Modern Retail Index: Retailers are investing in AI applications and membership programs as consumers spend cautiously

Despite a rocky start to 2024 in which inflation rates soared and consumers cut back on spending, retailers’ e-commerce businesses ended the year on a positive note. According to the U.S. Department of Commerce, e-commerce sales grew 7.4% in the third quarter of 2024 versus Q3 2023 and outpaced total retail sales’ Q3 growth of 2.1%. And, according to FTI Consulting, online retail sales were projected to hit $1.2 trillion in 2024, up from $1.1 trillion in 2023. 

However, there are some indicators that U.S. consumers are still being cautious with discretionary spending. Although dollar stores have historically performed well during economic downturns, some of the largest dollar store chains have recently struggled to win over both low-income shoppers who are tightening their wallets and higher earners seeking value pricing. Other retailers have faced financial challenges significant enough to warrant bankruptcy filings. Rite Aid filed for bankruptcy in October 2023 and The Container Store filed as well  in December 2024,— both recently emerging after restructuring their debts. 

To offset the prospect of slower sales, some big-box and home goods retailers have added paid membership programs during the past year, while others are expanding or launching retail media networks. Both tactics give retailers access to first-party customer data, which they can then monetize through various business partnerships.

Generative AI was also a big part of marketing discussions throughout 2024, and retailers have been eager to invest in AI tools to do everything from streamlining internal processes like data analysis to providing enhanced customer support features like chatbots and product recommendations. Several retailers within Modern Retail’s Index have decreased or eliminated their investments in virtual assistants and virtual try-on features in favor of newer AI applications.

With all of this in mind, Modern Retail has taken a deep look at the top retailers — from big-box stores to pharmacies to specialty retailers — and analyzed the different ways they cater to customers’ online needs. In this Index, we drill down on the core components of these retailers’ business — and the ways they’ve modernized their digital platforms strategies to stay relevant with customers. 

The Modern Retail Index (MRI) collects data from a list of retailers, buckets and scores the data into key dimensions, and arrives at 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 depict a snapshot of the retailer space 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. The e-commerce dimension – our focus in this report – isn’t meant to be the final word in terms of which retailers have the best e-commerce experiences. There are other more difficult-to-quantify elements that play into a digital experience, including brand equity, assortment, etc. Instead, by diving deep into each of the sub-dimensions, the Index creates a better sense of which retailers have made forward-looking investments and how they ladder back to their unique retail sectors and business models. Contextualizing that beside the other cohorts we analyze creates a fuller picture of how the largest retailers in the country approach top-line strategies.

Within the e-commerce dimension of our rubric, retailers are measured on seven different sub-dimensions: virtual product experience, checkout, reviews, customer service, customer benefits, app, social commerce presence and, newly added, paid membership:

• Virtual product experience measures the performance and features of product display pages. These features on the product page can include the presence of different imagery and recommended products. 
• Checkout measures the features within the checkout process and the speed a customer can finish the checkout process and the ease of checkout
• Reviews measure the presence of a review feature and what features the site reviews have.
• Customer service measures the presence of digital customer service features.
• Customer benefits measure the presence of different touch points that require customers to volunteer data such as contact sign-ups in exchange for perks or information.
• App measures the incentives that retailers add to their apps to create new customer touchpoints, such as in-store integrations or customer engagement tools.
• Social commerce presence measures the retailer’s presence and distribution through external social media sites, such as Instagram and Facebook.
• Paid membership measures the presence of a paid membership option and the benefits it provides. 

Within the Indexed retailers, five immediate cohorts were identified: Big Box, Drugstore, Dollar Store/Off-Price, Home Goods and Specialty Retail. The Index includes Amazon in its own cohort due to its unique positioning in the market. 

AI applications have continued to play increasingly larger roles in business since the launch of OpenAI’s ChatGPT chatbot in November 2022. The trend hasn’t shown any signs of slowing down within the retail industry, with numerous retailer AI investments and divestments occurring as the technology continues to evolve. 
Overall, more retailers and brands said that they were using natural language processing and generative AI tools in 2024 than said they were in 2022, according to Modern Retail’s 2025 guide to AI.

And, according to IBM’s 2024 AI in Action report, the retail sector’s top reason for using AI in 2024 was to improve customer experiences. A similar 2023 survey of retailers worldwide conducted by Salesforce and the Retail AI Council found that just over 80% of retailers had an AI budget that year. The top functions they used generative AI for were customer service, marketing and store operations.

Among AI applications in Modern Retail’s Index, virtual assistants have seen significant retailer divestment in the last year. Many retailers are phasing out these assistants — originally designed to tackle tasks beyond simple queries, such as styling outfits or generating creative ideas — in favor of other generative AI tools like customer-service-focused chatbots.  Ten percent of the retailers analyzed for this Index introduced chatbots to improve customer interactions in 2024, while 28% of the Indexed retailers expanded their AI capabilities outside of chatbots, indicating a shift toward more specialized AI applications.

Many retailers also decreased their use of augmented reality (AR) and virtual reality (VR) technologies in 2024. Fourteen percent of the Indexed retailers decreased their investments in AR and VR tools.The general shift in public interest and industry hype away from AR and VR technologies has pushed many companies toward AI applications instead. 

While some retailers are moving away from using AR and VR tools, others have still found experimental use cases for the technologies. Walmart, for instance, launched a metaverse site in 2024 called “Walmart Realm.” The site features an immersive environment that is also shoppable. “We’re really in a place of testing and learning to inform a future state of immersive commerce because we believe that it is going to be the future of commerce,” said Justin Breton, Walmart’s director of brand experiences and strategic partnerships. “It’s not going to replace a website or our app, but it will be complementary.” 

Other retailers still hoping to utilize AR and VR technologies in the future may follow Walmart’s lead and test the waters with their own experimental use cases.

One area of consistent growth for the Indexed retailers is paid membership programs, particularly among home goods and big-box retailers. The latter group, with its vast e-commerce reach and large customer base, can leverage memberships to drive consistent revenue growth. Home goods retailers, on the other hand, seem to be focused on creating incentives for consumers to shop frequently by offering discounts for members. They also may be aiming to generate revenue in between purchases because consumers tend to make furniture and home decor purchases infrequently. 

Another benefit of paid membership programs is the consumer data that retailers can gather through them to grow retail media networks. Retailers may hope to mimic Amazon’s success with Amazon Prime, which uses first-party data from its Prime membership program to power and monetize its ad business. Walmart, in particular, has started pushing its membership product in this direction. More on that in later sections.

“In the long and short of it, the reason why Amazon is still being super aggressive here is because it’s not just the revenue that they get from Prime,” Blake Droesch, a retail analyst at eMarketer, said. “It’s that Amazon Prime users and their data power the rest of their profit streams, as well.”

The last notable overall trend among Indexed retailers in the past year has been the changes they’ve made to their social commerce offerings. There has been a clear divestment across the board, with many retailers pulling back from Facebook Shop and Instagram Shop. TikTok, despite the platform’s rising influence, has seen minimal engagement, with Home Depot being the only participant among Indexed retailers. However, this could easily change given the ongoing uncertainty surrounding TikTok’s possible ban in the U.S. Similarly, live streaming to sell products has had mixed results. While five retailers scaled back their use of live streaming, two retailers embraced the format for the first time, showing that live streaming’s effectiveness remains up in the air.

This year, big-box retailers didn’t make noticeable changes to their consumer-facing websites, with most of their changes happening behind the scenes instead. As a result, the majority of the group remained in a similar ranking order to last year and continued to dominate the top of the Index due to their already expansive website offerings. The top performers continue to be Walmart and Best Buy, with Macy’s seeing a big increase in its ranking position this year, as well. 

However, retailers did make noticeable shifts to their use of AI. Throughout 2024, retailers integrated generative AI into both their backend workflows and externally to provide improved customer support. According to a 2024 survey by McKinsey, 71% of CPG executives noted that their organization adopted AI in at least one business function in 2024 versus 42% who did so in 2023. 

Walmart, for example, used generative AI in 2024 to improve its search functions and also to improve its data analysis — both are backend applications that provide customer service. Along with making search improvements, the retailer also developed “Wallaby,” an AI model that uses a series of LLMs that are trained on Walmart’s proprietary data. Wallaby will be implemented in the near future to upgrade various sections of Walmart’s website. 

“From a consumer perspective, [Wallaby has] a good understanding of our products and what it is that we sell and we serve,” said Desirée Gosby, vp of emerging technology for Walmart’s Walmart Global Tech division. “An example of that would be having a deep understanding of our brand. We have ‘Great Value’ as a brand within Walmart. And in the generic sense, everybody wants to get a great value. But knowing in the context of Walmart that you’re actually talking about our brand specifically is important to us to make sure we’re communicating correctly with our customers.”

Online thrift store ThredUp, which was not analyzed for this Index, also implemented generative AI in its search function to improve customer experiences. The retailer provides a strong example of how companies are using AI to update on-site search. 

“If you came and you searched for, like, ‘ugly Christmas sweater’ one year ago, you’d get no results because nowhere would you find ‘ugly’ or ‘Christmas sweater’ in our database,” said Dan DeMeyere, ThredUp’s chief product and technology officer. Now, searching for that, or even “Star Wars” memes or “mermaid core,” will get you relevant results. Customers have realized that and changed how they use the search bar, he said. “We saw the diversity of search terms triple within less than a year.”

Indexed retailer Best Buy made improvements to its on-site chatbot and also its real-time delivery tracking, both of which are backed by AI technology. The applications are directly consumer-facing, and the improvements aimed to better the e-commerce experience for shoppers. Target used AI over the past year to add summaries to product pages and, similar to Walmart, to boost its on-site search capabilities. Rounding out the big-box retailers, Kohl’s and Nordstrom used AI in 2024 to create interactive holiday experiences for shoppers, which followed more of a temporary, seasonal strategy to boost sales. 

Between department stores Macy’s and Nordstrom, Macy’s increased its e-commerce score by 4 ranks, while Nordstrom fell by 7 spots. Both department store retailers stopped investing in virtual assistants. These virtual assistants typically provided outfit suggestions intended to inspire purchases and were often labeled as virtual stylists. This follows the aforementioned trend of shifting AI investments to wider applications such as website search functions, rather than focusing on a specific category like fashion recommendations, in the example of Macy’s and Nordstrom. 

Macy’s also invested in a new membership program called Red Carpet by Macy’s which, unlike Macy’s previous membership program, is a paid program. Establishing paid membership programs remains a central Index trend, building on last year’s momentum when many top performers launched or revamped their membership offerings. As mentioned previously, Macy’s is also hoping to build its first-party data to provide stronger offerings to marketers who want to place ads on its retail media network.

But even as more retailers establish paid membership programs, financial success isn’t always immediate or guaranteed. Macy’s, for example, continues to face financial struggles, and its revamped membership strategy is another tactic in its efforts to make a financial turnaround. Its e-commerce ranking increase is due to the company consistently trying new strategies to reverse its financial situation. 

Drug stores remained largely unchanged this year, but previously top-ranked drugstore CVS did see some shifts. The company dropped 3 ranks this year. The rest of the group as a whole remained largely stagnant on the e-commerce front this year. The only major changes were that Walgreens and Rite Aid added chatbots to their websites — again, mimicking overarching Index trends of adding AI features to better support customer service. 

However, this does not mean the companies did not face major shake-ups this year. The biggest news since last year’s Index came from Rite Aid. In October 2023, Rite Aid announced its bankruptcy and plans to sell off 180 retail stores. Since filing for bankruptcy, Rite Aid has reduced its debt by $2 billion dollars, reduced its store count by hundreds and emerged as a privately held company.  With a multitude of debts to settle, restructuring and a new CEO, the drug store retailer did not make new additions to its e-commerce site in the midst of its financial storm. Now out of the storm and based on the Index’s data, Rite Aid’s e-commerce platform will see new shifts in the coming year, many of which may fall under the overall general trends mentioned above.

As Rite Aid went through major internal shifts, CVS also started discussions about making internal shifts that would later affect its retail business. CVS Health’s board of directors is currently considering splitting up the company between its retail and insurance businesses. The  talks come after years of the retailer’s revenue stagnating. Current discussions also include whether the pharmaceutical branch will be housed under the retail arm or the insurance portion. Separating the two sides will cause major shifts for the company’s e-commerce strategy, since one of its major current offerings is an integration of non-prescriptive and prescription products. 

CVS has historically excelled at linking both sides of its business, non-prescriptive products and pharmaceuticals, through its membership program – a key feature that has allowed it to thrive in the drugstore industry. Its membership program with its pharma benefits has largely led to CVS’s high e-commerce ranking in the last couple of years. If the pharmacy portion of the company is separated and lives on a different platform, the retailer will have to refocus its e-commerce strategies and compete more in line with big-box retailers like Target and Walmart. 

“CVS hasn’t seen itself as a retailer for a very long time,” said Neil Saunders, managing director and retail analyst at GlobalData Retail. “The reality is that retail is still a critical part of its business; not only does it generate a lot of revenue and profit, but it is also a traffic driver for other parts of the business, like health care services and pharmacy. And the problem is that if you let retail unravel too much, it starts to affect other parts of your business. So I think they need to focus on it.”

Walgreens is currently the odd one out of the three indexed drug stores, with no large restructuring plans. However, that does not make it exempt from the cohort’s general trends. Overall, the cohort has seen stagnant growth year over year and has made few changes to the e-commerce retail experience. For both the retailers and the brands selling through those retailers, the cohort is long overdue for change. 

Since the Index’s inception in 2021, dollar stores and off-price stores have consistently placed toward the bottom of the e-commerce rankings, and they continued to underperform in this year’s ranking against the average retailer in the e-commerce dimension. Only Dollar General saw some improvement this year, climbing four ranks but still remaining in the lower rankings. Off-price retailers Burlington and Ross continued to not have shoppable sites in 2024,  which placed them low in the e-commerce rankings, too. 

Dollar General saw an increase in its ranking due to features the retailer added to its website and also the addition of various AI applications. Dollar General added product recommendations to its product display pages. The retailer also was among the few Indexed retailers to add Facebook commerce, rather than stepping away from the platform. T.J. Maxx, another cohort member, also added Facebook Shop. To note, Dollar General and T.J. Maxx are the two retailers in the off-price and dollar store group that have started using social commerce, and they may be testing the social commerce waters for the group. Depending on their performance results, other cohort members may join in. 

In terms of AI usage, Dollar General announced a partnership with Shelf Engine, an AI company that focuses on perishable food forecasting and ordering. “Adopting Shelf Engine’s AI solutions aligns seamlessly with our mission of Serving Others, helping our teams enhance value and convenience for our customers,” said Allen Warch, Dollar General’s vp and division merchandise manager for food and fresh produce. “This collaboration is a strategic step toward improving our operational efficiency while serving our customers with improved in-stock levels of fresh produce.”

Similarly, Dollar Tree’s subsidiary company, Family Dollar, announced a partnership with Dunnhumby, an AI company that focuses on data science and analysis to improve merchandising forecasting. “With our new category and merchandising platform powered by Dunnhumby, we can tailor and fine-tune our assortments to local purchasing preferences, to ensure we provide our customers with the products they need at each of our stores,” 

Despite Family Dollar’s partnership announcement, its parent company, Dollar Tree, has announced that it is considering selling or spinning off Family Dollar. The decision will greatly affect how Dollar Tree approaches its future e-commerce strategy. 

Recently, dollar stores have fluctuated in their financial performances due to inflation and consumer spending cutbacks. For example, non-Indexed retailer 99 Cent Only filed for bankruptcy and eventually closed. Even the Indexed retailers saw softness in their financial performances, with Dollar General and Dollar Tree only seeing 5% and 3% year-over-year revenue increases, respectively.

In an August 29, 2024 earnings call, Dollar General CEO Todd Vasos said to investors that, due to inflation more than 60% of the company’s main target audience — households earning less than $35,000 annually — claimed they have had to sacrifice on purchasing basic necessities. In addition, they have had to pay more for expenses such as rent, utilities and health care. “Notably, the three softest comp sales weeks of the quarter were the last week of each of the calendar months,” Vasos said. “This pattern suggests that our customers are less able to stretch their budgets through the end of the month.” 

The cohort’s recent AI technology partnerships may, in part, be due to overall economic uncertainty as they seek to find ways to bolster their revenues. The industry may soon see other dollar stores and off-price retailers experiment with adding AI applications, as well.

According to Statista, the home goods industry is poised to have a positive next few years, with revenue predicted to grow from $770 billion in 2024 to $799 billion in 2025.

Most retailers within the home goods cohort have followed predicted growth trends for the industry. However, that has not been the case for every member of the Indexed group. The Container Store filed for bankruptcy on Dec. 23, 2024. CEO Satish Malhotra said in a statement that the Container Store will go private once it completes the Chapter 11 process. As the company exited its restructuring process, it has officially gone private. 

Overall, the home goods cohort made the most changes year over year in comparison to other cohorts. The group made significant shifts to its online shopping strategy, with retailers such as Ace Hardware, Wayfair and Lowe’s increasing in Index rank.

Wayfair had the biggest ranking change among retailers within the home goods cohort, moving from a rank number of 17 to 6 year over year. One of the biggest changes Wayfair made in 2024 was to create a paid membership program. The new program primarily offers free shipping on all products — a standard membership offering across all cohorts — and 5% cashback on all purchases, with some extra benefits like early access to specific sales and a priority customer service line. 

Wayfair’s membership program differs slightly from other programs in the cohort when it comes to pricing. Wayfair’s annual membership program costs $29 for a wider range of benefits, whereas RH’s membership program is priced at $200 and Williams Sonoma’s is priced at $99, but both offer fewer benefits. For example, RH’s program focuses heavily on incentivizing customers to purchase frequently by offering discounts with every purchase, and Williams Sonoma offers free virtual classes to increase sales of related products, such as cookware with cooking classes. 

Ace Hardware also moved up the ranking by 4 spots to number 11 in the Index. Unlike Wayfair, which made a splashy change by introducing its membership program, Ace Hardware made subtle changes to its site to improve the customer experience. The hardware retailer focused heavily on its checkout experience, adding cross-sell product recommendations to the shopping cart feature and reducing the number of steps to checkout. This not only reduces friction at checkout for consumers by providing fewer steps to check out, but it also gives the retailer another opportunity to increase cart value with product recommendations. 

In terms of overall trends for the cohort, the home goods group pulled back on its number of social commerce sites and live-streaming offerings. A third of the group pulled out of Facebook Shop and Instagram Shop, and 22% stopped using live-stream selling. Based on the drop-off percentage, the group found that high-ticket items such as furniture do not sell on social commerce platforms and through live streams and that audiences turn to social media platforms for product inspiration rather than to make purchases.

The specialty retail cohort debuted in the Modern Retail Index last year, with Ulta and Sephora ranked in the Index’s top 10 and the majority of the cohort’s other members placed in the middle of the Index. This year, Ulta dropped 5 positions in the ranking, but it still managed to stay in the top 10 along with Sephora. Meanwhile, the rest of the cohort’s members stayed within roughly the same placements. Overall, the beauty category saw strong financial growth year over year. 

Ulta fell 5 positions in the ranking this year because it made minimal consumer-facing improvements to its e-commerce site. The retailer mainly improved its virtual try-on experience and added more personalization efforts, such as more robust product recommendations.

Instead, Ulta focused on behind-the-scenes updates. The retailer improved its enterprise resource planning system to simplify its supply chain, merchandising and inventory management. This change coincided with upgrades Ulta made to its data platform, which sets the retailer up for AI and machine learning capabilities. 

“We also transformed our marketing platform,’ said Inna Larson, vp of IT strategy, planning and enterprise architecture at Ulta, “We’ve partnered with Adobe, one of the leading engines for marketing and personalization. We have been doing personalization for some time, but now, it’s on a platform that’s super-powered and supercharged, and we can take every aspect of the customer journey and make it personalized. We’re empowered, and we’re enabled with our new platform to personalize every step of the customer journey, which is what they have come to expect in our store.”

Sephora, on the other hand, did not move many spots in the ranking, even though it also did not make major updates to its website. Instead, the retailer focused on its membership program.  Sephora has one of the largest and well-known membership programs, “Beauty Insider.” Last year, the retailer added more benefits for consumers. For example, in August 2024, Sephora launched its Rouge Celebration Event, a four-day event of in-store and online activations for members only. The event was meant to celebrate the retailer’s loyal customers and also to highlight the benefits of climbing membership tiers – which, of course, is tied to the amount a customer spends at Sephora. 

Last year’s Index highlighted the strength of the specialty retail cohort’s membership programs. While the cohort mostly offers non-paid memberships, the group places a large emphasis on offering loyalty programs with strong consumer incentives like Sephora’s membership program. 

According to Greg Carlucci, senior director analyst at Gartner, there are multiple benefits to having a retail rewards program. “Any time you’re able to create a relationship as a brand with a customer in an environment that you can control, like a loyalty program, it enables things like personalization, one-to-one communication and, overall, just advocacy in building retention,” he said.

Eighty-six percent of U.S. shoppers belong to at least one loyalty program, according to Gartner’s research. And nearly a third (31%) of CMOs told Gartner that they were putting more money toward loyalty programs in 2024. 

As in last year’s Index, loyalty programs remained a strength for specialty retailers that doubled down on consumer benefits that appealed to their niche audiences. Chewy and Barnes & Noble both used category-specific benefits to improve their membership programs over the past year. 

In 2024, Chewy launched its first-ever vet clinic called Chewy Vet Care. The main benefit for pet owners is its member’s-only 24/7 customer service line. However, pet owners who use the clinics may, in so doing, also visit Chewy’s site to purchase medications and other pet products. “With the launch of Chewy Vet Care clinics earlier this year, we not only unlocked the $25 billion vet services [total addressable market] opportunity, but we are also observing compelling complementarities across the entire Chewy ecosystem,” said Chewy CEO Sumit Singh. 

Barnes & Noble has recently doubled down on its positioning as a local, community-first bookseller to fend off competition from e-commerce giant Amazon. While Barnes & Noble’s e-commerce site is still a work in progress, the retailer’s advantage comes from its book expertise, according to Neil Saunders, managing director of research agency GlobalData Retail. 

“Amazon recommendations are driven by an algorithm. That’s fine, and it works to a certain extent,” Saunders said. “But it doesn’t have the same personal touch as when you go into a Barnes & Noble, where you can receive a personal recommendation and there are handwritten recommendation cards from members of staff who work in the store.” 

Barnes & Noble’s CEO James Daunt echoed those sentiments. “Nobody wants to buy a book from Amazon,” Daunt said. “It’s a dispiriting experience if your alternative is a really nice bookstore.”

The Modern Retail Index is designed to explain how well traditional retailers create digital experiences. The list of retailers does include some retailers with third-party marketplaces, such as Walmart with Walmart Marketplace, but they represent a minority within the list. As a result, and because of its size and reach across industries, Amazon was confined to its own category — and it landed below some big-box retailers in its results due to some of the tradeoffs that come from focusing on a largely third-party marketplace. Despite not placing No. 1 in the Index, Amazon still casts a huge shadow on its competitors and continues to lead many industry trends.

Amazon has continued to perform well in Modern Retail’s yearly Index. This year is no exception, with Amazon ranking No. 3 in the Index. 

In 2024, Amazon continued to offer its well-established Prime Day sale in July, and it more recently added an October Prime Day sale, as well. Amazon’s July Prime Day drove record sales this year, driving over $14 billion in sales, up 11% year over year, according to Adobe Analytics. An Amazon press release also noted that Amazon saw a record-breaking number of customers sign up for its Prime membership program in the three weeks leading up to its July Prime Day.

Amazon announced that its October Prime Day, also called Prime Big Deal Day, was the largest Prime Day sale Amazon has held since its inception. “Our 2024 Prime Big Deal Days event marked a strong start to the holiday shopping season, with record-breaking sales and participation from Prime members worldwide,” said Doug Herrington, CEO of Worldwide Amazon Stores.

Industry experts also said they have seen a growing opportunity for Amazon’s October Prime Day. “The July Prime event is still much larger, but definitely, from what we’re seeing, that gap is shrinking,” said Andrew Waber, director of market research at Momentum Commerce. 

Along with a strong 2024 financial performance and Prime Day sales events, Amazon has also added more AI solutions for its shoppers. In September 2024, the retail juggernaut released Rufus, an AI-powered shopping assistant – essentially a powerful chatbot that is able to answer more complex questions. Unlike the virtual assistants offered by other retailers, Rufus wasn’t solely built to generate shopping inspiration ideas. Instead, it can answer product questions, compare products and provide order tracking. A month later, in October, Amazon released its AI Shopping Guides on its search pages. The tool aggregates key features that are personalized to the user and recommends products based on what matters most to the consumer. 

As Amazon expands not only as a retailer but also as a tech company, competitors will continue to see it be a first mover in emerging technologies — a key component for competitors or brands thinking about selling on the site to consider. 

However, despite all of its success, Amazon did see some hiccups as it ramped up merchant fees over the last year. In March 2024, Amazon announced a number of new seller fees for sellers that utilize the tech company’s service Fulfillment by Amazon, also known as FBA. Amazon also announced that it would start charging sellers for having low inventory in its warehouses. And, it announced a surcharge on shipments sent to the company’s fulfillment centers if sellers don’t split up the inventory to be shipped around the country, done by Amazon for free. Seller fees can eat up about half of the cost per sale, hurting merchant profits, according to Marketplace Pulse. 

Because of the new fees, many sellers either had to restructure their pricing strategy or pull away from Amazon entirely. As a result of the backlash, Amazon retracted some of the fees in November 2024. However, the damage had been done. Many sellers had already repriced their products or pulled products from Amazon’s site completely and moved to more profitable marketplaces. 

With open marketplaces growing, Amazon is starting to experience increasing competition. One new competitor came in the form of Temu. Temu has had meteoric growth in recent years and has begun to woo U.S. sellers onto its marketplace. 

A 2024 slide deck from Temu emphasized the benefits of its “semi-managed” logistics. The model makes it easier for sellers to ship orders to customers using a domestic U.S. warehouse. However, the biggest highlight was that Temu does not charge its merchants the same numerous fees that Amazon does — a big draw for sellers. The application process for U.S. sellers on Temu is also simplified and allows almost any U.S. seller to enter the marketplace without barriers. 

“Temu is opening the door for local U.S. sellers—no invitation needed,” a Temu spokesperson said in an email statement to Modern Retail. “Sellers can now ship directly from U.S. warehouses, delivering products to customers faster than ever — sometimes in just one business day.” The spokesperson added that “signing up is simple” through Temu’s website.

Walmart’s Walmart Marketplace has also grown to become an Amazon competitor. In November 2024, a Walmart executive said during an earnings call that Walmart Marketplace saw sales climb 43% that quarter. This was the fifth quarter in a row that the marketplace saw more than 30% sales growth. Sellers on the platform also grew by double digits, and some sellers have noted that Walmart has lower fees than Amazon. Due to its large audience, Walmart Marketplace has become a viable option for sellers looking to leave Amazon, according to Jason Boyce, founder of Avenue7Media, a consulting business for sellers on marketplaces.

“It’s a much easier transition to go from Amazon to Walmart Marketplace versus, frankly, any of the other options,” Boyce said. “Walmart’s got amazing logistics capabilities. They’re probably the closest to Amazon because they’re doing a nice job of building out fulfillment centers, as well as using their stores for final-mile delivery.”

Walmart has also started offering other features similar to Amazon’s suite of products. It added services like veterinary telehealth and Burger King discounts to its Walmart+ membership. In addition, the retailer announced a new first-party data service coming in 2025 called Scintilla, which will keep sellers and advertisers up to date on shopping and inventory information from Walmart’s stores and supply chain. In December 2024, Walmart also wrapped up its $2.3 billion acquisition of Vizio. This acquisition gives Walmart its own streaming service and TV operating system, similar to Amazon’s Prime Video and Fire TV streaming media player. 

With these updates, Walmart seems to be trying to make its ad business more appealing to marketers by building up its first-party data reserves through its membership program. It also seems to be hoping to attract new sellers with its lower fees and to grow its retail media network with the addition of Scintilla.

In a similar vein, Best Buy has recently announced that it will launch a new third-party marketplace. This comes after Best Buy made a now-defunct marketplace attempt from 2011 to 2016. The new marketplace announcement is a tactic to attract sellers who are leaving Amazon due to its high fees. 

“The traffic is very high, and the consumer base is very loyal — it has a lot to do with that brand that Best Buy has built,” said Megan Potts, founder of Triforce Digital Partners, an agency that specializes in non-Amazon marketplaces like those from Target, Walmart, Wayfair and Home Depot. “I think that Best Buy is going to add a lot of unique millennial eyeballs that are already shopping there; these are really affluent customers, much more affluent than Target and Walmart, even Amazon.”

With so many changes happening in the retail industry, Amazon will need to continue to evolve quickly to stay ahead of competitors.