Modern Retail Index 2022: How leading retailers’ fulfillment strategies have evolved

Last year’s Modern Retail Index focused heavily on the impacts that Covid had on the way customers shop. This year, we still see the pandemic’s lasting impact in a post-vaccine era. Despite customers’ return to in-store shopping, retailers are still feeling the virus’s impact on supply chains. 

In a July 2022 Modern Retail survey, nearly two-thirds (63%) of respondents said they were investing in new technologies and capabilities to combat supply chain delays. Those supply chain concerns reached a peak for some companies in late 2022 during the holiday shopping season, a time of year many retailers rely on to make the bulk of their revenue. Evan Moskal, co-founder of Courant, a wireless charging brand specializing in home and office tech accessories, said it takes the company’s team all year to plan for the onslaught of holiday sales, especially amid supply chain strains during the past couple of years.

And a slammed supply chain is only one of the challenges retailers face. With customers growing more accustomed to ordering online through Covid-related lockdowns, shoppers have also come to expect more streamlined and fast delivery. According to a 2022 shipping report from X Delivery and the Retail Management Institute of Santa Clara University, 62% of consumers expect orders to be delivered in under three business days. In the same report, 56% of abandoned carts were attributed to fulfillment concerns. Clearly, fast fulfillment matters to consumers.

As a result, fulfillment is top of mind for retailers. Due to the cost and time needed to revamp entire fulfillment strategies, many retailers have started working with any and all available third-party vendors to build out additional fulfillment options and keep up with customer expectations. Dollar Tree, Dick’s Sporting Goods and Sephora, for instance, partnered with DoorDash to deliver products — unusual pairings for a food delivery service. Shanna Prevé, DoorDash’s vp of partnerships said, “New verticals are growing faster than even our core business. So we’re investing a lot there, and we’re seeing great results with our consumers.”

Against this backdrop, Modern Retail has taken a deep look at the top retailers — from big-box stores to pharmacies to dollar stores — and analyzed the different ways retailers smoothed and diversified the fulfillment process for their customers. 

With supply chain and strategy developments in multiple industries, Modern Retail has adjusted its Modern Retail Index — now in its second year — by adding new retailers and shifting some retailers into new categories, including the newly added home goods cohort. Retailers that are new this year: 

• Nordstrom
• Container Store
• Bed Bath and Beyond
• William Sonoma
• Wayfair
• Overstock
• Ethan Allen
• Restoration Hardware
• Burlington Coat Factory

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.

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 ease of fulfillment dimension focuses on the retailer’s ability to get the end product into the consumer’s hands when purchases are made through its e-commerce platform. The index does this by assessing a series of sub-dimensions to provide a better sense of the retailer’s strengths and weaknesses.  We contextualize that within the cohorts we analyze — which include big-box, drugstore, grocery and dollar store/off-price — to create a fuller picture of how the largest retailers in the country approach fulfillment.

Within the ease of fulfillment dimension of our rubric, retailers are assessed across four different areas: Payments, Post Purchase, Fulfillment Options, and Returns:

• Payments measures the presence of different payment options, such as quick pay, subscribe and save, and buy now, pay later. 
• Post Purchase measures the presence of options available to the consumer after they complete a purchase, such as purchase tracking and post-purchase order modifications.
• Fulfillment Options measures how easy it is for a consumer to obtain a product from the retailer. This includes the presence of different fulfillment methods, such as order online and pick up in store and expedited shipping.
• Returns measures the level of difficulty to return or exchange a product. 

Within the indexed retailers, five immediate cohorts were identified: Big-box, Drugstore, Grocery, Dollar Store/Off-Price and, newly added, Home Goods. The index includes Amazon outside of any other cohort due to its unique positioning in the market. Many of the new retailers belong to the new home goods cohort. Home Depot, Ace Hardware and Lowe’s were previously in the big-box cohort in last year’s index, but have now been recategorized under the home goods cohort.

To note, the grocery cohort will be scored but not highlighted in this report. Due to the grocery cohort’s strategy – and the underlying business – standing as an outlier in the index, the analysis will be featured in a separate annualized report. 

Key Findings:

• The big-box group did not see large changes to their customer-facing fulfillment offerings, but many added new technology, such as robotics, to their supply chain —  anticipating future payoffs. 
• While most of the cohort decreased in standing, Walmart increased in ranking year-over-year, moving up five places by expanding its delivery options and adding new features.
• Retailers, like Target and Best Buy, have also shifted their warehouse and store strategies to turn stores into fulfillment hubs for digital orders.

The index defines big-box retailers by their large traditional brick-and-mortar store format. The retailers in this cohort sell across multi-brand and multi-product categories. Most notably for big-box stores, they follow a chain store format with nationwide locations as opposed to more regional locations as seen in some other cohorts. The retailers in this cohort included: Best Buy, Macy’s, Walmart, Target, Kohl’s and Nordstrom.

While an individual big-box retailer no longer holds the number one rank in the index, retailers in the big-box cohort remained top performers in ease of fulfillment — all of them appearing within the top 10 spots. The biggest year-over-year changes were seen by the top players from last year: Best Buy, Target and Macy’s. Each fell slightly in ranking, losing out to Amazon and Lowe’s, which is now in the home goods cohort. 

Likewise, the majority of other cohort members dropped slightly, also weighed down by improvements made by Amazon and Lowe’s. But while most of the cohort decreased in standing, Walmart was the exception. The retailer increased in ranking year-over-year, moving up five places and further cementing its position as a leader in the space. 

One of the reasons for this almost category-wide slide down the charts was that the big-box group did not make large changes to their customer-facing fulfillment offerings over the past year. However, many did integrate new technology, such as robotics, to their supply chain. For example, Walmart added more robotic machines to move inventory to its new fulfillment centers to increase automation. This recent adoption of emerging tech has not immediately translated into faster shipping or new delivery options yet, but customers and industry players can anticipate lagging improvements in fulfillment from these early investments. However, with no demonstrable impact on present-day fulfillment, these technology investments are not reflected in this year’s index ranking. 

Aside from investments in robotics, retailers, like Target and Best Buy, have also shifted their warehouse and store strategies. Target, an early pioneer of using in-store space for fulfillment, has continued to build out extensions of its larger brick-and-mortar spaces to act as hubs and storage centers for digital orders. The new store layouts will have a backroom fulfillment space five times larger than previous stores and will allow them to “fulfill more than 95% of the retailer’s digital orders and same-day services accounting for more than 10% of its overall sales,” according to a press release. 

Best Buy has launched smaller-format stores, but with a similar goal as Target. The newly shrunken shops will include 24-hour pick-up lockers outside the store to support online orders. Similar to Target, Best Buy’s new strategy focuses on getting the items to the consumer with the least amount of friction, resulting in faster shipping times. 

Though they no longer lead the full set of retailers, Best Buy, Target and Macy’s continue to lead the big-box group this year, with no shift in their cohort ranking as first to third respectively. While those three held their positions, Walmart climbed the rungs to join them at the top, placing fourth in big-box and sixth in the overall index. 

The biggest shift affecting Walmart’s standing was in the payment score: The retailer added a new subscribe-and-save feature to specific products. While other retailers, such as Target, have forgone the option, Walmart has added it, likely to bolster its recently announced expansion of fulfillment methods, including a shift to using stores as fulfillment centers for digital orders, similar to the strategy mentioned earlier for Target. 

What further sets Walmart apart from its competitors is its adoption of other systems beyond its store offerings to execute more sophisticated fulfillment center strategies. Walmart has added more drone and autonomous driver delivery and expanded both its Walmart GoLocal and Walmart InHome Delivery initiatives. GoLocal partners with small local businesses to assist them in last-mile delivery using Walmart’s system. InHome Delivery allows customers to order grocery and pantry items to be delivered from a nearby store location directly into their home refrigerators. 

Walmart’s fulfillment strategy advances appear most clearly when looking at the benefits of its subscription service, Walmart+, which provides all of the measured fulfillment benefits. The subscription service is a direct competitor to Amazon’s Prime offering, which also focuses on fast shipping as its main benefit. While other big-box retailers have rested on their laurels, Walmart has continued to expand and showcase its new offerings to consumers — and it’s benefited from that aggressive approach in our assessment. 

Key Findings:

• The cohort outperformed other groups in the payments score: 47% above the index average and 4% above big-box. All measured drugstores added new payment methods to their sites.
• With vaccines becoming more common, the cohort has seen dips in sales without the halo effect from demand for Covid vaccines. As a result of this dip, drugstores have started to refocus efforts on their prescription business.
• Drugstores have doubled down on prescriptions by focusing on local fulfillment in order to keep up with new competitors.

The drugstore cohort is defined by its unique dual business model: pharmaceutical versus non-prescription products. While other retailers may also include a pharmaceutical branch, retailers in the drugstore cohort specialize in over-the-counter medication in the non-prescription side. The retailers in this smaller cohort include: CVS, Rite Aid and Walgreens.

Compared to last year, the three drugstores remained roughly the same in their relative standing within the cohort, with Walgreens at the top followed by CVS and then Rite Aid. Their ranking within the full set of retailers within the index dropped due to the introduction of the new home goods cohort, but similar to 2021, the retailers within the drugstore cohort remained in the top and middle of the index. 

The cohort really shone in the payments score by outperforming all other groups: achieving scores 47% above the index average and 4% above big-box. Both CVS and Walgreens have added Click to Pay, an evolution of the previous Secure Remote Commerce initiative that Visa, Mastercard, American Express and Discover rolled out in 2020, but now being more widely adopted. The new feature allows customers to sign up and create an account that allows for one-click checkout on sites that integrate the tool – allowing for the major credit card companies to directly compete with Apple Pay, Google Pay and Amazon Pay. 

Fellow drugstore competitor Rite Aid was not far behind in adoption of new payment methods. The retailer added a new partnership with Afterpay to allow a pay-later option at checkout. 

Despite improvements in payment methods, the cohort as a whole has not made many other changes in its approach to fulfillment from last year’s index. It’s still caught balancing its two business models: prescription and over-the-counter medication. What has changed for the cohort, however, is the status of the pandemic. With vaccines proliferating and the majority of the population being inoculated, the cohort has seen some dips in sales without the halo effect from demand for Covid vaccines or emergency public health needs. As a result of this waning urgency, drugstores have started to refocus efforts more squarely on their prescription business.

According to tracking by Gravy Analytics, major drugstores like Walgreens, CVS and Rite Aid saw traffic slow going into 2022. And among the three retailers, only CVS saw an increase in year-over-year revenue and a positive operating income percentage, emphasizing the cohort’s return to Earth post Covid vaccines. As a result, CVS and Walgreens have started to make investments to diversify revenue streams, particularly in the healthcare category.

With the expansion of healthcare offerings, like those from new competitors such as PillPack, Capsule and Amazon Pharmacy, drugstores have to further improve prescription delivery options to remain competitive. New entrants into the medicine delivery service focus on quick shipping because pharmaceutical needs are often time sensitive — products have to be readily available. While speed of fulfillment is key, many consumers also want the option to speak to a pharmacist. In order to meet customer needs, legacy drug stores have revisited their fulfillment strategy to find a competitive edge. 

Currently, the trend for drugstores doubling down on prescriptions is to focus on local fulfillment, where the prescription product can be given to customers quickly while still allowing them the option of person-to-person interaction in case they would like to speak to a pharmacist. To navigate these and other new industry challenges, drugstores looked to reconfigure their approach to fulfillment sites. CVS has closed 300 retail locations and instead is focusing on upgrading and opening new, smaller HealthHub locations instead, which will focus primarily on fulfilling prescription orders. Along with standard delivery, these HealthHubs will also provide local coverage for customers who order or refill prescriptions online but want or need an in-person consultation. 

Similarly, Walgreens has started to focus on fulfilling local prescriptions. Luke Rauch, svp and chief merchandising officer at Walgreens, said one benefit of the company’s localization fulfillment strategy for prescriptions is short delivery times. “It now means you can get it delivered to your house in under 30 minutes or you can order it online and have someone bring it out to your car in under 30 minutes,” Rauch said.

Key Findings: 

• T.J. Maxx was the only store that moved up in rank. The retailer made improvements to its product accessibility score by adding order online and pick up in store, albeit only at select locations. 
• Dollar stores realized certain services needed a tech upgrade. Dollar Tree partnered with Shipt to allow for new expedited shipping and also added a new buy now, play later feature with PayPal Credit.
• Because of the business model, the cohort did not score well in fulfillment. Overall product prices are lower than standard MSRP and the retailers would incur higher costs if more shipping options were added. 

Off-price stores are defined in the index as retailers that purchased off-season, discontinued or liquidated products at a discounted rate and sold to consumers at a lower-than-retail price. Dollar stores are defined as retailers that sell products at dollar or incredibly low price points. The cohort includes: TJX Companies, Burlington Coat Factory, Dollar General, Dollar Tree and Ross Stores. Due to the business model underlying the cohort, the retailers involved do not have a consistent product assortment. The model also creates a unique scenario in which margins can look drastically different than other cohorts, especially for dollar stores. 

Generally, most of the cohort performed in the lower portion on the index, with the group itself also dropping overall in year-over-year standing. T.J. Maxx was the only store that moved up in rank, defending its middle ranking from last year. The other off-price competitors – Ross Stores and Burlington Coat Factory – did not have shopping-enabled sites and thus did not offer digital fulfillment options. T.J. Maxx made improvements to its product accessibility score by adding order online and pick up in store, but this was only available at select locations. 

While performance of dollar store retailers was low, Dollar Tree did make minor improvements in shipping by partnering with Shipt to allow for new expedited shipping. Along with shipping, the dollar store also added a new buy now, play later feature with PayPal Credit. However, despite these improvements, it was not enough for Dollar Tree to avoid falling further from its position within the index from last year.

Because of the business model for both dollar stores and off-price, it makes sense that the two do not perform well when it comes to fulfillment. With overall product pricing being lower that standard MSRP, the retailers would likely incur higher costs if more shipping options were added. As a result of this model, retailers in the category are likely to focus fulfillment and supply chain efforts on getting products to stores rather than directly to consumers. Instead of online shopping, the cohort will continue to focus on brick-and-mortar browsing and store sales.

Key Findings:

• Brick-and-mortar home goods stores had more fulfillment options than online-only, and those retailers tend to follow strategies seen in the big-box group.
• Online-only stores Overstock and Wayfair primarily focus on diverse payment methods and low-threshold free shipping, which was significantly lower than the rest of the cohort.
• High-end furniture retailers concentrate efforts on their select showrooms to sell bigger-ticket and customizable products rather than selling and fulfilling online.

The index defines home goods stores by their specific product assortment that focuses on finished products made to furnish a living or work space. The home goods category also includes retailers that offer DIY or unfinished products that can be made into a traditional home goods product. The retailers in this cohort include: Container Store, William Sonoma, Wayfair, Overstock, Ethan Allen, Restoration Hardware, Home Depot, Ace Hardware, Lowe’s and Bed Bath and Beyond. 

Similar to results seen in the e-commerce experience dimension, the new cohort included a mixed bag of performances in the fulfillment dimension: Lowe’s and Bed Bath and Beyond ranked in the top 10; Ace Hardware, Home Depot, William Sonoma, Overstock, Container Store and Wayfair scored in the middle; Ethan Allen and Restoration Hardware landed toward the bottom of the index. Unlike other cohorts, home goods does not have a set standard of fulfillment methods. Retailers that have brick-and-mortar stores have more flexible options for fulfillment, such as order online and pick up in store. On the other hand, for online-only and high-end furniture stores, fulfillment options become more limited.  

Retailers across the home goods cohort stood out in the post-purchase and payments scores, performing 14% and 9% above the index average respectively. For example, this group of retailers outclassed competitors in the diversity of their post-purchase modification options. This makes sense given that home-goods products tend to be bigger ticket items and consumer preferences can fluctuate as different constraints or requirements surface after the purchase is made online. As a result, more options to make changes after checking out are needed to tailor the final product to the customer’s needs. Both Lowe’s and Ace Hardware, classified last year under big-box, added purchase modification options this year to keep up with competitors. 

Within payments, the cohort made up 46% of buy now, pay later partnerships within the index. Offering more diverse financing options makes it easier for customers to purchase these generally more expensive products by paying in installments. 

Importantly, while a retailer may offer a variety of fulfillment options, it does not always translate into revenue. Fulfillment only measures a portion of a retailer’s strategy, and timing is a key component. Bed Bath and Beyond is a clear example of this. 

While the legacy retailer has a high number of shipping and payment options, that strategy alone has not been enough to draw in customers. Most analysts believe it’s on the brink of bankruptcy. “Though Bed Bath & Beyond was successful as a big-box specialty retailer, the advent of e-commerce and online marketplaces meant its value proposition dropped,” said Doug Stephens, a retail industry consultant. “They needed to do something probably 10 years ago, to put themselves on a new trajectory toward a new model that would give consumers a sense of unique value.” 

While the retailer has now added shipping options and built up a more robust e-commerce experience, as mentioned in the first installment of this year’s Modern Retail Index, the updates may have come too late. 

Due to the wide range of store types in the cohort, fulfillment strategies were classified into three subgroups: brick-and-mortar, online only and high end. 

For brick-and-mortar stores, such as Lowe’s, Bed Bath and Beyond and William Sonoma, there are more fulfillment options, and the retailers tend to follow strategies seen in the big-box group. Notably, this set of retailers also operates across more categories than furniture alone. Their wider range of fulfillment options helps support other non-furniture products that can be delivered to the customer through more effective methods, such as in-store pick up. For example, a light bulb is easier to pick up in a store than a couch — and it might be needed more urgently. 

Within this classification, Lowe’s was the top performer due to its wide options in both delivery and payment methods. Within the overall index scores, Lowe’s performed well in returns. It was one of the few in the index — and the only home goods retailer — that offered a one-transaction exchange; meaning Lowe’s allowed customers to exchange a product in one step rather than returning and purchasing anew. Particularly for online orders, this was a rare feature and highlighted the retailer’s strategy for making sure customers could acquire products and make adjustments as seamlessly as possible.

For online-only stores Overstock and Wayfair, they primarily focus on diverse payment methods and low-threshold free shipping. Due to their lack of brick-and-mortar presence, pick up is not an available option, but the two retailers are able to focus heavily on direct-to-consumer shipping. Compared to the brick-and-mortar group, online-only has a significantly lower free shipping threshold for customers — 66% lower than the rest of the cohort. 

Of the two digital home goods stores, Overstock offers free shipping on any item regardless of price. According to Overstock’s CEO Jonathon Johnson, free shipping awareness among consumers was a key driver of Overstock’s sales this past year. Wayfair also had a low $35 free shipping threshold when compared to the average $50.80 of its brick-and-mortar competitors.

Scoring very low on fulfillment were the high-end home goods stores, Restoration Hardware and Ethan Allen. The majority of the furniture items sold through these retailers are custom and at a significantly higher price point. While the websites do have shopping capabilities and allow for online orders, the retailers typically focus efforts on their select showrooms to sell bigger-ticket and customizable products.

Key Findings:

• Amazon ranked first in the fulfillment dimension. The retail giant has always been at the forefront of fulfillment strategies, both supply chain and consumer-facing.
• Amazon has partnered with Affirm and Venmo to start accepting new forms of payments.
• The retail giant announced its first ever completely autonomous mobile warehouse robot, Proteus, to assist with a wider variety of potential uses for its warehouse staff.

The Modern Retail Index is designed to explain how well first-party retailers create digital experiences. The list of retailers does include some retailers with third-party marketplaces, such as Walmart with Walmart Marketplace and Target with Target+, but they represent a minority on the list. Therefore, and because of its size and reach across industries, Amazon was confined to its own category and landed below big-box retailers in the overall index results due to some of the tradeoffs that come from focusing on a heavily third-party marketplace. 

However, in this year’s index, Amazon ranked first in the area of fulfillment. The retail giant has always been at the forefront of fulfillment strategies, both supply chain and consumer-facing. In last year’s index, Modern Retail highlighted Amazon’s many fulfillment options such as Amazon Prime, Locker and Key. 

Notably, Amazon did not rank first in e-commerce experience. While Amazon dominates fulfillment, it is vulnerable in e-commerce experience, in terms of its competition. In Modern Retail’s E-commerce Index installment, Amazon felt heat from its competitors adding subscription models that are slowly chipping away at Amazon Prime, like Walmart+ and Best Buy’s TotalTech.

What moved Amazon to first place in this year’s index were its new additions to the customer-facing side of fulfillment. Amazon has added more payment options, for example, by partnering with Affirm to power its buy now, pay later option. The addition of installment payments will be especially pertinent to the retailer as it expands into other higher ticket product categories like home goods as mentioned in the e-commerce dimension report. 

The digital giant has also partnered with Venmo to start accepting funds from the platform as an approved payment method. This partnership is interesting in that Amazon was one of the few companies in the index that did not accept PayPal payments — even though PayPal is Venmo’s parent company. The Venmo partnership is an attractive option for younger consumers, an audience that is also likely to make use of the Affirm payment offering.
Since its beginning, Amazon has also invested heavily in its warehouses and internal fulfillment methods, such as its own fleet of planes purchased in 2021. And Amazon continued investments in behind-the-scenes fulfillment in 2022. Along with its much-advertised drone and delivery robots, Amazon announced its first ever completely autonomous mobile warehouse robot, Proteus, to assist with a wider variety of potential uses for its warehouse staff. To keep up with recent labor shortages, Amazon has continued to invest in technology to maintain its promise of fast delivery for its Amazon Prime subscribers.

As supply chain challenges, customer expectations and competition continue to exponentially increase, retailers have had to revisit the ways they deliver their products to consumers. Some retailers have made tech investments, anticipating future payoffs down the road, while others have completely revamped stores or warehouses to meet the expectations of today. Regardless of the route, it’s clear that each cohort’s customers and product assortment greatly impact the fulfillment strategies both in terms of operational efficiencies and customer satisfaction.

Big-box focuses on the future and looks to emerging technologies

Many big-box retailers already have a wide array of fulfillment options and larger supply chains to rely on in times of peak demand, placing them high in the index ranks. As a result, the cohort has the option to start building towards the future rather than addressing current challenges other cohorts face. This cohort will be one to look toward when deciding where to make investments that impact long-term strategies.

Drugstores localize to support prescription delivery

While many cohorts are building out options to deliver products directly to the customer’s home, drugstores are looking to build smaller brick-and-mortar locations where customers can pick up orders. Due to the nature of pharmaceutical products, fulfillment must not only be quick, but also have a human involved to assist with any medical questions or concerns. The cohort shows that brick-and-mortar is far from obsolete and that it still plays a key fulfillment role. 

Dollar stores and off-price models don’t focus on fulfillment

Due to product prices being sold below MSRP, it does not make sense for dollar stores or off-price retailers to have robust shipping options due to costs outweighing revenue. Instead, if shipping options are offered, customers will likely have to absorb the cost rather than the retailer. This is still a noteworthy space to keep an eye on as marketplaces shifting customer shipping costs onto sellers are increasing in popularity. 

Home goods has the most diverse strategy pool

Taking into account the three subgroups within this cohort —brick and mortar, online only and high end —-the home goods cohort had the widest range of fulfillment strategies for retailers selling similar products. This cohort was one in which retailer store strategy heavily dictated the fulfillment strategy, rather than product type dictating the strategy. In essence, it’s the opposite of the drugstore cohort where product dictated fulfillment. Regardless of the strategy, home goods retailers excelled at choosing delivery options for their customer base.