Retailers navigated tariffs, supply chain disruptions and a cooling consumer economy in 2025, and these challenges tested even the most seasoned brands. There were many retailers that posted solid gains, but drugstore chains like Walgreens, Rite Aid and CVS shuttered hundreds of locations, and big-box stores grappled with shifting consumer demand and digital-first competition.
Against this backdrop, the 2026 Modern Retail Index takes a deep look at the top retailers — from big-box stores to pharmacies to specialty retailers — and analyzes how they are recalibrating, with some doubling down on third-party marketplaces and retooling loyalty programs, as others experiment with AI-driven personalization and faster delivery options.
The Modern Retail Index collects data from a list of retailers, categorizes and scores the data to create dimensions, and creates a total Index average score as a benchmarking tool. Retailers are assigned a deviation percentage relative to the Index average to denote above- or below-average performance. The average changes depending on the list of retailers and the data-collection period, providing a snapshot of the retail industry at specific points.
In essence, we analyze and rank retailers based on point-in-time data and their performance relative to the other retailers in the Index.
Within the collection of indexed retailers, five cohorts were identified: big box, drugstore, dollar stores/off-price, home goods and specialty retail. The Index includes Amazon in its own cohort due to its unique position in the market.
Overall, retailers included in the Index had solid financial performances in 2025. At the top of the list, Amazon, in its own cohort, posted a 51.1% year-over-year increase in profit margin. The remaining indexed retailers saw an average year-over-year increase in profit margin of 34%. And, the average profit margin gain across cohorts was 34%.
However, operating income results painted a slightly different picture. Amazon remained at the top of the list, tied with the specialty retail cohort, with an operating income increase of 10.9% year over year. At the other end of the spectrum, the drugstore cohort saw an average annual operating income loss of 2%.
In general, individual retailers within the drugstore cohort reported negative or flat operating income results year over year. Walgreens, for example, posted a 5% operating income loss, while CVS reported a 1% operating income increase. Walgreens attributed part of its operating loss to a decline in U.S. retail sales, with some losses offset by growth in the pharmacy division, according to its Q3 2025 financial results.
Several indexed drugstores also significantly decreased their number of brick-and-mortar pharmacies in 2025. Rite Aid, previously ranked in this Index, went out of business entirely in October 2025, two years after it filed for Chapter 11 bankruptcy. Walgreens closed 500 stores, as part of its plan to shutter 1,200 retail locations by 2027. And CVS closed 270 stores in 2025, on top of 900 locations it had already closed between 2022 and 2024.
Kantar senior thought leader Barry Thomas told Modern Retail in January that the shift from in-person prescription pickup to doorstep delivery services is partly responsible for the “corner drugstore” concept becoming endangered. Already as of September 2024, an estimated 12% of prescriptions for maintenance medications were filled by mail, according to a report from UnitedHealth Group.
“What’s happened with online orders and home delivery is unprecedented,” Thomas said. “It’s so much easier, and convenience has been redefined. Pharmacies were last to [adopt] delivery, and that’s a big part of it.”
At the same time, other retailers increased their pharmacy investments last year. Sam’s Club launched a free same-day prescription delivery service in July 2025, while its parent company, Walmart Inc., expanded same-day delivery to include refrigerated and reconstituted medications like insulin and GLP-1s. Meanwhile, grocery chain Giant Eagle took on pharmacy prescriptions from 78 Rite Aid locations.
While the big-box cohort had positive 4.6% year-over-year operating income growth, it also had the weakest revenue performance among cohorts — a 2.3% drop, primarily driven by Bed Bath & Beyond and Target.
Bed Bath & Beyond filed for Chapter 11 bankruptcy in 2023 and is in the process of re-establishing its physical stores, while Target is struggling to recover from stagnating sales and consumer backlash over its scaled-back DEI initiatives. When those retailers are excluded from the analysis, the big-box cohort’s average revenue increased 1.5% year over year.
The drugstore, off-price cohort and specialty retail cohort saw positive operating income and revenue results year over year.
Individual specialty retailers’ performances varied based on the volatility of their respective industries. Beauty retailers like Ulta, which reported an 8.8% year-over-year revenue increase and 12.4% operating income growth, performed well as the beauty product category continued to grow, according to McKinsey & Co.’s “2025 State of Beauty” report. But book retailer Barnes & Noble reported a 16.7% year-over-year decline in revenue and an operating income loss of 4.8%. Meanwhile, Saks Global, the parent company of luxury department store chains Saks Fifth Avenue and Neiman Marcus, filed for Chapter 11 bankruptcy in January 2026.
Dollar stores and off-price retailers performed well in 2025 with average year-over-year increases of 8% and 6.7%, respectively. According to CNBC, Dollar General is expected to open the most stores within the retail category in 2026, with 483 new stores planned. Discount supermarket chain Aldi is next in line with 168 new stores planned for 2026. The anticipated store openings indicate strengths in categories like discount apparel, discount grocery and specialty retail, despite a challenging financial environment.
“We’ve been pointing to it for a few years; we think there’s this drift down from some center-ground, some middle-ground stores to discount,” John Mercer, head of global research for Coresight Research, said in an interview. “It isn’t just a short-term reaction to inflation. … We’ve seen multi-year growth in those formats, in terms of consumer receptiveness to shop and also [these retailers’] physical real estate.”
However, not everything was bright for the dollar stores cohort. Dollar Tree announced it had completed the sale of Family Dollar to a private equity group. It went for $1 billion, a small amount compared to the original buy price of $9 billion. Dollar Family’s sale comes after years of the company failing to meet revenue expectations and incurring losses.
Regardless of their Index cohort, retailers across categories continued to face uncertainty last year amid ongoing tariffs and supply chain disruptions. At a September 2025 Shoptalk session, Wayfair CFO Kate Gulliver said the home goods retailer had “experienced an enormous amount of change” over the prior five years.
“[In the] Covid period, we had really significant demand pull forward,” Gulliver said. “Then, we had inventory challenges in our category because so much was purchased. Then, we had the category fall off. And now, we have tariffs.”
In many ways, retailers were stuck between a rock and a hard place because of tariffs. Some retailers rerouted production to countries without duties, not knowing whether tariffs may eventually hit those markets, too. Other retailers raised prices to offset costs, hoping customers would continue to shop with them.
“Nobody knows how permanent this is,” Matt Pavich, senior director of strategy and innovation at price optimization software company Revionics, told Modern Retail in March 2025. “In four years [at the end of Trump’s second term], will they go away? Will the business community step in and slow some of this down? It’s very disruptive, … and people don’t know whether to fundamentally change their business models.”
On Feb. 20, the U.S. Supreme Court ruled that President Donald Trump’s sweeping “Liberation Day” tariffs were issued unlawfully, increasing uncertainty around the tariffs and opening the door to legal battles over billions of dollars in duties already paid by U.S. importers.
AI applications are swiftly becoming a table-stakes requirement for retailers. Ninety-three percent of indexed retailers use some type of AI tool, according to Modern Retail’s analysis.
Similarly, Amperity’s “2025 State of AI in Retail” report from July 2025 found that 97% of retailers planned to maintain or increase their AI investments in the coming year. And Deloitte’s “2026 Retail Industry Global Outlook” report found that the majority of retailers are using AI currently — or are set to use it within the next 12 months — for everything from fraud detection and cybersecurity (64% of respondents said they are currently using AI for this), to pricing and promotions optimization (48% of respondents are currently using AI for this), to supply chain visibility (30% of respondents are currently using AI for this).
Prat Vemana, evp and chief information and product officer at Target, told Modern Retail in 2025 that the big-box retailer plans to use AI for “powering Target’s merchandising authority and elevating our guest experience” in 2026. “Most importantly, we’re expanding technology to empower people,” Vemana said. “We’re expanding tools that help our teams spot trends earlier, plan inventory with more precision and create a more seamless shopping journey, from search to checkout. Generative and agentic AI will be embedded more deeply across our business — creating more space for innovation, creativity and speed.”
Joe Cano, svp of digital commerce at Lowe’s, told Modern Retail that the home improvement retailer’s 2026 AI plans are focused on curation. “They’re going to be about how you engage and how it’s personalized for you,” Cano said. “So, as you walk into Q1 and Q2 of next year, the website is going to look different for you than it does for me because we actually both want different things.”
“The second [AI effort] is visualization,” Cano added. “You’re going to start to be able to take a picture of your kitchen and reimagine it in real time. You can take a picture and say, ‘How does this actually look?’ You can go from inspiration to installation. It’s going to be almost Pinterest-style: What do you like? ‘It’s modern,’ ‘It’s mid-century modern,’ ‘It’s traditional,’ ‘It’s country.’”
In October 2025, Walmart partnered with OpenAI to allow customers to shop at Walmart through ChatGPT, using its Instant Checkout feature. Prior to the partnership, Walmart was already using AI to enhance its product catalogs, improve production times and provide customer service.
Similarly, Best Buy has been using AI to streamline its customer service. In 2024, the big-box retailer partnered with Google to build a generative AI-powered virtual assistant to help with tasks such as troubleshooting product issues, as well as a chatbot to help in-store employees assist customers.
Since 2024, Best Buy has increased its use of AI for in-store consumer experiences. In July 2025, the retailer partnered with Microsoft on a video series to help teach customers how to use Copilot. Best Buy added Copilot to in-store computer floor models to demonstrate the AI tool. In September 2025, Best Buy partnered with Meta on in-store demonstrations and try-ons of Meta Ray-Ban AI glasses.
Despite the benefits AI brings to the customer experience, there is concern in the industry that the technology could replace jobs currently performed by humans. In fact, some major retailers have acknowledged that AI advancements will lead to fewer jobs.
In May 2025, Williams-Sonoma CEO Laura Alber told investors that the company was “committed to staying lean on headcount using AI tools to drive productivity gains.” In June 2025, Amazon CEO Andy Jassy told employees that AI adoption would lead to future workforce reductions at the company.
Nevertheless, brand and retailer technology partners are enhancing existing AI tools and introducing new ones. Shopify recently updated its AI assistant, Sidekick, which it launched in 2023 to answer simple merchant questions. Now, Sidekick is capable of suggesting business improvements to maximize e-commerce sales.
“The goal of Sidekick is to be your e-commerce expert, your co-founder that’s there for you,” Andrew McNamara, director of ML engineering at Shopify, told Modern Retail in December 2025. “It’s really about amplifying what merchants and developers can do with AI, and helping them use those capabilities to run their business in a way that enhances their own creativity and business knowledge.”
Shopify has also added a new AI tool to its offerings: SimGym, which simulates how consumers may interact with a merchant’s storefront before planned changes go live. For example, a merchant considering a new homepage layout could run the version through SimGym, and AI agents would browse the page as different shopper personas likely would.
Similarly, in September 2025, Amazon launched an upgraded AI agent called Seller Assistant that can troubleshoot account issues, coordinate inventory tasks and take certain actions on a merchant’s behalf.
Fifty-seven percent of the retailers in this Index operate a third-party marketplace, according to Modern Retail’s analysis. Across cohorts, 100% of big-box retailers have a third-party marketplace, and more than half of home goods retailers (56%) have a third-party marketplace.
Third-party marketplaces offer a number of benefits for retailers, like a larger product selection, increased site traffic and new revenue streams. But the strategy also carries risks, such as brand cannibalization and product quality issues. “Marketplaces are appealing because they allow retailers to dramatically increase their assortments at relatively little cost,” said Neil Saunders, managing director of GlobalData Retail. “However, they are not a panacea and need to be carefully managed so they don’t undermine the retailer’s core proposition.”
Target’s marketplace strategy includes a partnership with Shopify to streamline its vendor logistics. Merchants who use Shopify can apply to sell their goods on Target’s marketplace through Marketplace Connect, a Shopify app that allows them to list and manage products across major marketplaces.
Target, in turn, gathers sales data about the third-party products, which it uses to make decisions about its own product assortment — essentially allowing Target to research products before committing to owned inventory. “Marketplace plays an enormous role in helping us to identify trends and bring products on much more quickly,” Sarah Travis, evp and chief digital and revenue officer at Target, told Modern Retail in January.
Best Buy primarily focuses on third-party sellers that offer items that align with its existing product assortment. Frank Bedo, chief marketplace and e-commerce officer at Best Buy, told Modern Retail in August 2025 that, while tech remains at the retailer’s core, Best Buy has sought opportunities to gain market share in other areas.
“You’re going to see an assortment that helps provide that value add to the core tech purchase you are making in store and online,” Bedo said. “It allows us to complement all the products and the tech that we sell with a broader range of accessories, … versus what we’ve traditionally been able to support our customers with.”
While third-party marketplaces have proven lucrative for many retailers, supermarket chain Kroger closed its third-party marketplace and shipping service, Kroger Ship, in 2025. “The marketplace model is fundamentally about driving revenue and margin growth — through seller fees and fulfillment services, and ultimately retail media, similar to Amazon and Walmart,” Celia Van Wickel, director of digital commerce for Russell Stover Chocolates, wrote on LinkedIn at the time. “Kroger’s regional scale and limited general merchandise assortment may not support a sustainable third-party marketplace — especially if shoppers simply don’t use it.”
Eighty-nine percent of indexed retailers currently have a loyalty program, up from 79% last year, according to Modern Retail’s analysis. Those percentages include both free and paid loyalty programs.
A March 2025 Salesforce survey similarly found that two-thirds of retailers offered loyalty programs, and another 29% planned to introduce one in the next 24 months. In the retail space, “brand loyalty is so critical to success,” Jen Jones, CMO at Commercetools, told Modern Retail in October 2025. She said that brand loyalty will become even more crucial as AI engines like ChatGPT become even more effective at facilitating purchases.
“I think brands that don’t invest in loyalty and don’t know their customer will have the same experience they did in the [early] Amazon days,” Jones said. “If Amazon could take over your customer, so can ChatGPT. But those that invest in loyalty and continue to rethink what loyalty means in this era will fare well.”
In an effort to appeal to its existing consumer base, Target offered a free year of its Target Circle 360 membership ($99 annually) to members of its free Target Circle loyalty program who met a minimum spend requirement between August and September 2025.
Brad Jashinsky, retail analyst at Gartner, said tying the deal to how much customers spend helps Target hone in on “shoppers that are going to actually take advantage of [Target Circle 360].” But, he pointed out that other retailers have made additions to their loyalty programs that go far beyond adjusting prices. “They are definitely behind, in terms of where Amazon and Walmart are in offering more of those ancillary products and services.”
Amazon and Walmart have added perks and third-party services to their paid membership programs, such as including Prime Video streaming with an Amazon Prime membership and giving Walmart+ members the choice of a Paramount+ or Peacock subscription.
Barnes & Noble and Lowe’s now offer more than one loyalty program. Barnes & Noble has both a free and a paid membership. The paid version provides benefits tailored to its most frequent shoppers, while the free version aims to convert occasional shoppers into returning customers.
Lowe’s launched its MyLowe’s Rewards loyalty program in 2024. The free membership is targeted at homeowners and includes benefits such as free shipping and DIY workshops. In February 2025, Lowe’s relaunched its MVPs Pro Rewards & Partnership Program as MyLowe’s Pro Rewards. It includes a different set of benefits aimed at professionals, including people authorized to buy on behalf of a business, with bulk discounts and volume savings, such as a 20% discount after spending more than $3,000 on paint.
“When we crafted these strategies, we had to take into account the unique needs of each of those customer bases and then find a simple way to deliver that value through one spine of loyalty that had discrete offerings for each customer,” Amanda Bailey, vp of customer marketing and loyalty at Lowe’s, told Modern Retail in March 2025.
Meanwhile, Macy’s stopped accepting enrollments for its paid membership program, Red Carpet by Macy’s, within the past year. The program provided perks such as extra reward points, free shipping and a dedicated concierge for returns, which differentiated it from Macy’s free loyalty program that follows a tiered system based on annual customer spending.
Eighty-six percent of indexed retailers offer expedited shipping, with many offering same-day or next-day delivery, according to Modern Retail’s analysis.
Family Dollar, for example, partnered with Uber Eats in 2025 to offer on-demand and scheduled delivery across several product categories. Family Dollar is Uber’s first retail partner in the dollar stores
and off-price category, and many of Family Dollar’s customers were already Uber customers, according to Nathan Bernheim, head of grocery and retail enterprise sales at Uber. Bernheim spoke with Modern Retail in May 2025 and said the partnership could also help the retailer reach younger, more digitally-native shoppers than those who typically shop at Family Dollar. “This really helps extend Family Dollar’s reach while giving Uber customers more affordable options right in the app,” Bernheim said.
Among indexed retailers, Walmart stood out for its drone delivery service. In January, drone delivery provider Wing and Walmart announced that they would add drone delivery to 150 Walmart stores over the coming year — expanding the service to an estimated 40 million people.
“Walmart is trying to monetize the assets they have — the 4,600-plus stores, that density — so what better way than to add another delivery layer, a speed layer, and make their stores, their assets, more productive?” said Mohamed Amer, founder and principal of communications and strategy consultancy Strategy Doctor and an adjunct strategic management professor at Pepperdine University, told Modern Retail in January. “You get your customers a new purchase behavior, a new expectation, which then locks out those retailers that can’t fulfill that new expectation.”
While retailers have continued to expand their delivery options, their return services have shifted significantly over the past year. Free returns used to be a common feature among retailers, but many companies now charge return fees or subsidize the cost of returns elsewhere.
According to a 2025 report from the National Retail Federation and Happy Returns, the percentage of U.S. retailers that charge a fee for at least one return option increased from 66% in 2024 to 72% in 2025. And around 33% of surveyed merchants said the reason they charge, or began to charge, return fees was due to “economic uncertainty and risk of tariffs,” the report found.
“Tariffs are causing a lot of financial pain on brands, and they’re looking for any type of lever to improve profitability,” Jess Meher, svp at returns and exchanges platform Loop Returns, told Modern Retail in October 2025. “A lot of times, if the brand decides to cover a return for a consumer, they might be at a net loss on that overall transaction.”
Other companies have found creative solutions to offset the cost of returns amid rising tariffs. Joe & Bella, a brand that sells adaptive clothing for seniors and people with disabilities, manufactures all of its goods in China, one of the most heavily tariffed countries.
The retailer began offering a shipping protection service in 2025 that allows customers to opt in for a fee — usually $1-$2 per order — that covers guaranteed shipping protection, as well as free returns and exchanges. If a customer does not opt in and wants to process a refund, they have to pay $7-$12 for their own return label.
Joe & Bella is saving roughly 80% of its previous return-related costs, co-founder Jimmy Zollo told Modern Retail in October 2025. “We were getting crushed on returns,” Zollo said.
“The cost of freight, the cost of shipping, … Nothing has gone down,” he said. “Especially for businesses our size, the cost of returns and exchanges is significant, and this allows us to control that cost a little bit better.”
The Supreme Court’s Feb. 20 ruling that President Trump’s tariffs were issued unlawfully could eventually bring financial relief for some businesses. However, “the Court says nothing today about whether, and if so, how, the Government should go about returning the billions of dollars that it has collected from importers,” Justice Brett Kavanaugh wrote in his dissenting opinion. He added that the refund process was “likely to be a ‘mess.’”
Costco, E.l.f. Cosmetics and J.Crew are among the companies that have filed lawsuits seeking refunds for tariffs paid to the U.S. government.