E-Commerce’s Expanding Role in Retail

In a world that is increasingly lived online, retail brands cannot underestimate the power that e-commerce has in unlocking incremental revenue. The overall percentage of retail sales coming from e-commerce continues to grow each year, so it is imperative that brands view e-commerce not only as a positive influence on their growth, but a necessary one.

As a greater portion of the bottom line comes from retail media, marketers and brands must progressively emphasize their retail media investments and become more strategic with how they are activating media on these networks. Emarketer projects that US retail media spending will grow from $62 billion in 2025 to more than $97 billion by 2029, which would make this offering the second largest element of all paid media investment.

Understanding On-Site vs. Off-Site Retail Media

Within retail media there are a multitude of ways to activate ads, but the biggest distinction is on-site versus off-site dollars.

On-site retail media speaks to the placements found on the actual sites and apps of retail juggernauts like Amazon, Walmart and Target. Consumers browsing retailer sites are at the most critical stage of the buyer’s journey because they are actively prepared to make a purchase during their session on the site.  Because of their high conversion rate and acute return on ad spend, on-site placements comprise roughly 77% of total retail media investments.

Sponsored Product Ads: The New Shelf Space

The largest component of on-site retail media is sponsored product ads. In 2025, sponsored product ads are now table stakes for all brands. The e-commerce platform is not an extension of the in-store shelf space, it should be viewed as independent shelf space in its own right.

Brands should think of sponsored product ad investment as the digital equivalent of slotting fees to get their products on shelf in stores. If a brand does not have presence on the top 4-8 placements in the on-site results, it is no different than having zero shelf space in a store. It simply has become a pay-to-play environment, and brands must fully fund these ads if they wish to remain competitive.

Competing for the Top Search Placements

Retailers like Walmart experience upwards of 85% of all sponsored product ad conversions coming from the top two rows of results on the on-site search results. Earlier this year, Walmart announced that 6 of the 8 slots in the top two rows are now eligible for ads, effectively making 75% of the highest converting placements sponsored.

Walmart also announced that they are now allowing brands to bid on their competitors’ terms and even enable them to appear in the number one search result slot.  This has fueled the already tumultuous competition occurring on-site between brands.

The Cost of Visibility

The result of these shifts to the landscape has been brands further increasing their on-site investments to cover the inflated CPC costs. Brands now more than ever need to be strategic in how they invest retail media dollars to grow market share and defend against conquesting.

With a greater need to meticulously budget on-site media, understanding how supply chain, price point & stock of products impacts how a brand wins these top placements is paramount. Not all retail media networks are the same.

Why Store Distribution Matters

Retailers like Walmart that have national store footprints, are predominately evaluating the physical store distribution of an item when estimating the digital ad grade.  Ad grade is a fundamental portion of the formula their algorithm is reviewing, plus the input bid, to determine which advertiser wins the auction for top on-site search placements. The core inputs influencing ad grade are a product’s historical conversion performance, relevancy metrics of product content to queries, and most importantly, the fulfillment methods (ala store distribution).

Many advertisers do not realize the symbiotic relationship that store supply has on digital media, so factoring this into your on-site retail media strategy is what will set your brand apart from the competition.

The Connection Between Store Supply and Online Visibility

When a consumer visits the retailer’s website, the retailer will automatically populate their location, whether it be from their account information or IP address. The closest store that the consumer is associated with on the retailer’s site is the leading factor in what drives what shows up on the shopper’s screen.

Why is this? Most retailers with store footprints are in a constant battle with juggernaut Amazon to maintain profitability. The greatest way that retailers can improve their net revenue is by reducing their shipping expenses and diverting shoppers to their stores. Curbside pickup and delivery grew exponentially during COVID and is here to stay as consumers are now more inclined to select that option for online orders for immediate gratification.

Walmart’s Advantage: Local Fulfillment at Scale

Walmart is a great example of this given their 4,600+ store footprint. Because they can significantly reduce their expenses by fulfilling online orders from store supplies, Walmart will predominately display sponsored product ads of items that are available at the store nearest the online shopper.

Advertisers must make this the number one consideration for what products to support to drive the greatest revenue for their brands. In fully funding products that have the widest store distribution, advertisers are enabling their retail media budgets to work the hardest for them by casting as wide a net as possible to potential shoppers.

The Challenge for Online-Only Products

Store distribution impacting online performance is directly responsible for online-only products facing scalability issues. Retailers will intentionally suppress these items by giving them an extremely low ad grade, meaning that the only way to gain any visibility is by disproportionately increasing bids to win the ad placement.

This can cause major inefficiencies, so advertisers need to be tactical in how they are allocating budget to widely distributed vs online-only products for maximum impact.

How Amazon Defines Ad Success

Retailers like Amazon have no physical store footprint, so instead of store distribution, they are heavily evaluating inputs like a product’s profit margin and fulfillment source in estimating ad grade.

One of Amazon’s greatest expenses is their shipping costs, especially given the expectation from consumers to maintain the 2-day prime shipping window. Amazon favors brands that have their products available in a greater number of their fulfillment centers, because that means a lower shipping cost & quicker shipping timelines.

For consumers who are logged into their personal accounts, Amazon can even factor in the physical location of the consumer and will be more inclined to display products that are in fulfillment centers closest to the user as another way to keep their overall shipping costs down.

Profit Margins, Stock, and Ad Grade

Profit margin of a product is another factor impacting on-site sponsored product ad placement. Amazon will suppress ads for low-cost single quantity items because the shipping costs may outweigh the profit they would make on the sale.

This is why brands with low-cost items are shifting to prioritize 2 & 3 pack versions of their SKUs to increase the profit margin for Amazon and ultimately improve their ad grade for optimal visibility.

When considering their Amazon strategy, brands must be cognizant of the products they are choosing to advertise and ensure that they are primed to meet these algorithmic requirements.  

Stock Health and Account Performance

If an advertiser is promoting a product that then runs out of stock, Amazon will automatically ding the entire advertiser’s account and begin to suppress other product ads as a consequence. Marketers must be extremely diligent in tracking the stock supply of advertised products in order to maintain the overall health of the portfolio.

If a brand is not fulfilling orders directly – meaning that they are selling and shipping products to Amazon fulfillment centers for Amazon to then use to supply online orders – having vigilant tracking of stock is of the utmost importance.

Marketers must work closely with brands’ supply chain teams to ensure that if a products stock at Amazon is running low that new shipments are being sent in a timeline to avoid any temporary stock out that would negatively impact retail media efforts.  

Collaboration Is the Key to Retail Media Growth

In summary, retail media is positioned for exceptional growth in the next few years so now more than ever brands need to prioritize these channels for continued revenue growth.  The retail media landscape is one full of nuance and overlap with teams outside of just marketing. Advertisers must collaborate closely with brands for a holistic view of what is happening outside of retail media network investments as external factors are having a larger and larger impact on retail media performance.