What you need to know:

• Customer acquisition costs are soaring and returns are under pressure, prompting some ASX ecom players to lift marketing spend, either massively increasing performance spend, or pivoting toward brand in a bid to reduce reliance on paid search and social.
• While some retailers leveraging loyalty programs to increase customer lifetime value and power media revenues, others are ditching loyalty programs altogether – because they are simply discounting and eating margin.
• Owned media and retail media are emerging as the difference between profit and loss. But too few retailers are properly leveraging owned media, argues investment banker turned ecom entrepreneur Carla Penn-Kahn. “That’s a big problem.”
• Another big problem is too many retailers are excluding – or supressing – lapsed customers within performance channels like Meta and Google. Anyone that hasn’t shopped with a retailer for 12 months should be treated as a new customer, per Penn-Kahn.
• Meta and Google’s “black box” ad products Advantage+ and Performance Max are also coming under scrutiny about how their algorithms allocate spend – and whether they can truly drive better outcomes if they are not plugged into critical back-end information, like stock, inventory and margins.
• “If Google doesn't know your profit margins and your inventory depth and your size curve availability, especially if you're a fashion business, they can't optimise their AI to your best outcomes,” said Penn-Kahn.
• She cites best-in-class omni operators as LSKD, Mecca and Baby Bunting, which are leaning into brand, loyalty and CX – eschewing discounts for long-term margin control – and delivering a seamless experience between physical and digital stores.
• But she points to the collapse of Mosaic Brands as a portent of what is to come for retailers that don’t accurately nail their core addressable market.
• Beyond that, and whatever comes next to disrupt business as usual, Penn-Kahn strongly suggests retailers focus on two key metrics above all else.

It’s not an isolated move. Adore Beauty posted $1.9 million net profit after tax for the half amid a flip to physical retail in earnest. The company plans to open 25-plus physical stores by FY27, with a handful this calendar year. Outgoing CMO Dan Ferguson told Mi3 in February the move isn’t a test but a growth unlock, with over 80 per cent of beauty spend still offline. Marketing and advertising expenses totalled $13.7 million, broadly flat compared to the prior period. The business flagged a strategic focus on profitable growth, including expanding owned brands and loyalty programs. Without its owned media business – marketing revenue for the half was listed at $2.6m, up from $1.9m in H1 2024 – the retailer would have posted a loss.

Kogan.com’s results showed signs of stabilisation after some volatile years. The group grew revenue 9.9 per cent and statutory net profit after tax by 19 per cent to $10.3 million in the first half of FY25. Gross profit also rose, by 18.3 per cent to $106 million, driven by improved margin mix and tighter inventory control. The company credited its performance to an "optimised marketing strategy" launched in October 2024, which underpinned 34.4 per cent growth in gross sales during the peak November–December trading period. Kogan also booked $2.1m revenue from its retail media ads business in the first half, up 36.3 per cent, while loyalty revenues grew almost a quarter to $28.2m. Kogan described both ads and loyalty revenue streams as “high margin”. But the group significantly increased marketing spend in H1 – up 46.7 per cent to $38.9m, with Kogan.com making up the bulk ($31.8m). Whereas Temple & Webster is attempting to head off rising performance ad costs with a brand investment push, Kogan ploughed it into paid search – where cost per click costs for Australian retailers last year soared as much as a third.

JB Hi-Fi grew group sales 9.8 per cent to $5.67 billion in the December half, supported by strong Black Friday and Boxing Day performance. The company does not disclose marketing spend, but flagged a 6.2 per cent rise in cost of doing business across its Australian operations.

Harvey Norman, meanwhile, cut marketing expenses by 4.1 per cent to $193.3 million, with franchisee-level marketing support also reduced by $7.3 million – now representing 5 per cent of franchisee revenue. 

Pure-plays get physical

Adore Beauty is ramping up its pivot to physical stores – and investment banker turned ecom entrepreneur turned Peak Profit founder Carla Penn-Kahn says the ecom model migration has come full circle.

“Ten years ago all these big guys – Myer, David Jones, JB Hi-Fi – they were bricks and mortar businesses learning how to do ecommerce. Now it's the reverse. The ecommerce-first brands are opening stores,” she told Mi3.

“At my local Westfield in Bondi Junction, an entire floor is almost all Australian brands that used to be online only that have now gone omnichannel – LSKD, Billini, Arms of Eve, By Charlotte, July … they are all there on that scene.”

As well as taking online pureplays into a much bigger market – with Publicis Sapient estimating 86 per cent of sales in Australia still come from stores – Penn-Khan underlined that the physical network has become a customer reacquisition tool. “It’s an owned channel. You’re not paying Meta or Google to get the customer back.”

Costly acquisition mistakes

Whether omni or pure-play, Penn-Khan warns marketers are making fundamental errors in their assumptions when it comes to customer acquisition – mistakes now proving costly.

“A big problem is that retailers and brands consider a customer that shopped with them once three years ago as a returning customer. That's a big issue in Australia, because you've only got 25 million people [to start with], and of that, who is actually your addressable market?” said Penn-Kahn. “If a customer hasn't shopped with you in more than 12 months, I would actually define them as a new customer target, unless your product is not designed to be purchased again.

“So brands keep thinking ‘how do I get more new customers, more new customers, more new customers!’ – and excluding what they call return customers from their ads … [via suppression] in Meta and Google exclusion,” she added.

“But if that customer hasn't shopped with you in a year and they're not in your database, you actually still need to reacquire them as if they're a new customer, because we don't have an unlimited market in Australia.”

Optimising to wrong outcomes – black box risk

While some retail marketers and agency bosses back AI-driven performance products capturing performance media dollars – i.e. Google’s PMax and Meta’ Advantage+ – Penn-Kahn argues they risk optimising to the wrong outcomes and as a result, eating margin.

“We often question whether AI can do a better job than a human. But when we write an email, we often run the email through AI – because we know AI can write it better than us. So we start getting comfortable with the fact that Google and Meta’s AI can probably do a better job of optimising budgets and placement for us.

“But if Google doesn't know your profit margins, your inventory depth, your size curve, availability – especially if you're a fashion business – they can't optimise their AI to your best outcomes.”

Hence her firm, Peak Profit, “working with brands to build very, very specific dynamic feeds that go into Google's AI and Meta’s AI where you've taken into account things like profit margin, stock on hand, size curve, availability so that you're going to get the best outcomes of your budget once it runs through the AI,” said Penn-Kahn.  “You can't avoid the AI, but you can control what you feed the AI to get the best outcome.”

Owned media undercooked

Penn-Kahn also has concerns for retailers undercooking owned media: “There is still underinvestment in owned media [across the market] and that is a big problem.”

She cited Adore Beauty – now beefing up its retail media operation – as an example of how critical owned media has become for retailers.

“The only bit of profit that they're making really is coming from owned media. If you look at [Adore’s] P&L, they posted an adjusted profit close to a couple of million.” Whereas marketing revenues for the half stood at $2.6m. “So had the own media component not been there, there would have been no profitability,” per Penn-Kahn.

While retailers like The Iconic have long leveraged owned media – charging suppliers to feature on the site, SMS, customer emails and socials – Penn-Kahn thinks properly recognising its value could make the difference between profit and loss for many. She sees post-checkout ads as a growth area – hence the rise of companies like Australian start-up Rokt, led by former Jetstar boss Bruce Buchanan and valued at close to $6bn.

“Even if you buy a movie ticket these days on Hoyts or Greater Union, once you've paid, you get a bunch of different offers that you can accept from other businesses. And so that is basically a version of owned media.”

She thinks more retailers should leverage it.

Speed, scale, and smarter teams

Shifting to omnichannel brings new pressures, not just to acquire differently, but to operate faster, smarter, and with tighter coordination across teams, per Accenture Song Head of Tech and Ecosystems, Josh Lamont.

“It’s not necessarily about doing more with less. It’s about doing more with the same,” said Lamont. “Speed to market has become a competitive advantage.”

That shift in pace is forcing ecommerce teams to rethink how they structure, prioritise, and deploy marketing, especially when acquisition and retention now happens in parallel.

“Ecommerce and marketing teams are being told to deliver faster campaigns, execute more cycles, and retain and acquire, simultaneously,” Lamont said. Hence the sustained push to short-term, lower funnel performance media. Equally, he said, “Some brands are now prioritising abandoned-cart campaigns as their first marketing action.”

Across categories, Lamont said shopper promiscuity is driving retailers to grapple with two marketing fundamentals.

“I think people are shopping around a lot more. People are trying out different combinations of pricing models – so across the industry, we're seeing a need to rethink the way promotions and pricing work to be able to deal with that.

“That's more a cross-industry thing – bundling offers and these sort of things together drive conversions – and that is something that we're seeing quite a lot of.”

Brand vs. customer mismatch

As cheap growth dries up, brand is being reappraised as a stabilising force in a volatile marketing landscape.

 “Brand is your only predictable revenue baseline,because performance is unpredictable and also unsustainable to support growth,” said Penn-Kahn. “So you need capital invest in brand.”

But brands can invest heavily in brand and fail harder if they don’t tightly define their customer – and Penn-Kahn sees warning signs that many retailers are lacking that fundamental. She points to the collapse of Mosaic Brands and Ally Fashion as cases in point.

“There’s been so many [retail exits] this year already. If you look at what those brands have in common, it is really one thing: They don’t have a core addressable market; their brand doesn’t actually speak to anyone.

“When you look at Mosaic Brands, every single one of their stores sold the same product and every single one of them were targeting an older demographic customer who traditionally shop with them – but in the most bluntest terms, are now in their graces, because they are a dying customer.”

Penn-Kahn thinks jeans brands have a similar misalignment between where they sit versus the plethora of others, and who they think their target customer is.

“There is no real target audience. They're not speaking to someone … I presented on this to Levi’s management team a few weeks ago. They talk a lot about who their customer is – this young demographic that attends music festivals.

“I said, ‘no, that is the heritage Levi’s customer, where Levi’s started. If you actually look at who Levi's customer is today, I bet you it is women my age, late 30s, early 40s, who are buying Levi's for comfort, quality, at a price point that's not excessive – and that is not someone attending a music festival’.”

Lifetime value misalignment

According to Mi3’s FY25 Marketing & Customer Benchmarks report, which polled 105 chief marketing, growth and customer officers with $3bn in collective spend, marketers are shifting to lifetime value as a core metric. But Penn-Kahn says that can only work if the product is right in the first place.

In most categories, she suggests marketing stands little chance of success unless product design bakes repeatability into the model – which simultaneously means acquisition dollar work harder.

“Marketers talk about improving lifetime value. But, for example, you can't change the customer lifetime value of a pair of jeans –a customer is going to buy a pair of jeans when they need to, because it's completely discretionary. So a jeans brand saying, or ‘we want to improve our customer lifetime value?’. You actually have to do it through product extension,” per Penn-Kahn. “It’s not a marketing problem – it’s a product design problem.

“JSHealth does it well,” she continued. “They are always thinking of a product you need to repurchase to get the outcomes the customer desires – like vitamins or hair serums.

“That's a business where you can say, we're optimising for lifetime value of customer – and you can invest more upfront in acquisition, because the product is designed to [last] for two months, but you need to use it for six months in order to see the results,” said Penn-Kahn.

“So you've actually got three transactions almost guaranteed once you've acquired a customer. So it's built into the product. Marketers always talk about ‘how do we improve customer lifetime value?’ I actually think that's the biggest fallacy, because it's actually driven by product development.”

“Marketing doesn’t drive lifetime value. Product does,” said Penn-Kahn. “And marketing isn’t the only driver of revenue in your business. If your product sells out, your funnels mean nothing.”

“Too many brands pour money into performance without checking if they even have stock. That’s a massive blind spot.”

It’s a view echoed more quietly by Lamont, who sees the same issue play out in organisational structure: “Sometimes we’re trying to drive outcomes without changing the system underneath – whether that’s product, pricing, or even how the teams are structured.”

Best-in-class retailers

While hindsight provides 20:20 vision on the mistakes made by high profile retail failures, Penn-Kahn sees some standouts among the click pureplays moving into bricks.

“LSKD’s done a really good job of the physical retail shift-they’ve gone from pure-play to omnichannel but kept the experience tight,” said Penn-Kahn.

She also pointed to Mecca’s loyalty model: “The Beauty Loop doesn’t discount. It educates. It builds affinity by giving away samples and training staff to be beauty educators. That’s smarter than points.”

Likewise Baby Bunting: “They scrapped a discount-based program that was hurting profitability because it was just driving discounts – and are now investing in brand instead via a full rebrand and strategic piece. That’s a mature move.”

The new ecom equation, key metrics

Penn-Kahn was early into ecom and left Credit Suisse to launch four of her own – Kitchenware Australia, A Gift Worth Giving, Everten and Buy My Thing. But she sold her last venture in 2023 when she realised it had hit peak profitability. If she was going to launch another ecom business today, she has some succinct golden rules.

“No heavy products,” per Penn-Kahn. “Global fulfilment becomes impossible. You need a repeatable product, capital to invest in brand, and a strategy for owned media. And if you can’t explain your contribution profit in one line, you’re not ready.”

Lamont believes the the walls between marketing, ecommerce and service are rapidly collapsing and that integration around the customer is only going to accelerate – hence the rise of the chief customer officer.

Businesses that fail to adopt a unified, customer-first model across functions, he said, risk falling behind.

Penn-Kahn suggested ecom pureplays – and the broader retail market – should conduct stress tests before they are required in earnest.

“This year it’s tariffs. Next year it might be supply chain shocks or interest rates,” she said. “If you don’t have margin levers and diversified demand, you’re not resilient.”

Amid the known unknowns, Lamont sees one certainty:

“AI and automation will create an even bigger gap between brands that are operationally excellent and those that aren't.”

Growth isn’t dead, it’s just more expensive, more complex, and more earned than ever. Those who face up to that reality will be the ones still standing when the next reset comes knocking.

But however and whenever the next wave hits, Penn-Kahn suggests retailers focus on two key metrics above all else.

“Contribution profit should be your North Star – and then you need to track cash conversion,” she said. “You can be profitable on paper but cash-poor because your inventory isn’t moving.”