Retail media spending pressures are mounting as Walmart urges brands to increase their ad budgets by 25% year-over-year, despite many brands seeing stagnant sales growth from these investments. This push has sparked concerns in the retail industry as brands face the dilemma of escalating ad spend without the desired performance improvements. The situation at Walmart sheds light on a broader trend in retail media that risks eroding trust in a highly lucrative business segment for retailers.
The Wall Street Pressure Cooker
Retail media has emerged as a lucrative business segment with impressive profit margins, attracting significant attention from Wall Street. Walmart’s Chief Financial Officer revealed that advertising and membership accounted for a sizable portion of the company’s operating income in Q4 2024. This financial reality creates pressure to sustain growth in these high-margin businesses amid challenges in traditional retail margins. Analysts are closely monitoring retailers’ media businesses, expecting continued growth in this profitable sector.
Retailers are increasingly relying on suppliers to fuel growth in their retail media networks. This dynamic has given rise to what brands describe as a “retail media tax,” where marketing dollars are allocated based on demands rather than performance metrics.
A History of Strong-Arm Tactics
Retailers have long leveraged joint business plans (JBPs) to secure marketing commitments from suppliers. These agreements have evolved to include substantial advertising components, placing additional pressure on brands to meet spending targets. The scale and scope of these demands have raised concerns among brands, with some describing retail media spending as a mandatory cost rather than a strategic investment.
The Trust Deficit in Retail Media
The disconnect between retail media spending and performance outcomes is creating a trust deficit in the industry. Brands often feel obligated to spend on retail media without guarantees of performance or return on investment. This perception undermines the legitimacy of retail media as a strategic marketing channel, leading brands to view these investments as obligatory expenses rather than growth drivers.
The Future of Retail Media
Not all retail media networks are adopting a one-size-fits-all approach to increasing ad spending. Some retailers are focusing on enhancing technology and measurement capabilities to provide a better experience for suppliers. Walmart’s own portfolio reflects contrasting approaches, with subsidiaries like Sam’s Club emphasizing member-centric advertising platforms focused on longitudinal measurement.
Strategic Considerations for Brands
Brands facing escalating demands for ad spend from retailers must carefully evaluate their strategic options. Some are taking bold steps by refraining from renewing joint business plans with retailers, citing concerns over inflexible deals and lackluster sales growth. Others are advocating for more flexibility and accountability in their advertising partnerships.
Investing In The Future or Funding Present Shortfalls?
Retailers like Walmart are positioning increased ad spending as investments in future capabilities, potentially signaling a shift from transactional relationships to more strategic partnerships with brands. However, brands are cautious about committing to substantial spending increases without clear evidence of proportional returns. Retail media networks face a critical decision in whether to prioritize short-term revenue gains or invest in long-term growth through innovative advertising platforms.
In conclusion, the evolving landscape of retail media underscores the importance of strategic partnerships between retailers and brands. Brands must navigate increasing ad spend demands with a focus on performance and accountability, while retailers need to balance revenue growth with long-term investments in innovative advertising solutions. By fostering transparency, trust, and collaboration, both parties can navigate the challenges of retail media effectively and drive mutual success in a competitive marketplace.