Member Exclusive   //   April 16, 2024

Modern Retail Index: How retailers are updating their digital strategies

By Li Lu

Economic turbulence punctuated this year’s Modern Retail Index. Compared to 2021 and 2022, when retailers focused on pandemic-driven online growth and post-pandemic transition, retailers in 2023 focused on staying afloat. However, the economic outlook for the upcoming year also seems bumpy. Walmart CEO Doug McMillan talked about a future for retailers in which product prices may fall. “In the U.S., we may be managing through a period of deflation in the months to come. And while that would put more unit pressure on us, we welcome it, because it’s better for our customers,” he said in a November earnings call.

Not all trends, however, are pointing downward. 2023 also saw a surge in the use of AI technology, particularly because of OpenAI’s release of ChatGPT. As a result of the AI boom, many retailers have turned to AI technology in order to optimize their processes and to draw in customers with front-facing applications. Retailers are also hoping to use AI to help boost revenue during times of economic downturn.

In the face of a shifting retail landscape fraught with new business demands and economic dynamics, the Modern Retail Index (MRI) aims to provide an in-depth look at how businesses have evolved their digital strategies to handle uncertain times. This research framework analyzes the maturity and breadth of a retailer’s digital strategy, not the retailer’s performance across all business aspects. As such, the scored dimensions have a focus on digital capabilities: E-commerce Experience, Ease of Fulfillment and Financial Momentum.

Now the results are in. This report provides an in-depth analysis of the X factors buoying or buffeting retailers’ digital futures: their financial momentum and performance. You’ll also find an overview of our complete findings as well as an overall ranking of retailer performance across dimensions.

For more detailed analysis of our other dimensions, check out the other reports in this series.

Read our full report on the E-commerce Experience Dimension here.

Read our full report on the Ease of Fulfillment Dimension here. 


The Modern Retail Index (MRI) collects data from a list of retailers, buckets and scores the data into dimensions and creates a total index average score as a benchmarking tool. Retailers are given a deviation percentage from the index average to denote above or below-average performance. The average changes depending on the list of retailers and the time period of data collection to show a snapshot of the retailer space at specific points. 

The index uses three main dimensions that are further broken down into sub-dimensions to measure a retailer’s performance. They are presented here in the order in which they impact our model, from most to least heavily weighted:

  • The E-commerce Dimension deep dives into sub-dimensions of the online shopping experience to create a better sense for which retailers have made forward-looking investments and how they ladder back to their unique retail sectors and business models. The dimension’s subdimensions include: virtual product, checkout, reviews, customer service, customer benefits, app and social commerce presence.
  • The Ease of Fulfillment Dimension focuses the retailer’s ability to get the end product into the consumer’s hands when purchases are made through its e-commerce platform. The dimension’s subdimensions include: fulfillment options, post-purchase, returns and payments.
  • The Financial Momentum Dimension gives a picture of the retailer’s performance and the rate at which revenue has increased or decreased within a six-month time period. Absolute revenue is also measured to take into account older retailers that make up a large portion of market share but do not grow as quickly as new retailers. The dimension measures profit and operating margins to better understand the efficiency at which the retailer runs. Please note that the index does not separate financial momentum into digital versus brick-and-mortar. The dimension’s subdimensions include: total revenue, revenue change, profit, profit margin and operating income.

Within the collection of indexed retailers, five immediate cohorts were identified: Big Box, Drugstore, Dollar Store/Off-Price, Home Goods and, newly added in this edition, Specialty Retail. The index includes Amazon in its own cohort due to its unique position in the market.

Results matter: Indexing retailers’ financial momentum

Big Box

As a group, big-box retailers performed high in terms of both e-commerce experience and ease of fulfillment, but that didn’t always translate into strong financial momentum. In the big-box cohort, only Walmart saw positive revenue growth year over year. The rest of the group saw an average -7% year-over-year decrease. That’s a stark contrast to 2022 when the average increase was 2% and the majority of the cohort all saw increased revenue – and an even starker contrast in comparison to 2021, when the group saw an average 24% increase as the pandemic wound down. With ever-decreasing revenues, the cohort as a whole has focused heavily on bolstering e-commerce and fulfillment strategies.

The clear standout in the group was Walmart. The retailer looked to fortify other areas of its business beyond in-store sales to ride out the 2023 economic downturn. Within e-commerce, Walmart bolstered its paid membership plan by adding new features and benefits to bring in more customers. It also continued to increase online tools, such as integrating AI into its search engine and continuing its third-party marketplace.

Walmart has better positioned itself to weather the financial storm of high inflation costs and slower customer spending. Part of the retailer’s plans to cut down on last-mile delivery costs have included building more micro-fulfillment centers. In 2022, Walmart announced it would be building ‘next generation’ fulfillment centers slated to open by 2026. The fulfillment centers are intended to combine the manual labor of Walmart’s staffers with advanced technology and machine learning to increase shipping and delivery for orders. These new facilities, combined with the rest of Walmart’s fulfillment network, will enable the retailer to reach 95% of the U.S. population with next- or two-day shipping. Walmart, in September, also announced new delivery options including express online pickup or delivery in as little as 30 minutes and late-night deliveries at 4,000 stores nationwide. 


The biggest news in the drugstore cohort was Rite Aid’s bankruptcy announcement in October 2023. The retailer’s bankruptcy filing listed $8.6 billion in total debts, and Rite Aid said it planned to close 150 stores across the U.S.On the opposite end, CVS and Walgreens both saw an increase in year-over-year revenue in 2023, but Walgreens did report a loss in operating income. CVS had the fourth-highest financial momentum score overall – it performed better in 2022 when it ranked No. 1 in the dimension. However, similar to the rest of the cohort, CVS had its own share of negative performance factors. It cut about 5,000 corporate jobs to save costs. While it had good financial performance, CVS will likely see increased competition from e-commerce savvy companies, such as digital prescription platforms like Capsule and Amazon’s new pharmacy program, all of which encroach on legacy drugstores.

Despite some hiccups, CVS was the standout in the group. Similar to Walmart, CVS has excelled at incorporating its paid membership program. The program links both sides of its business, non-prescriptive products and pharmaceuticals – a key feature that has allowed it to thrive in the drugstore industry. 

Additionally, the entire cohort has partnered with third-party delivery services like DoorDash and Instacart to help fulfill local deliveries. Along with third-party delivery services, drugstore chains have also worked to cut down on costs across their supply chains by shortening the distance of delivery by storing goods in retail locations. In particular, CVS chose to sell a distribution center in Alabama for $22 million and opted to rely on stores for deliveries.

Dollar and off-price stores

Despite low performance in both the fulfillment and e-commerce dimensions, the discount cohort had the best overall financial performance of any cohort. Most of the retailers in the group ranked in the top 10 spots of the financial dimension – notably TJ Maxx held the second spot in the dimension after Amazon. Unlike the rest of the index, off-price and dollar stores leaned into in-store strategy, and many of them opted not to offer online shopping options in general. The cohort as a whole experienced revenue growth in 2023 at an average increase of 7% year over year, compared to the average decrease of -3% seen among the other cohorts. The discount group also saw higher revenue increases in 2021 and 2022 than other cohorts due to the release of the Covid-19 vaccines and the return-to-store effect. Although the growth was small, the improvement showcased the cohort’s ability to remain largely recession-proof thanks to its lower-priced items, which customers tend to seek out during an economic downturn. 

Dollar stores and off-price retailers focus on a “treasure hunt” mentality among consumers. The mentality, as explained in Modern Retail+ Research’s 2021 Index, is described as when in-store customers feel compelled to wander a store’s aisles in search of a unique find or a product at an affordable price, or a “steal.” As a result, this competitive advantage cannot be replicated online. While the dollar stores do have e-commerce offerings they still mostly highlight their in-store experiences. However, Dollar General and Dollar Tree did both increase last-mile fulfillment options in 2023. They introduced services like pick-up in-store and same-day delivery partnerships with Instacart and DoorDash in order to streamline their in-store fulfillment operations. Dollar General handed over same-day delivery services operations to DoorDash and Dollar Tree expanded its Instacart partnership to provide same-day delivery to more areas and in less than an hour.  

Home Goods

The home goods cohort did not see strong financial performance in 2023. The majority of the cohort fell to the lower half of the financial momentum dimension and had an average year-over-year revenue decrease of -11%, with no retailer citing an increase. The industry as a whole did not perform well in 2023. In April 2023, Bed Bath & Beyond filed for bankruptcy and was later consolidated under, with rebranding as Bed Bath & Beyond. Multiple home goods retailers, beyond those included in the index, have also filed for bankruptcy recently. In September 2023, Noble House Home Furnishings, a furniture brand, filed for bankruptcy. A month later, contemporary furniture retailer Z Gallerie filed for Chapter 11 bankruptcy and high-end furniture retailer Mitchell Gold + Bob Williams started its liquidation process. 

While not a standout in the overall financial momentum dimension, home improvement retailers, Home Depot, Lowes and Ace Hardware, did fare slightly better than the other retailers in the home goods cohort with lower revenue decreases. During the pandemic and shortly after Covid-19 vaccines were released, home improvement stores saw large revenue increases, with double-digit revenue growth in Modern Retail’s 2021 index. But as time went on and economic turbulence took hold, home improvement retailers began to see decreases, with only single-digit year-over-year growth in 2022 and now decreases in 2023. Lowe’s president and CEO Marvin Ellison noted in August that consumers were reluctant to spend extravagantly in 2023. “Home improvement shoppers remain cautious with their spend, especially big ticket discretionary purchases, and are more focused on smaller repair and maintenance projects,” Ellison said.

As home goods retailers struggle to get back onto a positive trajectory, the cohort has continued to invest in warehouse, distribution and technological improvements. Home Depot and Ace Hardware have begun adding more automation and mechanical technology to build more high-tech warehouses and distribution facilities, while Lowe’s plans to add specialized warehouses, such as storage for seasonal and outdoor living items. The cohort also continues to lead in emerging technology adoption, especially AI, to bring in more buyers. For example, the Container Store uses AI to optimize marketing campaigns by gathering real-time data on customer preferences that it uses to convert audiences. Wayfair’s generative AI tool, Decorify, creates virtual rooms and provides design inspiration for customers. 

Specialty Retail

The specialty retail cohort offered a mixed bag of financial performances. The beauty category saw major financial gains in 2023, particularly in e-commerce. Ulta benefitted from this trend and was a top performer, while Dick’s Sporting Goods and Chewy fell into the middle of the financial ranking. Barnes & Noble appeared in the bottom quartile of the index. Sephora, which is privately held, did not disclose full financial results. Instead, Modern Retail+ Research used the average financial score as a proxy for its performance. 

A strategy that the cohort utilized well to increase revenue was its tiered membership programs. Ulta, Sephora and Dick’s Sporting Goods offer memberships based on a customer’s annual spend amount, with benefits increasing the higher the tier and the more the customer spends. These membership programs’ benefits are much more expansive than other cohorts’ programs and can help aid specialty retailers in bringing in loyal customers.

Despite a lower financial performance within the cohort, online-only pet supplier Chewy has attempted to improve its fulfillment capabilities in order to boost future financial performance. The company has been investing in automated warehouses since 2019 to save money and increase capacity. Thanks to those efforts, Chewy noted that the cost for every order declined 13% year-over-year in 2023. Chewy’s autoship program also helps the retailer predict inventory needs for warehouses and builds loyalty among Chewy’s customer base. Forty-four percent of Chewy customers have joined the retailer’s autoship program, receiving automated replenishment of their pet supplies, according to market research firm Consumer Intelligence Research Partners.


In the index’s financial dimension, Amazon had the best financial performance and also ranked No. 1 in the overall index. The retail giant’s success comes as no surprise, and the retailer has continued to expand into new markets to increase growth. In 2023, Amazon struck deals with Shopify and Meta to allow for more shoppable options on sites other than Along with establishing these external partnerships, Amazon also has been building out its internal capabilities by expanding the benefits of its Prime program and also introducing a new large language model (LLM) called Alexa LLM to increase its AI capabilities. 

Amazon’s order fulfillment speed is also a big reason for its continued success in the index. According to a study by NielsenIQ, Amazon’s click-to-door speed for online orders in the U.S. to arrive is 1.5 days versus other retailers’ average of 5.2 days. To maintain its delivery speed, in 2019, Amazon built Amazon Air Hub, an 800,000-square-foot facility to support its in-house air cargo network. Amazon Air Hub now operates 205 flights per day, up from 85 three years ago. And it doesn’t end there for Amazon. In October 2023, Amazon announced that drone deliveries of medications were available for Amazon Pharmacy customers in College Station, Texas – a testing phase before Amazon decides if drone delivery can be rolled out to other areas.

Key Findings: Ease of Fulfillment

Key Findings: E-commerce Experience

Big box

  • Just about every retailer in the cohort saw revenue decrease in 2023. Department stores were impacted the most. In the first seven months of 2023, department stores saw a decrease in sales of 1.5% compared to the same time period in 2022. 
  • Best Buy revamped its membership program to include a new tiered model and also an additional middle-priced tier. Best Buy said it expected the My Best Buy Membership program to contribute at least 25 basis points of enterprise year-over-year operating income rate expansion.
  • Walmart partnered with Microsoft to integrate generative AI into Walmart’s onsite and in-app search function to better interpret customer searches and inquiries. 


  • Similar to Best Buy, CVS recently revamped its membership program to include a free membership tier and a paid membership tier. The paid membership excels at linking both sides of CVS’s business, non-prescriptive products and pharmaceuticals.
  • Rite Aid filed for bankruptcy in 2023, and Walgreens and CVS did not have strong financial performances due to increased competition from more e-commerce savvy companies, like Capsule and Amazon’s Rx program. In response to this competition, the cohort has made improvements to its digital strategy. 
  • The cohort increased its capabilities in customer reviews. Walgreens and CVS now offer verified reviews and pull-in external reviews. These new review features are important for “social proofing” – a concept further explained in the full e-commerce report.

Dollar and off-price stores

  • The dollar and off-price stores cohort as a whole experienced revenue growth in 2023 at an average increase of 7% year over year.
  • The cohort is adding more emerging technology to its sites and apps. Dollar Tree added virtual store tours and virtual try-on, while T.J. Maxx offers an AR-powered image search engine. 
  • Retailers within the cohort are not without competition. Some DTC brands have begun exploring partnerships with other rising off-price retailers.

Home goods

  • The home goods cohort has the greatest application of emerging technologies among all cohorts. It accounted for 42% of AR/VR adoption among all cohorts in 2023.
  • Williams Sonoma and Lowe’s took top spots within the cohort largely due to the membership and emerging technology offerings within their apps. 
  • Several retailers use AI primarily to support backend workflows like data management, while others use the tech for consumer-facing applications like virtual room design.

Specialty retail

  • Ulta and Sephora, the top two retailers in the cohort, performed exceptionally well in the reviews dimension. Ulta pulls in reviews from other sites, while Sephora has an incentivized review program in which customers receive free products in return for writing reviews.
  • Despite the different industries they represent, almost all retailers in the cohort have adopted AR/VR technology, a common trend throughout the index. The only exception was Barnes & Noble.
  • Another area of strength for the group is its membership programs. While the cohort mostly offers non-paid memberships, the group places a large emphasis on creating loyalty programs with high incentives for the customer. 


  • Amazon has led, and continues to lead, in paid memberships. Amazon excels in e-commerce through its paid membership program by creating extended touchpoints for its consumers outside of its primary website.
  • Amazon struck agreements with Shopify and Meta: shoppers can use Buy With Prime on Shopify-powered merchant sites; ads on Meta-owned sites show Amazon products that can be purchased within the apps if the user connects them to their Prime account. 
  • Amazon recently released Fit Insights, an AI-powered tool that provides brands with feedback about product sizing to help them improve future products. Amazon also developed a new large language model called Alexa LLM.