Retail media ad spend has been the buzz in marketing circles as customer acquisition on digital platforms becomes more expensive and opaque. The retail media network (RMN) category is expected to grow to $166 billion by 2025 and will account for 20% of all digital media spend this year, according to eMarketer. The list of retail media networks continues to grow as retailers seek to monetize rich first-party data into alternative revenue streams.
Ulta Beauty and Sephora seamlessly blend online and in-store experiences through the integration of social media, mobile, and web platforms to engage with their customers, capturing vast amounts of data. While beauty retailers have been a little late to the game, they are catching up fast. Ulta launched its retail media network, UBMedia, in Spring 2022 to monetize the 42+ million loyalty members who drive 95% of the retailer’s sales. Like Amazon, Ulta offers a full-funnel advertising solution. Sephora has followed with Sephora Media, but it’s limited to display ads and audience targeting that can drive visibility and increase share of voice.
The draw for brands is that retailers can offer a direct-line connection between ad spend and actual purchases. An increasingly competitive retail environment has brands looking for any opportunity to drive revenue and growth especially with retail partners like Ulta and Sephora.
We talked to Jacob St John, CEO of Navigo Marketing, for an exclusive interview on the importance of retail media networks (RMNs) – Amazon, Ulta and Sephora – to brands’ online growth strategies. Jacob shares trends and best practices on how brands are leveraging retailers’ first-party data and accelerating their growth.
You have found a very interesting niche in the super competitive beauty agency world. Can you share how you arrived at servicing the intersection of Amazon and retail media?
Having worked with over 100+ beauty brands over the years, we’ve seen the evolution of the space. Amazon has moved from a siloed e-commerce channel to part of a robust and interconnected digital ecosystem, including a brand’s own .com, social media, and other retail channels, all of which are incredibly important to a brand’s overall growth strategy. We initially focused on Amazon, but as the top two beauty retailers in the US, Ulta Beauty and Sephora, began to build their own media platforms, we expanded to manage all three.
What we found is that many brands think each of these online retail channels should be managed separately. This is false. Consumers may go through different paths to purchase across media, but once they get to their preferred retailer, whether it’s Amazon, Ulta, or Sephora, their behaviors are very similar. Consumers search, discover, compare, purchase, and interact with a brand’s content and ads in the same way. It makes sense for beauty brands to manage these channels together. And we have proven to our clients that a fragmented view is less than ideal and can easily be optimized to drive higher ROI.
Beauty retail media is fairly nascent. What is the current state of beauty retail media?
Retail media networks or RMNs are the fastest growing digital advertising channel in the US. Search and social media are still the top two, but RMN advertising is far outpacing that of Google and Meta. Why? Because it offers brands the ability to hyper-target their customers through the retailers’ own first party data while they are in the market to buy. Beauty brands have many options with retail media. Most brands are aware of the opportunities on Amazon, Target, and Walmart.
Now, beauty retailers Ulta and Sephora have recognized this incredible revenue opportunity and partnered with ad networks like Criteo to offer programmatic advertising across the purchase lifecycle. In the same way brands have had to pay for the best placements in store, they now have to pay for the best placements on retailer .coms to drive higher awareness and conversions. Ulta’s media platform is more developed than Sephora’s, which is limited to display ads at this point. However, our sources tell us that Sephora is investing heavily and believe it will catch up quickly.
There seems to be a perception that retail media is for big beauty brands. Why should indie and emerging brands be considering this marketing channel?
Emerging brands have a chance to really stand out with a cohesive online retail strategy across Amazon and Sephora. Most of our customers are in two buckets. They are either starting out on Amazon/Ulta and looking to grow beyond their own .com or have been utilizing one platform extensively but have yet to focus on the others. Indie brands know they need to incorporate additional sales and marketing channels but are concerned about cost and ROI. By working with a single strategic partner like Navigo that has expertise across retail media platforms, emerging brands can ensure their customers have a consistent brand experience that improves performance on each channel. Advertising online with Ulta would historically only support large sweeping digital campaigns that cost tens of thousands of dollars, but brands can now do that for a fraction of the cost with much more strategic targeting. Plus, if you’ve already done testing on one platform or your .com and narrowed down your high performing content and ads, we can help you get up and running on another retail channel quickly and drive high efficiency and ROI.
One would assume that because it is a closed-loop system, attribution to sales is not only possible but also a key KPI. What are the KPIs brands should use for retail media programs?
Gone are the days of focusing only on impressions and assumed sales lifts. With the closed loop system on each platform, brands can directly see how shifts in ad spend or A/B testing can impact clicks and sales. Given our focus on cross-platform advertising, we typically define success through the total advertising cost of sales. Each platform does contain its own performance metrics and ability to measure direct performance through return on ad spend (ROAS) or similar metrics. However, utilizing our proprietary advanced analytics and ability to scrape data from each site, we can compile powerful reporting that our brands leverage for strategic budgeting and decision making.
What are the other insights that can be gained from working with retailers through these programs beyond sales?
The ability to measure A/B tests and understand the improvements in conversion rates has proven incredibly valuable. Our team tests content that we create with our brand partners to understand what resonates with their customers and how that impacts sales. One of our advantages as a partner is that we provide a single point of contact for brands. We are able to create content and tweak it slightly for every platform, report across platforms, and advise on strategy in a way that breaks out of the siloes that typically exist. Additionally, we monitor share of voice and share of sales as well as category size and growth.
Amazon has become an important channel of distribution and, for some, building brand awareness in the US market. What is the relationship between Amazon and these beauty retail media channels? What about social platforms?
Every brand should be targeting at least four channels for their online growth strategy: retail (Ulta/Sephora), their own .com, Amazon, and social media. We’ve seen the power of TikTok to influence purchases on Amazon. Consumers see their favorite influencers using beauty products, these videos go viral, and sales on Amazon skyrocket. Why Amazon? Because it is easy, convenient, shipping is free, and you get the product on your doorstep in two clicks. Amazon has become where beauty consumers shop—and brands benefit from a channel that regularly has 30% or higher net profit margins. Ulta and Sephora are expanding their .com businesses and we’ve seen strong correlation between how customers shop on Amazon and these platforms.
Customers are using the same keywords. They want the same type of content; they scroll and read reviews, the general shopping behavior is the same. We bring a continuity to each brand that allows the best parts of each channel to be shared for optimal performance.
Based on your experience, where does retail media fit in a brand marketing strategy, and what kind of budget is required to get started?
Brands looking to advertise on Ulta or Amazon should have a minimum of $3,000-$5,000 per month to spend and drive sales. We’ve been able to drive 10x ROAS by doubling ad spend for most of our clients.
Ulta launched UBMedia in Spring 2022 and Sephora followed. What are the similarities and differences of the networks?
UBMedia and Sephora Media allow you to leverage their first-party data, who shops where, what they buy, and when. They charge tens of thousands of dollars to run ad campaigns for a few weeks across Meta and other sites. These are great for building awareness and generating traffic but are hard to measure and are typically reserved for brands with large budgets. Amazon DSP started off in a similar place and has now evolved to be one of the most robust and easiest ways to target your customer.
You are clearly very bullish on leveraging retail media networks for the beauty category. What’s in store for this marketing channel in the future?
- eMarketer forecasts RMNs to grow from $46 billion in 2023 to $109 billion in 2027. That is more than double what it is today—and it will take share from Meta and Google with the decline of third-party cookies. Brands and retailers can build win-win relationships driving revenue and profitability for both parties.
- Amazon will continue to grow and take market share from other retailers, but we expect them to fight back. Ulta is years ahead of Sephora in this regard; Ulta is changing its product page to allow enhanced content and infographics, improving sponsored placements, and showing no signs of slowing down. Ulta knows it has to evolve to maintain its relevance in an increasingly digital world.
- Sephora is still resisting this change, however we’ve seen Sephora improve its SEO and start beta testing sponsored placements. I wouldn’t be surprised to see Sephora announce some major changes in the next 12 months.
