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Why retailers are reticent on in-store retail media: Capex and CX

Recent news of Walmart’s expansion of in-store ads, including audio and product demos, plus The Kroger Co.’s planned roll out of digital ads in the cooler aisle, has intensified the spotlight on the rise of in-store retail media. This fast-emerging segment is perhaps the most critical development in the digitization of the store, retail’s next mega-trend. Physical stores have enormous—and almost completely untapped—potential as the next major media channel, yet US retailers have been remarkably slow to adopt.

The biggest reasons: Capex and CX

Notoriously protective of the bottom line, retailers are generally reticent to take on new capital expenditures (capex)—especially when the returns are difficult to predict. High-traffic stores are already complex ecosystems that store managers prefer to keep unchanged.

Uncertain ROI and store capacity are the top two reasons US physical store retailers resist store modernization, according to an August 2022 study from Retail Systems Research. And many of the other organizational inhibitors, like increased complexity, fall along similar lines.

But now retailers are falling behind, and indecision today means missing out on hundreds of millions—maybe even billions—in ad revenues within the next five years. Leading physical retailers have audience scale that would make most media companies blush, and it’s a clear competitive advantage over Amazon in the “Retail Media 2.0” era. Despite Amazon’s considerable lead in digital audiences over Walmart, Target, and Kroger, these three boast audiences of a hundred million or more every month while Amazon Fresh barely registers, according to data from December 2022 and Comscore Media Metric Multi-Platform data from January 2023.

How should retailers boost their in-store retail media?

On the customer experience (CX) side, retailers should prioritize low-risk digital surfaces. They can start by implementing ad experiences with the lowest likelihood to disrupt CX and store operations. This begins with in-store audio, which requires little infrastructure and can easily be flipped on and off. In terms of digital signage, front-of-store kiosks, checkout aisle screens, mini-cooler door screens, and those at the deli counter and pharmacy have less potential to interfere compared with those in the center aisles.

In terms of capex, retailers can prioritize low-cost installation or enlist partner subsidies. Single-screen installations at the front of the store or at the store perimeter generally have nonprohibitive installation costs. They can be subsidized by the hardware technology providers in exchange for a higher share of the advertising revenues.

Retailers that let CX and capex stand in the way of embracing in-store retail media are losing precious time. Every year that passes without meaningful advancement of their capabilities offers another year of catch-up time to Amazon.

And retailers should be worried, because Amazon is building its Fresh stores from the ground up with in-store ad experiences in mind. Failure to act means they’ll wake up five years from now to find Amazon with a dominant share of in-store retail media because they took too long to act.