Retailers are relying more on offline events, like Macy’s Fourth of July Fireworks, and less on digital channels.
The chief marketing officers at retailers are feeling hamstrung, with new research from Gartner reporting that almost two-thirds say they lack the necessary budget to accomplish their goals. And their marketing budgets remain flat year-over-year at 9.1% of company revenue, which has yet to rebound from the pre-pandemic high of 10.5%. Analyst Matt Moorut explains what's shifting.
Retail Insider: One of the biggest changes in your report is a shift toward offline spending. In 2023, 51% of budgets were spent online, down from 60% in the previous year. And offline spending, including events, sponsorships and out-of-home ads, increased. Why?
Matt Moorut: For years, the joke has been that you couldn't get fired for spending more on digital marketing. Now, all of a sudden, I think you can. A lot of retailers have been waiting for the moment they could return investments to the offline channels that have historically been the biggest drivers for revenue. From a consumer perspective, even though people shop more online, they've kind of missed a lot of the in-store activity. Retailers have been quite keen to shift back to an approach that lets them use the store footprint in a much larger way.
Retail Insider: Yet social media spending is still the No. 1 channel, accounting for 13.4% of total budgets, compared to 11.2% last year. And there were small gains in SEO, currently 11.6%, and search, now 10.8%. Why?
Moorut:Growth has been slowing, which suggests a realization by retailers that they need more of a balance.
And there's still a captive audience in social media. But targeting has become much more complex across different platforms, making the cost prohibitive. Some retailers have found that if they are going to do untargeted advertising, they can just stick it on a billboard and get the same number of impressions at a better price.
Retail Insider: Retailers increasingly mention generative AI as a way to save money. How much are CMOs investing in this technolog? How much should they invest?
Moorut: How much they should spend is a difficult question. How much they're spending is easier. Generally speaking, it's not the CMO's decision or budget. Typically, it's the company's IT department. Most of the CMOs in our study said they are already either testing AI in small ways or looking to make broader use cases within the following year. But it hasn't touched their budgets yet. My sense is that they should all be spending more than they are to make sure that they're ahead of the curve.
Retail Insider: Should they be hiring AI experts within the marketing department?
Moorut: At the moment, generative AI is this cross-functional thing. And while CMOs will eventually use it, it's never going to be entirely within the realm of the marketing department. It will always be partnered with legal, customer service and other stakeholders.
Retail Insider: What is the current thinking about retail advertising networks?
Moorut: The more profits these networks generate, the more CMOs focus on them. Specifically, they are looking for ways retail media networks can improve the customer experience. And they're still looking at it traditionally, like, "How can we increase average order value?" Retail ad networks typically sit with the IT team, not marketing. And retailers have been pushing more deeply into private labels, and that's also got significant implications for retail media networks.