The Future of Retail Advertising With the Rise of Retail Media

Industry & Competitive Context

Retail advertising has entered a structurally new phase. For decades, retailers earned money almost exclusively through the margin on goods sold, while advertising spend flowed to search engines, social platforms, and television. That boundary has collapsed. Retailers that once simply stocked shelves now operate advertising businesses built on top of their own first-party purchase data, owned digital properties, and physical store footprints a category the industry refers to as retail media, or more broadly, commerce media.

The scale of this shift is now substantial enough to be treated as a distinct advertising channel rather than a niche experiment. Industry research firm WARC’s “Future of Commerce Media 2026” report projects global retail media ad investment will reach USD 200.4 billion in 2026, rising to USD 223.4 billion in 2027 a growth rate of 11.5% year-on-year, equivalent to roughly 15.2% of total global ad spend. McKinsey’s industry analysis similarly finds that commerce media networks, the broader category that includes retail media, are expected to account for over one-fifth of total US advertiser budgets by 2026, with retail media networks specifically representing about 19% of that spend. eMarketer, cited in that same McKinsey analysis, projects US retail media spend will exceed USD 100 billion by 2029.

Within this expanding category, the competitive landscape is highly concentrated. WARC’s 2025 data shows Amazon commands 78% of US retail media spend, with Walmart at 7.5% and all other networks combined accounting for the remaining 14.5%. In several major European markets the UK, Germany, France, Italy, and Spain Amazon similarly holds more than two-thirds of retail media spend. This concentration is significant from a strategic standpoint: it means the “rise of retail media” is simultaneously a story about a new advertising category and about a small number of retailers using data advantage to build durable, high-margin businesses alongside their core retail operations.

Brand Situation Prior to the Rise of Retail Media

Historically, large retailers operated as low-margin, high-volume businesses. Grocery, mass-merchandise, and e-commerce retailers typically earned single-digit operating margins on product sales, leaving them structurally dependent on scale and operational efficiency rather than pricing power. Advertising budgets from consumer packaged goods (CPG) brands the companies whose products line retailers’ shelves were historically directed toward television, search, and social media, channels retailers did not own or monetize directly.

This began to change as e-commerce matured and retailers accumulated large volumes of first-party transaction data: what a shopper searched for, what they purchased, and how frequently they returned. Amazon was the first major retailer to convert this asset into a standalone advertising business at scale, formalizing “Amazon Ads” (built primarily on sponsored product listings within its marketplace) well over a decade ago. Walmart followed with Walmart Connect, Target with Roundel, Kroger with Kroger Precision Marketing, and grocery-delivery platform Instacart with its own advertising products. Each of these businesses began as a way to monetize search results and product pages that shoppers were already visiting with high purchase intent.

Strategic Objective

The strategic logic behind building a retail media network is consistent across the companies that have pursued it: convert existing high-intent shopper traffic and proprietary purchase data into a high-margin revenue stream that is largely incremental to the retailer’s core merchandising business. Because advertising revenue carries minimal marginal cost once the underlying platform and inventory exist, it flows through to operating profit at a far higher rate than product sales. This matters most for retailers facing margin pressure on their core business.

Target’s recent results illustrate this dynamic clearly. The company reported 13 consecutive quarters of flat or declining comparable sales, with Q4 net sales down 1.5% year-over-year to USD 30.5 billion, even as Roundel, its retail media arm, delivered USD 915 million in advertising revenue for the year, with Q4 alone contributing USD 295 million, up 55.3% from USD 190 million a year earlier. For a retailer struggling to grow its core business, a fast-growing, high-margin advertising arm functions as a strategic profit offset a distinct objective from simply “selling more ads.”

For Amazon and Walmart, by contrast, the objective has extended beyond offsetting weakness: advertising has become a primary profit engine in its own right. Amazon’s advertising business surpassed USD 68 billion in revenue for full-year 2025, with Q4 2025 alone contributing USD 21.3 billion, up 22% year-over-year an acceleration attributed by the company to its “full-funnel” strategy spanning sponsored products, display, and streaming video ads on Prime Video. Walmart’s global advertising revenue reached USD 6.4 billion in 2025, up 37% year-over-year, with the US-focused Walmart Connect business growing 41%.

Campaign Architecture & Execution

Rather than a single marketing campaign, the “rise of retail media” is best understood as the build-out of a new advertising platform architecture by each retailer, layered on top of their existing commerce infrastructure. The common architecture has three components.

First, on-site sponsored placements: paid product listings that appear within search results and category pages on the retailer’s own website or app, priced on a cost-per-click or auction basis. This remains, according to Amazon’s own earnings commentary, the core of its advertising revenue even after more than a decade of expansion into other formats.

Second, off-site and streaming extensions: retailers increasingly sell advertising inventory beyond their own properties, using their first-party purchase data to target audiences on external platforms, or within their own streaming video products. Amazon’s Prime Video advertising, which began carrying ads roughly two years prior to 2025, reached an ad-supported audience of 315 million viewers in Q4 2025 and was cited by CEO Andy Jassy as a meaningful contributor to that quarter’s ad growth; Amazon’s Thursday Night Football coverage averaged over 15 million viewers, up 16% year-over-year. Walmart Connect’s growth was similarly attributed by the company to expanded off-site advertising capabilities.

Third, AI-enabled campaign tooling: in September 2025, Amazon launched an AI assistant designed to help advertisers with campaign development from audience research through video ad creation which CEO Andy Jassy said compressed a process that previously took about a week into a matter of hours. This reflects a broader industry shift toward automating campaign creation and optimization to lower the barrier for smaller advertisers to participate in retail media auctions.

Instacart represents a smaller but instructive case of this same architecture applied to the grocery-delivery vertical. The company’s advertising business crossed USD 1 billion in annual revenue, with roughly 90% of consumer packaged goods brands on the platform reported to use its advertising products, concentrated in sponsored product placements within search and browse.

Positioning & Consumer Insight

The consumer insight underlying retail media’s growth is straightforward: advertising placed at or near the point of purchase, informed by actual transaction history rather than inferred interest, converts more efficiently than advertising placed earlier in the consideration journey on channels where purchase intent is unconfirmed. Retailers position their media networks to brand advertisers not as a replacement for brand-building channels like television or social media, but as a closed-loop, bottom-of-funnel complement one where the retailer can, uniquely, tie an ad impression directly to an actual sale within its own data environment.

This positioning explains why retail media networks have been particularly effective at capturing budget from CPG, grocery, and consumer electronics advertisers, categories where the retailer’s own checkout data provides a direct measurement of return on ad spend that platforms like search and social cannot offer with the same precision, since those platforms do not see the final purchase.

Media & Channel Strategy

Advertiser behavior data compiled by McKinsey shows a channel strategy in active transition. In a 2025 survey of 150 US media-buying decision-makers, 56% of advertisers said they planned to increase commerce media network spending over the following year, up slightly from 55% the year before. Of the advertisers shifting budget into commerce media, 22% said they were reallocating from digital video, connected TV, or OTT advertising, up from 14% the prior year; other sources of reallocated budget included digital display (20%), social media (18%), and search (15%).

Buying patterns are also fragmenting across a growing number of networks: advertisers surveyed worked with a median of approximately six retail/commerce media networks, up from four a year earlier, and 44% of advertisers said they had shifted spending between different networks within the past year. In-store advertising adoption also grew substantially, with 47% of advertisers reporting they used in-store ad formats, up from 35% the year before indicating that retail media’s channel strategy is expanding beyond digital placements into physical retail environments.

McKinsey’s broader growth data shows commerce media network spend grew at approximately a 20% compound annual growth rate over the past three years, a pace the firm projects will moderate to roughly 14% CAGR over the next three years still well ahead of overall digital advertising, projected at approximately 9% CAGR over the same period, and dramatically ahead of traditional advertising, projected to decline at roughly 5% CAGR.

Business & Brand Outcomes

The documented financial outcomes across the major retail media operators show a consistent pattern: advertising revenue growing substantially faster than core retail sales, and in several cases becoming a material contributor to overall company profitability.

Amazon’s advertising segment exceeded USD 68 billion in revenue for 2025, with its CFO Brian Olsavsky stating the company’s broader full-funnel advertising strategy added more than USD 12 billion in incremental revenue during the year. Walmart’s global advertising revenue of USD 6.4 billion in 2025 (up 37%) came alongside company disclosures that advertising and membership income together comprised a meaningful share of quarterly operating profit, though the company’s disclosures combine these two revenue lines rather than isolating advertising’s profit contribution alone. Target’s Roundel delivered USD 915 million in 2025 advertising revenue even as the retailer’s core sales declined, illustrating the standalone profit-offset function retail media can serve for a retailer under broader commercial pressure. Instacart’s advertising business surpassed USD 1 billion in annual revenue, with high CPG advertiser adoption reported at approximately 90%.

Outside the United States, India’s Flipkart provides a documented example of retail media’s growth in an emerging e-commerce market. Flipkart’s advertising income reached Rs 6,317 crore (approximately USD 760 million at prevailing exchange rates) in fiscal year 2025 (ended March 31, 2025), up 27% year-over-year, and represented roughly 31% of Flipkart’s total revenue that year. Flipkart’s overall revenue grew 14% to Rs 20,493 crore in the same period, while its net loss narrowed from Rs 2,359 crore in FY24 to Rs 1,494 crore in FY25 — figures that place advertising income among the fastest-growing and highest-margin components of the company’s broader financial turnaround, though Flipkart’s public disclosures do not isolate how much of the loss reduction is directly attributable to advertising revenue specifically.

Strategic Implications

Several strategic implications follow directly from the documented data. First, retail media’s revenue growth and margin profile are shifting it from an ancillary monetization tactic to a core strategic asset, particularly for retailers facing pressure on core sales growth, as Target’s results demonstrate. Second, the market remains highly concentrated around a small number of retailers with the largest first-party data assets and transaction volumes — WARC’s finding that Amazon alone captures 78% of US retail media spend indicates that scale and data depth, not merely the decision to launch a media network, determine competitive outcomes. Third, advertiser behavior data shows budget is increasingly being reallocated from established channels such as connected TV, digital video, and social media into commerce media, suggesting retail media’s growth is not purely incremental to total ad spend but is, in part, redistributive within marketing budgets. Fourth, the documented slowdown in commerce media network growth projected by McKinsey from roughly 20% to roughly 14% CAGR suggests the category, while still expanding faster than digital advertising overall, may be approaching a more mature growth phase as advertiser budgets normalize and competition between networks intensifies, evidenced by advertisers now working with a median of six networks rather than four.