The Modern Retail Index analyzes major retailers, highlighting growth in e-commerce sales and emerging strategies to adapt to economic challenges as they head into 2025.
The Modern Retail Index has released a comprehensive analysis of major retailers in its inaugural installment, evaluating their performance across several dimensions, including e-commerce experience, fulfillment ease, and financial momentum. Despite facing challenges due to rising inflation and consumer spending hesitancy at the beginning of 2024, U.S. retailers observed a positive trend in their e-commerce businesses by the end of the year. The U.S. Department of Commerce reported a 7.4% growth in e-commerce sales during the third quarter of 2024 compared to the same period in 2023, significantly outpacing the 2.1% growth in overall retail sales.
FTI Consulting projected that online retail sales would reach $1.2 trillion in 2024, an increase from $1.1 trillion in 2023. However, consumers remain cautious with discretionary expenditures. While dollar stores have typically fared well during economic downturns, large chains have struggled to attract both low-income shoppers and higher-earning customers looking for value. Additionally, Rite Aid and The Container Store recently emerged from bankruptcy after major restructuring due to significant financial struggles.
To counteract potential declines in sales, numerous big-box and home goods retailers have launched paid membership programs and expanded retail media networks. These strategies assist retailers in gaining access to first-party customer data, which can be monetized through various partnerships. Generative AI technology has also gained prominence in marketing strategies, as retailers invest in AI tools aimed at streamlining internal processes and enhancing customer support, including chatbots and personalized product recommendations. Noteworthy shifts included a decrease in investments in virtual assistants and augmented reality features, as companies moved towards newer AI technologies.
The Modern Retail Index employs a detailed methodology to score retailers based on specific sub-dimensions related to e-commerce, including virtual product experience, checkout efficiency, customer reviews, customer service, benefits, mobile app features, social commerce presence, and the availability of paid memberships.
Among the defined cohorts in the Index—Big Box, Drugstore, Dollar Store/Off-Price, Home Goods, and Specialty Retail—some key trends emerged. Big-box retailers, led by Walmart and Best Buy, experienced steady performances, employing AI to enhance backend operations as well as consumer-facing features like chatbots and improved delivery tracking. Retailers like Macy’s saw significant improvements in their e-commerce rankings by introducing new membership programs while also struggling with financial difficulties.
The drugstore segment experienced limited innovations, with CVS seeing a decline in its ranking and Rite Aid facing bankruptcy and subsequent restructuring efforts. CVS is currently evaluating a potential split between its retail and insurance businesses, which could significantly impact its e-commerce strategy. Walgreens, however, maintained stability without major restructuring plans despite stagnation in overall growth.
Dollar stores faced notable economic challenges, with Dollar General slightly improving its ranking through website enhancements and AI applications, while Family Dollar contemplates a potential spin-off from Dollar Tree. These dollar stores reported minimal year-over-year revenue growth as inflation constrained spending among low-income consumers.
On the other hand, home goods retailers demonstrated growth driven by revenue projections from Statista, with Wayfair’s new membership program significantly boosting its ranking. Ace Hardware focused on refining the customer experience through minor site updates that improved checkout speeds. Conversely, the home goods cohort collectively reduced engagement with social commerce platforms, recognizing that higher-ticket items do not perform well on social media.
In the specialty retail category, Ulta saw a decline in its ranking primarily due to limited consumer-facing changes, focusing instead on infrastructure improvements. Meanwhile, Sephora capitalized on its successful membership program by enhancing customer benefits.
Amazon secured a notable presence in the ranking, landing in the third position amid ongoing sales success influenced by promotional events like Prime Day. However, it also faced new competition, most notably from emerging marketplaces like Temu, which appeal to sellers through lower fees and simplified processes. Walmart’s marketplace has also seen growth, revealing a competitive landscape increasingly challenging for Amazon.
As the Modern Retail Index illustrates, retailers are adapting their strategies amid shifting consumer behaviors, technological advancements, and economic factors, reflecting a dynamic retail landscape heading into 2025.
Source: Noah Wire Services
