Retail Media, Measurement and the Questions Emerging Next
Agentic AI is testing everything retail has known about itself.
Speakers at the National Retail Federation's (NRF) Big Show this month raised early concerns about the limits of things like ROAS, pointing to a future where retail media measurement may need to evolve alongside more agentic forms of commerce.
Suddenly, AI-driven helpers seem poised to make shopping decisions humans have always made, and the influence retail media has long enjoyed becomes complicated when the decider isn't human.
Google made clear that agentic is the future, unveiling its Gemini Enterprise for Customer Experience, an agent-led solution that will blend shopping and customer service on a single platform.
In this incoming era of commerce, measurement gets further complicated when people using agents to shop see outcomes instead of ads. Whether the ad, the agent or simply the customer's preference actually caused the sale becomes muddled and difficult to determine.
ROAS — the return on ad spend metric that gets mixed reviews from those in retail — may become even harder to rely on.
In a fact or fiction session that saw two leaders weighing in on retail realities at NRF on Jan. 13, when considering the statement, "ROAS is terrible for measuring a marketing budget, fact or fiction?" both resoundingly said, "Fact."
“I’ve stopped using ROAS as return on ad spend, it’s just revenue on ad spend,” said Josh Krepon, president of DTC at Steven Madden. “If you really want to have a measurement vehicle for what the return on your spend was like, that’s a helpful metric, but at this point it has almost no bearing on how we look at spend.”
"ROAS masks a lot of ills within an organization," added Billy May, Brooklinen CEO. "If your email and SMS and your customer marketing program is unbelievably efficient, and that's in your blended number, it actually means that your performance marketing is underperforming on an incremental basis. But if you bias everything on your marginal return, you actually will ignore top of funnel considerations and brand marketing because it's not driving a direct performance result."
Retailers spend considerable money with vendors and then use ROAS to justify their performance, May said. In his view, calculating return on investment demands knowledge of incremental margin return.
"If I spend $1 and I generate $10 in sales, yes that's a $10 ROAS," May said. "But if only 40% of that is incremental and my margin on that is 30%, then I spent $1 and got $1.20 back, that's a 20% return on investment. That could be good, that could be bad, I don’t know. I have to sit down with my finance team and say, 'What’s our goal on that return?' That's a different metric. Looking at the marginal return, to me, is the most important element you can look at."
The takeaway, Krepon said, is that retailers calculating ROAS to their clients without asking for margin guidance to provide a different calculation, are "not asking the right questions."
"Budgets are really large these days and they get scrutinized, not just by leadership but by boards and investors, so making those dollars work harder gets harder," May said. "Focusing on not just the incrementality but the marginal return [goes a long way]."
Focus: Retail Media
When it comes to retail media more broadly, both May and Krepon agree the landscape will look vastly different in the coming years given everything barreling down the pike with AI-backed technology.
“Outside of Amazon, I think there’s going to be real impact with agentic in a meaningful way,” Krepon said, signaling his expectation that the playing field will shrink.
Responding to the fact or fiction statement that "retail media only works because the rest of the business subsidizes it," May said retail media was a way to capture dollars from somewhere else.
"[Now] there’s competition for those dollars. Do they move into agentic? Do they move elsewhere? Certainly they’re going to be digital dollars," he said. "There’s a bit of fact in that it’s being subsidized elsewhere. It’s a bit like the ROAS conversation, 'Look how amazing our return is,' but in reality it was the cost that billed it elsewhere unless it’s really incremental dollars."
This year, "is probably the year of ads within the agentic space," Krepon said, pointing to Google's recent announcement.
"That's where the conversation changes a little bit in terms of where those ad dollars are going and how brands are showing up," he said. "We're trying to not be the first mover but a fast follower in terms of understanding the space and what budget we're dedicating to that."
