Memo: Ads, Marketplaces, and Inflation

Mitigation strategies are top of mind as brands continue to navigate the many changes facing today’s global market. Some have been covered by 2PM including:

  1. Inflation and other persisting macroeconomic pressures
  2. A growing preference for marketplace economics over direct-to-consumer 
  3. Brand advertising preferences (data privacy bolstering Amazon’s advertising businesses)
  4. Apple’s sneaky approach to its advertising platform (the Apple Property Tax)

Macroeconomic Pressures

Inflation is the most troubling issue for many in retail, though there are silver linings. In April 2022, more than half of people with household incomes under $50,000 said they already cut back on multiple expenses due to prices, and for those with income of at least $100,000, the cutback levels are similar when it comes to dining out, taking vacations, and buying a car. Over the pandemic, consumerism benefitted from the upper-middle class and wealthier Americans consuming at a pace that seemed to ignore logic. Many are still comfortable paying more for less.

While retail’s gross sales are still climbing, value isn’t and it’s beginning to impact the most economically challenged Americans. A new report by the Wall Street Journal affirmed this shift in consumer sentiment:

Data last week revealed new evidence from companies and the government that household spending is increasingly strained. Families are paring back purchases of items such as electronics and furniture as prices for essentials like food and gasoline have become more expensive. Inflation drove consumer spending in June to a new four-decade high while personal incomes fell when adjusting for inflation and taxes.

But the report went on to explain that there is a disconnect between sentiment and action for many consumers. In the same report, Moody’s Chief Economist explained:

There’s all kinds of disconnects in this economy, but there’s a very strong disconnect between how people say they feel and how they’re behaving. This gap between sentiment and behavior is the widest I’ve ever seen.

There are still opportunities for retailers; they just need to read the tea leaves. Online sales skyrocketed during the pandemic but then crashed as stores reopened. Or did eCommerce crash? According to Benedict Evans, how we currently define eCommerce sales is limiting proper analyses of retail as delivery methods and modes of consumerism evolve.

The lines between online and offline retail have blurred. Consider all the ways to order something online and all the ways it might arrive to your house: Uber, UPS, USPS, local courier, or BOPIS. Or maybe you pick it up in an Amazon locker or curbside at your nearest Target. Does a retailer count that curbside visit as eCommerce?

Evans writes that “addressable retail” is becoming less significant – what matters is how retailers actually fulfill orders. It doesn’t matter if retail is defined as including auto sales or restaurants. They’re all operating within the Amazon model now:

However, I think one could argue that ‘addressable retail’ is becoming less and less useful over time. Not only does Tesla sell cars online, but around half of US restaurant spending has been ‘off-prem’ (collection and delivery) since before the internet, and it’s not clear to me what it means to count tapping the phone icon as ‘offline retail’ and tapping the Doordash icon as ‘online online’ if it’s still a pizza on a bike. And, of course, retailers have talking for years about sales journeys that start online and finish offline and vice versa.

I think it might be more helpful to stop talking about what is or is not ‘addressable’ and just talk about different logistics models – everything will be sold online, but the delivery will vary. What can come through the mail, what needs a cold chain, what needs a truck, and what needs a bike? In other words, what fits Amazon’s commodity, packetised logistics model, and what needs something else?

This will culminate in small and medium sized brands needing their own logistics operations – or needing to join larger marketplace machines.

Marketplaces and Opportunity

That writing has been on the wall. Being a successful brand that will last through the next decade will rely less on brand equity and more on supply chain innovation, delivery efficiencies, and inventory management. What this class of brands needs is a marketplace that can provide the back-end logistics as well as front-end curation. From our report from last week:

Consumer behaviors seem to suggest that they want simplicity in how they buy goods and services, whether offline or online. Marketplaces benefit consumers and brands alike. For consumers, it means more products in one place. For brands, it means more visibility and less reliance on performance marketing spend. Like China’s advanced market suggests, Shopify could add to its resilience by becoming the marketplace for its many brands. If not, Amazon may pursue that strategy on their own.

The marketplace model will become more relevant for digitally-native brands as eCommerce continues to evolve and lines blur. The most capable retailers will reach customers where they are.

In our recent report on the emerging 90s nostalgia and how it may impact our consumer habits, I explained that nostalgia may begin to influence consumerism beyond the television and computer screens:

There is a chance that this next decade will see reality imitating art with more brands handing over their acquisition strategies to physical and digital marketplaces – this could lead to an emphasis on platforms like Amazon,, and others over individual storefronts like BigCommerce or Shopify (who is undoubtedly struggling).

Today Glossy published a report affirming the notion that eCommerce brands see marketplace strategies as an opportunity for growth.

In a survey of 46 fashion and beauty brands and retailers, more than 37% have introduced a third-party marketplace to their online stores, 35% of which did so in the last year.

Amazon, Walmart, Apple, and Advertising

In 2018, I wrote on Amazon, advertising, and crashing the duopoly of Facebook and Google’s pay-per-click businesses. Though this was written four years ago, it has never been more relevant: “Long term: Amazon will benefit from the use of less intrusive data. Consumer profiles will track on-site purchase behavior and product affinity, not web-wide browsing behavior. The eCommerce giant tracks KPIs like add-to-cart, average order value, and likelihood for add-on products in order to segment and serve higher converting advertisements for merchants who bid on ad space and keywords.” Apple’s privacy directives helped accelerate this idea by five to seven years. The softening of Google and Facebook’s advertising business has Apple’s privacy initiatives to thank. Fast Company published a great report detailing the timely juxtaposition of Apple’s impact, Amazon’s advertising growth, and Facebook’s struggles:

The rise of retail media ad networks is now intersecting with a softening of the digital ad market, brought on by a combination of macro-economic factors, and more secular shifts in the online-ad business resulting from Apple tightening the ability to track user behavior across the Web. Facebook, for instance, just posted a 36% drop in profit from last year, citing ad-market woes.

But Apple’s impact on privacy is also beginning to jumpstart its own advertising fiefdom, as many analysts predicted. This recent quote would have seemed nonsensical just a few years ago. Brooke Tarabochia, the direct of growth marketing for Peloton:

Apple Search Ads was the most efficient, scalable paid channel for our relaunch. We captured a broader audience with higher intent while maintaining efficiency.

The silver linings suggest that though everything around the industry seems to be impacted by the stresses of technology’s innovation cycles and economic fluctuation, there remains opportunity to find success.

By Web Smith | Edited by Hilary Milnes with art by Christina Williams and Alex Remy

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