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Supermarkets have always been a big part of American life. They’ve been the go-to for convenience, a reliable stop in every community. For years, supermarket chains and small retailers did well, thanks to loyal customers and steady demand. But things are changing. In 2024, the industry hit a tough spot—more supermarkets closed than ever before since the pandemic. It’s a clear sign that how and where Americans shop is starting to shift.

But here's the contrasting part: while many smaller retailers are feeling the pressure, the big players — Walmart, Costco, and Amazon — have actually been growing stronger. 

According to the Retail Funnel report from Morgan Stanley, in the third quarter of 2024, these three companies accounted for nearly 46% of all the retail sales growth in the U.S. That’s 46 cents of every dollar spent on retail growth going to one of these giants.

The trio’s grip on online shopping is even stronger. Together, they accounted for over 75% of all new e-commerce sales during that quarter. 

So, what’s behind this growth? Why are the big three—Amazon, Walmart, and Costco—thriving when so many retailers are struggling? Let’s examine the key decisions and strategies that have fueled their success and explore what’s driving the tough times for smaller retailers.

Why is Walmart winning?

Walmart’s success over the years is rooted in Sam Walton’s philosophy of offering the lowest possible price and saving money for customers. The retail giant's affordability factor helped it build trust and unmatched customer loyalty among Americans. Add to this the ability to evolve with changing times.

Today, Walmart is the largest retailer in the US. It operates over 4,600 stores and receives nearly 255 million customer visits weekly. In 2024, it generated a staggering $648 billion in revenue.

Walmart's stellar performance is largely due to its ability to offer the most affordable price to a diverse and evolving customer base. While Walmart has always been a favorite among budget-conscious families earning less than $60,000 annually, the retailer is now attracting wealthier households with incomes exceeding $100,000 a year. 

So why is there a sudden increase in affluent households moving to Walmart? The main reason is inflation.

Inflation is pushing even affluent shoppers to prioritize essentials over luxuries, and Walmart is the natural choice. Moreover, introducing premium product lines like BetterGood and expanding its delivery services and Walmart+ membership program has further solidified its appeal to this new demographic. 

However, one of the biggest contributors to Walmart’s stellar 2024 performance is the grocery business. According to Walmart’s earnings report, groceries account for nearly 60% of its U.S. revenue, and Walmart’s dominance in this category is unparalleled. Today, it leads the U.S. grocery market with a 23.6% share. On top of that, as of Q2 2024, Walmart owns 37% of the online grocery market.

This success is anchored by Walmart's “everyday low prices” strategy, which has kept groceries significantly cheaper than competitors. A Bank of America report found that Walmart grocery items were 21% less expensive than those at major supermarket chains and even 9% cheaper than those at dollar stores. 

But Walmart didn’t just rely on prices — it doubled down on convenience. By 2023, it had rolled out curbside pickup at over 3,500 locations and offered Buy Online, Pick Up In-Store (BOPIS) options at nearly every store. This investment in customer convenience paid off as more shoppers turned to Walmart for their everyday needs. 

The company also invested heavily in infrastructure, spending $21 billion on capital expenditures in its fiscal year ending January 2024 — nearly matching Amazon’s retail spending for 2023. These investments supported technological advancements, delivery capabilities, and an enhanced shopping experience. 

Yes, Amazon remains the undisputed leader in e-commerce, but Walmart has been steadily gaining ground. Between the second and third quarters of 2024, Amazon saw its share of incremental retail growth slip by about 5 points, while Walmart has steadily gained 3.4 points since the fourth quarter of the previous year. Walmart's stock surged by approximately 72% in 2024, positioning it as one of the top performers in the Dow Jones Industrial Average, second only to Nvidia.

While Walmart weathered the test of time and the pandemic by adapting, Costco, on the other hand, succeeded by staying the course and sticking to its tried-and-true principles.

Costco’s success mantra

When the pandemic hit, most retailers in the United States scrambled to adapt. But amidst this Black Swan moment, Costco thrived. This was no coincidence or a stroke of luck. In fact, it was the result of a business model quietly built for resilience. While others rethought their strategies overnight, Costco’s approach proved timeless. Between February 2020 and February 2021, Costco sales climbed 14% year over year. 

And its purple patch still continues. Case in point: Costco’s Q3 2024 performance. It made $77.2 billion in sales for the quarter, an 8% rise from 2022. In the same quarter, Costco’s same-store sales rose 19.5% year on year. In fact, Costco’s stock has climbed 52% this year, nearly doubling the S&P 500's return over the same period.

So, what is Costco’s secret sauce? What’s the secret behind Costco’s ability to outshine itself year after year? 

There are multiple factors that have led to the stellar performance of Costco. Let’s first begin with the shopping experience that Costco offers. It is not a place that is designed for rushed errands or quick buys; it’s a destination where time and exploration are part of the charm. 

According to a Placer.ai report, Costco shoppers spend an average of 38 minutes in the store, whereas Sam’s Club shoppers spend an average of 33 minutes. This extra time pays off. The average monthly sales per customer at Costco was $371, while for Sam’s Club, it is $261. Also, the “no questions asked” return policy encourages buyers to purchase expensive and premium products without any inhibition. 

But it’s not just the time spent that matters; it’s the sense of discovery. Costco’s aisles are famously unstructured, a deliberate move to encourage curiosity. Shoppers never know what they’ll find. This “treasure-hunt” strategy transforms routine shopping into an adventure, ensuring that no visit feels mundane and that shoppers return to Costco to not miss out on unique deals and products. 

Yet, the backbone of Costco’s success isn’t its layout or quirky surprises—it’s the membership program. 

The company reported that membership fees brought in $4.8 billion in the previous fiscal year, which ended Sept. 1, 2024. Costco now has 77.4 million paid memberships, an increase of 7.6%, and nearly half — 47% — were executive memberships. 

Additionally, Costco operates with an average product markup of approximately 11%, significantly lower than the typical retail markup. The company enforces strict limits on markups, ensuring that no regular item is marked up more than 14% over cost and no Kirkland Signature item exceeds a 15% markup. 

In contrast, traditional retailers often apply markups ranging from 25% to 50% or more, depending on the product category and industry standards. For example, Walmart’s average markup is around 24%, while Home Depot’s is approximately 35%. By maintaining such low markups, Costco delivers products at prices that are challenging for competitors to match, striking a balance between affordability and quality. This strategy not only attracts cost-conscious consumers but also fosters strong customer loyalty. 

But how does Costco do this?

Costco's strategic approach to inventory management and product selection significantly contributes to its competitive advantage in the retail market. Costco’s strategy of keeping products on pallets in its stores saves on labor and display costs, allowing these savings to be passed on to customers through lower prices. 

Additionally, by maintaining a limited assortment of approximately 3,700 to 4,000 SKUs (Stock Keeping Units) per warehouse, Costco streamlines its supply chain and focuses on high-demand, quality products. In contrast, traditional supermarkets typically offer around 30,000 SKUs.

This deliberate limitation allows Costco to negotiate better pricing with suppliers, ensuring that members receive exceptional value. When suppliers are unable to meet Costco's pricing or quality standards, the company often develops its own products under the Kirkland Signature brand.

Established in 1995, Kirkland Signature has become a cornerstone of Costco's identity. It offers a wide range of items, from groceries to household essentials. 

Kirkland Signature, Costco’s private-label brand, generated $56 billion in revenue in 2023, accounting for 23% of the company’s total sales. To put that into perspective, if Kirkland were a standalone business, its revenue would surpass Nike, Coca-Cola, and United Airlines revenues.

To top it all off, Costco’s online sales played a crucial role in its impressive 2024 performance. After a sluggish 2023 marked by several months of negative growth, Costco’s e-commerce sales rebounded sharply, surging by 20.7% and becoming a key driver of its overall success.

If retail is a game of chess, then online retail is like playing it blindfolded— it’s a high-stakes battle of managing complex supply chains and delivery costs. Yet Amazon remains the undisputed champion in this arena. 

Amazing Amazon

Amazon’s online retail performance in 2024 was nothing short of impressive. It was driven by a series of smart moves that kept it ahead of the competition. One major factor was its focus on shipping and order fulfillment. 

Over the years, Amazon has invested billions in improving delivery speed and efficiency, leveraging robotics and AI to streamline logistics. These efforts paid off big time—by the first quarter of 2024, Amazon delivered over 2 billion items the same day or the next day.

This speed has become Amazon’s unfair advantage, drawing customers to its platform and iconic Prime membership program. The impact is clear: in Q3 2024, Amazon reported $158.9 billion in net sales, an 11% increase from the previous year. According to eMarketer, 180.1 million U.S. adults now use Amazon Prime, a nearly 8% year-over-year increase from 170 million in June 2023. 

Interestingly, Amazon has taken a bold step forward with its pricing strategy, shifting from simply matching competitors’ discounts to leading with its own. This proactive approach has been particularly effective in a year when inflation has made consumers more cautious about spending.

The results speak for themselves. During the 2024 holiday season, Adobe reported that online sales hit a record $241 billion, an 8.7% increase from the previous year, with Amazon’s aggressive discounts driving a significant portion of that growth.

Amazon's strategic focus on discretionary categories like electronics, home furnishings, and clothing has further strengthened its position. The company now commands an impressive 41% share of the U.S. electronics and appliances market and holds nearly 17% of the clothing and apparel market. These numbers highlight how Amazon’s pricing and category leadership continue to pay off, solidifying its dominance across key sectors.

Another key factor in Amazon’s success is the sheer variety it offers. The company has continuously expanded into categories like health, beauty, and personal care, making it a one-stop shop for nearly every need. To further cater to budget-conscious shoppers, Amazon introduced Haul, a dedicated shopping segment within its mobile app. 

It is also worth mentioning that in addition to its core retail operations, Amazon relied on its other revenue streams, particularly Amazon Web Services (AWS), which grew 19% year over year, contributing $27.5 billion to Q3 sales and bolstering the company’s profitability. In 2024, Amazon's stock jumped 45.6% thanks to strong business performance and innovative AI developments.

Unfortunately, the success of these three retail giants in 2024 did not translate into broader growth for the retail industry as a whole.

Rampant store closures 

The U.S. retail sector saw a significant spike in store closures in 2024, with over 7,300 closures announced by major retailers. This marked a 57% increase from 2023 and represented the highest annual number of closures since 2020 when the COVID-19 pandemic forced widespread business disruptions.

The surge in closures highlights the mounting pressures on brick-and-mortar stores as they grapple with rising operational costs, shifting consumer behaviors, and financial constraints.

Inflation has been a significant factor contributing to this trend. In 2020, the average inflation rate stood at 1.2%, a relatively stable figure. However, by November 2024, the annual inflation rate had climbed to 2.7%. 

This rise in inflation has driven up rents, utilities, and wages, squeezing profit margins for retailers already operating on thin margins. Many chains, particularly those with significant debt burdens, found it increasingly difficult to absorb these rising costs.

This inflation-driven financial strain has been especially evident in the closures of chains like Party City and Rite Aid, both of which filed for bankruptcy in 2024 and began shutting down stores nationwide. 

Family Dollar is also scaling back, closing over 600 locations as leases expire, while Big Lots announced plans to eliminate more than 280 stores as part of its cost-cutting efforts. Even legacy brands like Macy’s and Joann have not been immune, with Macy’s continuing its three-year plan to close 150 underperforming stores and Joann beginning liquidation sales after filing for Chapter 11 bankruptcy.

Compounding the effects of inflation is the ongoing shift in consumer behavior. The rapid growth of e-commerce has drastically reduced foot traffic to physical retail stores, leaving many brick-and-mortar locations struggling to remain viable.

Retailers like CVS have responded by pivoting resources to strengthen their digital infrastructure. As part of its strategic transformation, CVS announced the closure of nearly 900 stores to focus more on its online platforms and healthcare services. This shift illustrates how even established retailers are being forced to reallocate resources to align with modern consumers' digital-first preferences.

Another critical factor contributing to the closures is the inability of many retailers to invest in capital expenditures. With rising operational costs and mounting debt, several companies have been unable to modernize their stores or improve their online platforms, leaving them ill-equipped to compete in a rapidly evolving retail landscape. 

Conclusion 

Big retailers are already a huge part of American life, and it’s clear their grip on consumers is only getting stronger. It’s no surprise that investors are flocking to these giants, seeing their steady growth and dominance. Customers, too, seem to have more loyalty to the big players, choosing convenience and a wide selection every time they shop.

But here’s the thing: for consumers to really get the best prices, there needs to be competition. Yes, these big stores are offering solid deals, but without competition, prices could creep up, leaving shoppers with fewer choices. In tough times like these, getting the best price is crucial, but we also need that healthy balance between big and small retailers.

Looking ahead, it’ll be interesting to see how these giants adapt. Will they keep innovating to meet changing consumer needs, or will their dominance start to feel like a bit too much? It’s a fine line. One that could shape the future of retail and how we shop in the years to come.

This newsletter was written by Shyam Gowtham

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