Structural E-Commerce Growth
Analysts expect global E-Commerce to grow ~9% per year over the next three years. We expect retail media to outgrow overall e-commerce because 1) onsite is not at maturity and we see more upside from increasing ad-load, 2) offsite will likely uncouple growth from e-commerce by tapping into the wider web, 3) not every retailer has a retail media offer yet. We see more upside potential particularly in Europe where online shopping penetration is still low vs the US and China.
Retail media as a share of e-commerce GMV points to upside potential
If the world catches up with today’s US levels by 2025E, this would suggest a global retail media market of US$228bn. Were the world to reach 5.0% of global GMV, this would likely result in a market opportunity of US$308bn. Amazon % levels of e-commerce GMV would imply a global retail market of US$583bn. On our estimates we stand at 2.6% retail media/GMV today and see significant upside potential.
Retail media as a share of digital advertising implies upside
Retail media’s share of digital advertising is 10% in the UK and continental Europe vs 16% in the US and 45% in China. We see significant upside potential for retail media to take share and outgrow total digital advertising as signal loss on the wider web shifts dollars towards retail. IAB expects retail media to outgrow digital by a factor of 3x over the next 3 years.
Brand and retailer surveys indicate upside
The available bottom-up data suggests that those already invested in retail media expect to increase their spend by high single digits every year. Especially when considering new entrants into the category, this appears to support double-digit growth in retail media, in line with our forecasts. This is also supported by our conversations with brands, retailers, agencies and advertisers.
Trade packets are deep
Traditionally, brands pay brick-and-mortar retailers for in-store promotion, premium shelf placement, etc. As these budgets shift online, they go from trade budgets to digital media advertising, thus growing the overall advertising pie. We estimate that global trade budgets are similar in size or slightly bigger than total advertising. We thus see substantial scope for trade budgets continuing to drive growth in retail media. We estimate that ~1/3 of growth in retail media is driven by shifts in trade budgets, which is conservative, in our view. Criteo and IAB Europe both expect shifts from trade and shopper marketing to drive 30-40% of growth.
Retail media is still nascent ex Amazon and ex China
We estimate that China makes up 41% of the global retail media market and Amazon ~35%, while the retail media market outside of China and Amazon is US$33bn in 2023 (24%). We expect retail media ex Amazon and ex China to grow at a CAGR of 21.2% between 2023 and 2026 vs 13.1% for the whole retail media market.
Retail media is still nascent outside of CPG
There are a number of verticals outside of CPG that are under-penetrated despite having all the favourable characteristics you need to succeed in retail media (high traffic levels, high commercial intent and strong first-party data). We expect them to converge to higher penetration levels, thus continuing to support overall growth in the category.
Cookie deprecation and the offsite opportunity
Third-party cookies on Chrome will be phased out by Google next year. This signal loss on the open web should have the impact of moving ad budgets towards retail media and particularly towards offsite (i.e., targeting consumers on the open web). Surveys suggest that ~20% of these off-site dollars will be incremental, which implies that retail media can continue to outgrow e-commerce and total digital advertising by adding incremental dollars.
Measurement and transparency improvements should unlock further growth
Retail media has seen remarkable growth to date, despite significant pain points in measurement and a lack of transparency. Each retailer has its own measurement data and methodology, and this lack of standardisation makes assessing campaign performance across different retailers a tall order. There are a number of initiatives addressing these issues which should unlock further growth.
Key sector and stock implications
As well as looking at the high level opportunities for the retail media market, we also look closely in this report at the potential impact of this theme on multiple sectors, and pull out the stock by stock winners and losers. The sectors impacted are Media, Internet, Retail and Consumer in multiple geographies.