Window shopping: how retailers are rethinking their business in the digital age

U.S. retailers approached the 2021 holiday season in serious test-and-learn mode.

But this mode is over. Fourth quarter results are in. Overall, retailers are investing heavily in first-party data assets (i.e. their loyalty and membership programs) and first-party data vehicles like retail media platforms .

For many, these investments are still just that – investments. Best Buy has warned investors that gains may not materialize until 2025, for example.

But the tests have turned into full commitments that serious change is on the way.

Walmart uses what it calls “the growth algorithm” – taking high-margin revenue from advertising and its third-party seller market and using the growth of those businesses to offset shrinking profit margins as ‘He simultaneously invests in low-margin businesses (namely, grocery and e-commerce fulfillment). Walmart cited the plan when the company announced its ad revenue and discussed its ad business in depth for the first time last month.

Macy’s is continuing with its Polaris plan, an overhaul built around its new customer lifetime value metrics. Mall-based fashion brand EXPRESS has an EXPRESSway Forward plan.

From established retailers to mature direct-to-consumer companies, AdExchanger examined how well-known US retailers across all categories have reshaped their businesses in three areas: new marketing models, repositioning advertising as a revenue stream, and not as an investment and finally their first party data ambitions.

all the birds

Allbirds is a prime example of a mature DTC brand that is now investing heavily in brick and mortar – the mirror image of traditional retailers repositioning their store footprint for e-commerce.

In-store presence is important to Allbirds because regular customers who interact with the brand online and in stores spend 50% more than regular shoppers who buy in-store or online, but not both, according to CEO Joey Zwillinger, during the company’s second session. earnings call since its IPO in November.

Digital channels remain “by far” the biggest source of new customers, said CFO Mike Bufano. E-commerce also still accounts for 80% of the company’s overall sales.

But retail presence improves the overall profit margin. The shoes cost the same everywhere, but it’s more profitable for Allbirds to sell a pair in a store rather than ship it to someone’s doorstep.

Allbirds is also considering its first major wholesale transactions, after two small tests with Nordstrom.

Wholesale is a risk – Allbirds doesn’t own the data or the customer relationship, but gains visibility, which Zwillinger says is key because only 11% of US consumers are aware of the brand.

It would be “really disappointing” to see a retailer offer big sales of Allbirds, he said, because the company historically does not do discounts – it experimented with discounts for the first time during the period of Thanksgiving shopping in 2021.

“We had 97% full price return for the last year, which is really high for the industry, and maybe even unhealthy, frankly,” Zwillinger said. “And we would never enter into a relationship with someone who we thought could degrade that.”

best buy

Best Buy is a subscription laggard and advertising platform. But it is investing heavily now and expects to see the benefits by 2025, the company tell investors this month.

Totaltech, Best Buy’s $200 membership program, has 4.6 million members, 3.7 million of whom signed up automatically for the retailer’s former customer service programs.

Then there’s Best Buy Ads, the in-house media company launched in January. For now, the ad appears in Best Buy’s financials as a margin expansion – It’s not a stand-alone revenue generator, but is recorded as an offset to the overall cost of sales, said the CFO Matt Bilunas.

(For example, Best Buy might run ads to customers rather than offer low-cost promotions. If the campaign drives that many sales but towards full-priced products, then the ad spend further improves the profit margin. A campaign advertising that encourages online shoppers to pick up in-store rather than home delivery also saves the company money.)

Eventually, businesses will use Best Buy Ads to better understand customers, not just to drive sales at a Best Buy store, as the platform is used today, CEO Corie Barry said. What types of customers become power users? Who needs constant visits from customer service? What kind of marketers want to reach Best Buy type customers, even if they don’t sell products in Best Buy stores?

Once Best Buy Ads are used by marketers in a more hands-on way, Barry said, advertising will form its own line of revenue, rather than materializing as a form of margin control.


The mall-based Express brand is on a mission to modernize.

It now reports similar metrics to DTC or native e-commerce brands, such as online video reach on YouTube, TikTok and Instagram Reels, Google brand organic traffic and monthly app users. “All important indicators of our brand’s health and vitality continue to increase,” CEO Tim Baxter said. tell investors.

These metrics are important for Express because, as Baxter said, its app-based shoppers average five more store visits and spend more than $300 more per year than those who only visit the store or the site.

Express also tracks DTC marks in other ways. Express’s UpWest brand, a native e-commerce unit launched in 2019 that positions itself as a “brand with a purpose” to drive sustainability, now has a wholesale business – Express and Allbirds have each announced their foray into commerce big in recent earnings reports.


Like other major brick-and-mortar retailers, Macy’s is in the midst of a transformation led by a loyalty program and sitting atop a new advertising platform business.

The name of Macy’s transformation program is Polaris, the name of the North Star – and its North Star is Customer Lifetime Value, noted CEO Jeff Gennette.

“To best achieve our strategic goal of building profitable customer relationships for life, we have successfully implemented a new enterprise data and analytics organization that helps us embed data and analytics across everything what we do,” he said.

For example, by strategically offering personalized discounts rather than store-wide sales, Macy’s is creating more multi-item online shopping carts, rather than one-time purchases, he said. This means that the business spends less on hourly labor to pack and ship this purchase as a percentage of the overall cost. Macy’s also now uses custom pricing to move specific inventory it needs to empty or consolidate into specific stores, again to preserve its working hours.

The Macy’s Media Network, as the advertising business is called, generated $105 million in revenue last year, according to chief financial officer Adrian Mitchell.

But like other retailers early in the development of their advertising platform, Macy’s advertising is more about managing profit margin than growing a revenue line. As Gennette noted in his examples of personalized pricing benefits, advertising is a way to reduce labor costs on online orders as much as a revenue generator.

Macy’s tracks ad revenue as part of its selling, general, and administrative expenses — similar to Best Buy, and unlike Walmart and Target which split ad revenue.


Target is in the running in terms of retail media and first-party data products. After Amazon and Walmart, Target broke its ad revenue for the first time this quarter, grossing a handsome billion in 2021.

“From humble beginnings in 2007 with just 5 team members, [then] known as Online Vendor Marketing, Roundel is now a fully integrated Target team of over 500 people,” said CEO Brian Cornell.

Roundel and Circle, Target’s 100 million loyalty program, are the pillars of Target’s strategic shift from broad promotional discounts to personalized offers, according to CFO John Mulligan. Last year, the company tested store-wide price discounts against personalized sales during the holidays. Personalized offers converted 70% vs. 40% for mass discounts, and averaged $8-$10 larger baskets at checkout.

“How we’re leveraging media to get to know our customers better and create a more relevant and personalized experience for them is incredibly exciting,” Mulligan said.

And Roundel’s impact extends beyond the reported $1 billion goal for the company, he said. “A significant portion of Roundel’s revenue reduces our cost of sales, which benefits our gross margin.”

Indeed, the ad unit is closely related to in-store shopping behavior.

“We know how we run our stores is the secret to growing digital sales,” Mulligan said. More than half of online orders are processed in store. Orders purchased online and picked up at a store — “the fastest fulfillment at the lowest cost,” he said — are the fastest growing segment of Target’s overall business.

A business as old as time

Not all retailers have taken the same approach to immersing themselves in advertising or keeping customers close in an evolving landscape.

Both extremes can work: Best Buy sticks to deep promotional discounts to displace expensive consumer and home electronics, while Macy’s and Target erase the notion of store-wide sales. Allbirds Adds Mall Locations; Macy’s and Express are touting their mall-based footprint.

What these retailers share is a desire for data-driven change to respond to new ways of media consumption and shopping. And they’re all developing the ability to connect their actions — not to mention the ad platform’s new client campaigns — to buy data they own.


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