The Possible Growth in Online Sales at Walmart and Costco Could Potentially Pose Challenges for Amazon.
The Possible Growth in Online Sales at Walmart and Costco Could Potentially Pose Challenges for Amazon.
Amazon (AMZN dropping by 1.45%) boasts an unrivaled online commerce dominance and a lead so substantial that it's hard to imagine any rival catching up in the foreseeable future. However, no corporation, not even Amazon, is exempt from competition. Leaders must always stay ahead of shifting trends and enhance their offerings to match them.
Nowadays, there are consumer expectations in e-commerce that Amazon finds challenging to satisfy, but Walmart (WMT decreasing by 1.22%) and Costco Wholesale (COST dipping by 1.72%) can meet and are. Does this pose a threat to Amazon?
The ascent of the omnichannel strategy
Online shopping has solidified its position as a widespread shopping method for Americans and a majority of consumers worldwide. Even as companies continue to innovate technology to address screen-based shopping's limitations, there are aspects it can't fully overcome.
Many shoppers are realizing that a blend of in-store and online shopping, even for the same purchase, can make the most sense. Retailers providing these options are reaping the benefits. Walmart and Costco are examples of companies leveraging their physical store assets to boost digital sales and are ranked among the top three U.S. retailers by sales, with Amazon in the middle.
Online sales were a primary contributor to Walmart's 5.5% year-over-year surge in revenue during the 2025 financial third quarter (concluding on Oct. 31). Online sales increased by 27% compared to the previous year, and store-fulfilled pickup and delivery played a critical role in its success. This trend was particularly pronounced in international segments, which reported a 43% increase in e-commerce sales.
Walmart has 4,600 U.S. stores and over 10,600 worldwide. The company is already utilizing these outlets as shipping bases. The digital aspect exposes its inventory to a wider audience and allows it to offer a broader variety of products than a physically constrained store. This strategy attracts new customers who may not typically shop at Walmart, especially affluent consumers.
Costco is experiencing a similar trend. E-commerce was a significant growth factor in its 2024 fourth quarter (concluding on Nov. 24), rising by 13% year over year, whereas the company's overall sales increased by 7.5%. Management revealed that a considerable portion of the e-commerce sales came from large and bulky items. Costco mentioned in the past that pickup for small items is not cost-effective due to labor expenses, but the savings on delivery for larger items offset these expenses, and the growth in this category boosts sales without harming Costco's profit margins.
Where Amazon misses the mark
Amazon seized an early lead in e-commerce by rapidly expanding beyond selling books and acquiring various companies to become what it is today. It holds approximately 37% of all U.S. e-commerce sales, which means over a third of U.S. e-commerce funds flow through its platform. This is an almost staggering lead.
Amazon's logistics network is unmatched, enabling quick order delivery, often faster than customers could get products from local physical retailers. The company continually upgrades its network and is experimenting with new robotics that decrease processing time by as much as 25%. This should significantly decrease costs during peak delivery periods.
Amazon recently shifted from a nationwide to a regional fulfillment model to mimic some of the benefits of a robust physical store network. It's still working on refining its procedure for getting goods to its regional distribution centers. The company currently operates a robust system for delivering products from these warehouses to customers' doorsteps.
Amazon reported robust growth across its extensive and diverse business segments during the third quarter. Sales increased by 11% year over year to $159 billion, an impressive achievement for such a large company.
Since it's so large and diverse, it's worth breaking down the sales and growth. Online sales and third-party sales combined accounted for nearly $100 billion, representing about 62% of total sales. E-commerce drives the majority of Amazon's revenue. However, it grew at a slower pace than other segments during the quarter: Online sales increased by 7%, and third-party sales grew by 10%.
Amazon has attempted to enter physical retail by various means over the past few years, with mixed results. Currently, it has a small number of Amazon Fresh and Amazon Go locations, in addition to Whole Foods, but lacks a broad network of stores capable of supporting omnichannel shopping.
Amazon: The Epitome of E-commerce
The company may lose some sales due to its inability to offer customers omnichannel options, but that's not its primary focus. Amazon is investing in what it excels at: online commerce, pure and simple.
Will this hinder its retail business in the long term? Shareholders are unlikely to be overly concerned, and it may even continue to gain market share in categories outside of omnichannel because its platform is that much more efficient. This is something to monitor, but there's no immediate cause for worry.
In terms of financial investments, Walmart and Costco's strategic focus on omnichannel retailing could potentially attract more affluent consumers and boost their e-commerce sales, challenging Amazon's market dominance in some areas.
Given the success of Walmart and Costco in leveraging their physical stores for digital sales, there's a growing need for Amazon to further enhance its regional fulfillment model to provide a more seamless omnichannel shopping experience, potentially diversifying its revenue streams and maintaining its competitive edge.