As we approach the end of the year, we’re covering trends from key markets in 2022. We’ll recap the state of each industry over the past year, the ad strategies of its biggest players, and what we predict 2023 will hold.
According to the International Monetary Fund, real GDP in the U.S. is expected to increase by 1% in 2023, down from 5.7% in 2021 and 3.2% in 2022.
Higher-than-expected inflation, interest rate hikes, layoffs and unprecedented global events are snowballing into a perfect storm of budget concerns for many Americans.
Despite the outlook, many consumers refuse to turn a blind eye to retailers, especially as the holiday season nears.
Unsurprisingly, some retail advertisers are taking notice—and their strategies could tell us how they’ll spend in 2023.
MediaRadar Insights on Retail Advertising
If we used retail ad spending as the proxy to temperature-check the economy, the thermometer wouldn’t raise any alarms.
Through Q3, retail advertisers invested $11.1b, representing a 13% YoY increase from the same time last year; their average monthly investment grew from $9.7mm last year to $1.1b through October 2022.
For the most part, 2022’s quarterly spending levels have surpassed those of 2021. Spending in Q1, for example, increased by 32% YoY, while Q2 and Q3 each spiked by 8% ($3.2b).
The only noticeable slowdown came in June and July, but that makes sense given that the U.S. officially entered a recession in June, and retailers were taking the pulse of consumers.
When retail sales beat expectations in June, advertisers had renewed conviction consumers wouldn’t be deterred. As a result, spending rebounded in August and September by 9% and 13% MoM, respectively.
Which Retail Advertisers Spent Big?
Driving retail spending were advertisers in five categories: general, food and drug, apparel, home furnishing/goods retailers, and online department stores.
Combined, these advertisers spent more than $6.6b, or 60% of the investment from the retail industry.
Retail ad spending through Q3 demonstrates that, as a whole, advertisers are confident consumers will spend.
As we move through the shopping season, this confidence will persist, especially with Americans spending between 6% and 8% more this holiday season.
That said, the slight decrease in spending from general retailers indicates that some frugality remains.
Advertisers for Dollar General increased spending by 77% and 22% YoY in Q1 and Q2. After a slight decrease in July, spending spiked in August and then exploded in September by 275% YoY.
Interestingly, advertisers poured considerable dollars into print ads, indicating that some retailers may still hold traditional formats in high regard.
While the print-heavy strategy could be nothing more than a seasonal shift, there could be greater meaning behind it:
- Dollar General is taking a new approach following leadership changes.
- Retailers are investing in traditional ads to break through the digital noise and prepare for the downfall of third-party cookies.
Note on the second point: Dollar General is the only retailer investing heavily in print. This could indicate an isolated strategy shift or show that they’re ahead of the curve.
Advertisers for Kohl’s increased spending by 25% YoY, with August (up by 61% YoY) and October (up by 36% YoY) experiencing the biggest spike as it rolled out holiday-focused initiatives.
For Kohl’s, the increased budget comes not only in the months leading up to the holidays but during a time in its history when it’s attempting to regain its once-dominant status.
A strong push from these advertisers in Q4 and into Q1 2023 is likely as it tries to pry sales away from Amazon, Walmart and others.
Retail spending trickled into the apparel advertising category, with advertisers increasing their budgets by 20% YoY to $1.48b.
The top three advertisers—Gap, JAND (Warby Parker), and Signet Jewelers—accounted for 18% of the category’s spend.
For Gap, the 8% increase comes as it tries to reestablish itself following a sales dip during the pandemic.
Part of that new identity—at least in the short term—could be a penchant for discounts.
Katrina O’Connell, Gap’s executive vice president and chief financial officer, recently said,
“While our third quarter results underscore the initial progress we are making toward rebalancing our assortments and reducing inventories, we continue to take a prudent approach in light of the uncertain consumer and increasingly promotional environment.”
Other retailers likely find themselves in a similar situation as they offload an unprecedented amount of inventory.
After starting as an online-only retailer, Warby Parker (incorporated as JAND) has continually innovated, which includes an expansion to brick-and-mortar retail.
Understandably, ad spending has followed suit.
Through Q3, Warby Parker increased its spending by 12% YoY. As the uncertain economy persists throughout 2023, the company’s affordability will position it to excel, translating to more ad budget.
Signet Jewelers finds itself in a different situation. In a down economy, jewelry usually isn’t on the top of shopping lists.
Despite that, Signet Jewelers—think Kay Jewelers, Zales, Jared, and Diamond Direct—increased spending by 25% YoY.
As surprising as that may seem, it could speak to the company’s go-to-market strategy in 2023 and how it’ll spend its budget.
Bill Brace, president of Jared and Jewelry Services at Signet, recently said that its new limited-edition high jewelry collection reflects “an intentional move to push up and attract a higher-end customer with products not normally seen in Jared.”
If Signet Jewelers does focus on higher-end customers moving forward, it could be immune to ad spend cuts given that its customers are more likely to spend during a recession.
Food & Drug Advertisers
Food and drug retailers invested $1.49b in ads through October, representing a 9% YoY decrease.
CVS and Walgreens accounted for 12% of that, with a combined spend of $176mm.
Despite the competition from Walgreens and other players, CVS decreased its spending by 12% YoY.
That said, spending has been on an upward trend of late, rising in August, September and October by 85%, 73% and 38% MoM, respectively.
It’s hard to pinpoint the reason behind the ebbs and flows of CVS’s strategy, but it does align with business moves that include an acquisition of Signify Health and a push into primary care.
Walgreens took a different approach, increasing its budget by 6% YoY. Not only that, but it mirrored CVS’s end-of-year increases in August (up by 10% YoY), September (up by 30% YoY) and October (up by 8% YoY).
Despite lower quarterly sales, Walgreens’ investment in consumer healthcare services could ignite its ad strategy in 2023 as it looks to establish its identity.
Home Furnishing Advertisers
Home furnishing retailers increased their ad investment by 30% YoY to $940mm.
The three top advertisers—IKEA, Steinhoff International Holdings and Wayfair—accounted for 36% of the category’s spend.
On the heels of record sales, IKEA increased its ad investment by 43%YoY.
The spending, despite weakening consumer confidence, speaks to the company’s 2023 ad strategy—one that’s ripe with ads. That said, IKEA understands the state of the economy, which could put its budget into question.
Jesper Brodin, Ingka CEO, said, “We have deep respect for the year we are in…and we are prepared for a tough winter for people everywhere.”
Advertisers for Wayfair increased spending by 72% YoY. (Wayfair is up by 85% in all retail advertising categories.)
A level deeper, they increased their budget in October by 40% YoY and 52% MoM, a move undoubtedly indicative of how they’ll spend during the holidays.
That said, layoffs and declining sales could put pressure on them to do more with less.
Steinhoff International Holdings
Unlike IKEA and Wayfair, Steinhoff International Holdings (Mattress Firm, Sleepy’s, etc.) decreased spending by 25% YoY.
While that’s a sizable decline, these advertisers could be in a position to increase their budgets in the wake of market growth and strong underlying financials that point to a strong 2023 and beyond.
Online Department Stores
The retail industry is synonymous with two companies: Amazon and Walmart.
Unsurprisingly, these two retail giants were the driving forces behind the 68% YoY increase in spending from online department store advertisers.
Despite the similarities, including retail media networks and benefits tied to monthly subscriptions (Amazon Prime and Walmart+), their ad teams have moved in different directions.
Amazon & Walmart
Amazon increased its budget by 62% YoY (that’s 10x the next largest advertiser).
Overall, Amazon’s Q1 and Q2 budgets were up by 121% and 14%, respectively. August, September and October increased as well to the tune of 59%, 37% and 53%.
On the other hand, Walmart decreased spending by 45% YoY.
Overall, the Fortune 1 company reduced its budget by 31% across all retail categories, with October’s investment—although it still exceeded $40mm—down by 70% YoY.
The contrasting strategies are equally intriguing and puzzling, but they could offer a glimpse into how the companies will spend in 2023.
Walmart did nothing but grow in 2022. While Amazon still has 45% of the eCommerce market compared to Walmart’s 5.7%, the latter edges out the former in groceries and Black Friday buzz.
Given Walmart’s continued growth without more ad spend, it’s possible the company believes brand equity is enough to boost its bottom line.
Meanwhile, Amazon’s big push could indicate it’s feeling pressure from Walmart and other major players, including Target, Best Buy, Costco and others.
That said, it could also have something to do with the fact that it needed to get eyes on its $715mm “Lord of the Rings” series (the most expensive TV show of all time).
What’s the Rest of 2022 Hold for Retail Advertisers?
We’ve been in a shaky economy for long enough to understand how consumers and advertisers will respond.
For instance, most people won’t be giving up their next vacation—more than half of Americans view leisure travel as an important budget priority, even during a recession.
Many travel advertisers have responded to the surge by increasing their budgets.
Retail advertisers are doing the same in the face of consumer resilience—despite the recession and rising inflation, the average consumer is expected to spend $1,455 this holiday season.
For that reason, retail advertisers will likely continue to spend for the remainder of 2022 and into 2023.
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