Retail media is advertising published by retailers, and Amazon Sponsored Products is its best-known example. It creates value for advertisers when it generates profitable new demand, but it can just as easily shift margin to the ecommerce site publishing the ads.
The market is substantial and growing. A 2025 Journal of Retailing paper estimated 2024 global retail media spending at more than $140 billion, including $54 billion in the United States. More recently, eMarketer forecasts U.S. retail media ad spend at $69.33 billion in 2026, a 17.9% increase from 2025.
Two Ways to Participate in Retail Media
Ecommerce companies can participate on either side of the retail media market. A merchant selling through Amazon, Walmart, or other marketplaces can buy ads to convert more shoppers, and the same merchant can sell and publish ads on its own site and email list.
For the advertiser, retail media can be useful because the message appears close to the purchase decision. A shopper searching for “waterproof hiking boots” shows strong purchase intent.
Value Creation Versus Margin Shifting
Imagine a brand that spends $1,000 on retail media and generates $5,000 in sales it would not otherwise have received. If those sales produce $1,500 in contribution margin before advertising, the campaign generated $500 in net benefit. That is value creation.
The economics look different when the sale would have happened anyway. Imagine a marketplace where a seller historically ranked well organically. The marketplace adds more sponsored placements, competitors bid for them, and the seller must spend $5 on advertising to maintain a $50 sale it used to get without that expense.
- The marketplace earns $5 more.
- The seller earns $5 less.
- The shopper still purchases the same product.
Retail media has generated revenue for the marketplace, but not for the advertiser. This possibility is more than theoretical: the Journal of Retailing report noted concerns that retail media can erode advertisers’ margins when the attributed sales are not incremental or new.
Retail media in the form of sponsored placements can turn an ecommerce storefront into an advertising channel, such as this example for hiking shoes.
When Ads Lower the Publisher’s Profit
Retail media can also erode the margins of the merchants publishing the ads. Consider a retailer with a category page generating $100,000 in monthly merchandise sales and $30,000 in gross profit. A supplier agrees to pay $3,000 per month for a prominent advertising placement, seemingly elevating margins to $33,000. But suppose the sponsored placement displaces the merchant’s own conversions, and gross profit falls from $30,000 to $28,000. The retailer-publisher collected $3,000 in media revenue but gained only $1,000 overall. Even worse, if gross profit from product sales falls to $26,000, the $3,000 from retail media lowered overall margin by $1,000.
Advertising revenue increased while business performance declined. That risk extends beyond a single product; too many sponsored products or irrelevant recommendations could make a store harder to shop, weaken customer trust, or reduce conversions over time.
For marketplace advertisers, return on ad spend cannot alone justify the investment. An advertiser generating $8 in sales for every $1 of ad spend may have received those conversions anyway. The more useful measure is whether the advertising changed the outcome. To estimate the effect, large advertisers use randomized experiments, marketing mix models, geo-testing, and similar methods, while smaller companies can assess new-customer sales, organic performance, and periods with and without campaigns.
Judging Incremental Value
Retail media is not inherently a win or a loss. If it creates profitable new demand for advertisers, it’s a win; if it adds cost to conversions advertisers would have received anyway, it’s a loss. For retailer-publishers, it adds value only if it produces a higher net margin. That distinction matters for both sides of retail media.
