods on the shelf and the attention of the person walking past them. Endcaps, digital screens, app notifications, receipt footers, and the loading state of a checkout page have all been assessed as sellable surfaces.

Brands have gone along with it, partly because the measurement is better than what they get elsewhere. A retailer can connect an impression to a purchase inside its own system without relying on third-party tracking, which has made retail media unusually resilient to privacy changes that damaged other digital advertising channels.

The tension shows up on the other side of the ledger. Merchandising teams and ad sales teams have different incentives, and the two collide over the same screen real estate. Several retailers have introduced internal rules capping the share of a results page that can be sold, after finding that heavier ad loads measurably reduced how often shoppers found what they came for.

Suppliers describe a subtler cost. Advertising spend inside a retailer's ecosystem has become, in practice, a condition of good placement. Smaller brands without an ad budget report sliding down results pages regardless of how well their products sell, which concentrates shelf visibility among the companies that can pay for it.

Regulators have started asking questions about that dynamic, focusing on whether a retailer that both sells its own private label and auctions placement against it can run a neutral auction. Retailers have responded by pointing to internal separation between the two functions, though few have published details of how the separation is enforced.

None of this has slowed growth. Analysts covering the sector expect retail media to keep outpacing every other line of the business for at least the next several years, and several retailers now disclose it as a segment precisely because investors value it on media multiples rather than retail ones.