Walmart generated $611 billion of revenue in 2022, but it only brought home $20 billion of operating income. That’s a 3.3% margin — terrible for an average business, but normal for a retail business. That’s why Walmart’s CFO said that the company will stop being a retailer within 5 years. Or more precisely, he said that within 5 years Walmart will likely be generating more profit from advertising and third-party e-commerce seller fees than from traditional retail sales.

Walmart has been growing its advertising business at around 40% per year, and advertising is 10-times more profitable than retail. In 2022, advertising only made up about 0.5% of Walmart’s revenue, but it made up 5% of Walmart’s operating profit! And Walmart is about to seriously ramp up its advertising business even further. Here’s how it works.

Walmart will offer 5 main types of advertising:

1. Online search ads. Just like Google ads on a Google search results page or sponsored products on an Amazon search results page, Walmart.com and the Walmart app will show sponsored product listings for companies that pay for premium placement.
2. Digital display ads. When you read a blog article, you’ll likely see ads interweaved with the content. Similarly when you scroll down an Amazon product page, you’ll likely see recommendations for other, related products. Those are both examples of digital display ads. Ecommerce sellers can now purchase more display ads on Walmart.com and the Walmart app.
3. In-store screen ads. Companies selling products at Walmart can advertise their products on the TV screens in the back of Walmart stores and on the screens of self-checkout machines.
4. In-store radio ads. Brands can purchase 30 second ad slots to be played over the in-store radio.
5. In-store product sample stands. Companies will soon be able to pay to host free sample stands on the weekends in more than 1,000 Walmart stores. These stands will be staffed by brand ambassadors who will try to sell people on buying products.

Walmart isn’t the only retail company trying to become a media & advertising company. Kroger, Target, Amazon, and Walgreens have all been moving towards retail media opportunities. However, the retail media strategy must be pursued carefully or it may backfire, as Walgreens already experienced.

In late 2020, Walgreens launched an initiative to replace some of their fridge & freezer doors with screens that featured ads, and it didn’t take long for TikTok and Twitter to start roasting them. The flashy screens made it harder to find what shoppers were looking for, until eventually Walgreens hired a new CEO who shut down the fridge advertising program.