Why Retailers Are Increasing Their Ad Spending on YouTube

Earlier this series, we discussed the dynamics around the YouTube segment of Google (GOOG). Although YouTube is experiencing fast revenue growth, it’s impacting Google’s aggregate ad rates, as TrueView ads are monetized at lower rates than Search ads.

According to a report from eMarketer, and as the chart above shows, Walmart (WMT), Target (TGT), Amazon (AMZN), and Lowe’s (LOW) were the four retailers in the United States that spent the most on YouTube video ads last year.

The report also mentioned that these retailers are increasing their ad spending on YouTube mainly due to its latest shoppable ad model. These are ads through which the user lands at retailers’ web pages after clicking.

Traditional retailers have woken to the fact that the market is shifting to online shopping faster than expected. According to a report from the Wall Street Journal, retailers have been forced to close their stores due to weaker-than-expected holiday season sales last year.

The report mentioned that Kohl’s (KSS) will close 18 stores in the near future, while Sears Holdings (SHLD) could sell some of its assets to recoup its losses. Macy’s (M) and Walmart will also close some of their low-performing stores.

This clearly shows that it’s become important for traditional retailers to increase their investments in e-commerce operations. YouTube shoppable ads are one such way of doing this.

For diversified exposure to Google, you can consider investing in the Technology Select Sector SPDR ETF (XLK). XLK invests 5.5% of its holdings in Google.