The state of retail operations

The Home Depot's supply chain has come a long way since 2017.

Eight years ago, the home improvement retailer outlined a vision for a two-day parcel delivery network focused on placing inventory close to the end customer, Jordan Broggi, executive vice president of customer experience and president of online, said at an investor and analyst conference.

But Home Depot has managed to sail past two-day shipping speeds since then — 55% of its deliveries for in-stock SKUs today are made either the same day or the next day, more than triple its 2022 amount, per a company presentation.

Powering Home Depot's acceleration are nearly 200 facilities the retailer has added over the past eight years to fill various roles in its supply chain, according to Broggi.

Another reason for Home Depot's shipping improvements is the company's proprietary "ship from best location" algorithm, which analyzes the company's distribution assets to determine the most effective way to deliver products to customers, Broggi said. Shipping from the best possible location weighs several factors, including customer profile, geography, available assets and inventory positioning.

"Our distribution assets, combined with inventory investments and technology enhancements, have significantly increased the speed of our delivery," Broggi said.

Home Depot has "essentially completed" the buildout of its market delivery operation, direct fulfillment center and flatbed distribution center networks, CFO Richard McPhail said at the conference. Now, the company is looking to maximize these assets to gain share in a market challenged by consumer uncertainty and tariff-related pressures.

One way Home Depot is looking to boost its business is expanding the number of products available for fast shipping.

For example, the average Home Depot store may be stocked with about 25 different Rheem water heaters, but that selection may not meet a customer's specific needs, said Billy Bastek, executive vice president of merchandising. Home Depot has worked with Rheem to stock more water heaters at its direct fulfillment centers, enabling next-day delivery by shipping orders from those facilities to market delivery operation locations. The latter serve as last-mile distribution points.

"Importantly, this increased our delivery coverage and speed dramatically even compared to a year ago," Bastek said at the conference. "Historically, if we stocked it in our stores, you could get it really fast. But if we didn't, it would take anywhere between five and nine days. Now with our enhanced coverage, over half of our extended aisle deliveries are now one or two days."

The retailer is also exploring ways to expand the shipping reach of its flatbed distribution centers. These facilities help deliver larger orders like lumber and other building materials to job sites, freeing up space in Home Depot's stores.

Home Depot deployed a new type of delivery method earlier this year called Relay, which uses the company's network of flatbed distribution centers, per Michael Rowe, executive vice president of Pro. Through Relay, delivery drivers from those facilities in the Atlanta market can drop off flatbed trailers overnight at certain store parking lots, which are then delivered to job sites the next morning.

"This allows us to get greater coverage in our Atlanta market while also extending our reach into adjacent markets like Chattanooga, Tennessee," Rowe said during the conference. "And we've done this in several FDCs, which has allowed us to expand into an incremental 18 markets."

Enabling fast deliveries at a 100% on-time rate is a tall order, particularly for a company that fulfills a variety of orders across several product categories, said Broggi. When deliveries fall short of expectations, Home Depot focuses on what went wrong and how to eliminate future instances of failure, Broggi said. This approach has aided the company's efforts to reduce its missed delivery rate while improving customer satisfaction, he added.

"We don't celebrate that the vast majority of our deliveries are perfect," Broggi said. "We obsess over the misses and use each failure as an opportunity to improve our processes."

In a major advancement in its supply chain, Ace Hardware opened a 1.5 million-square-foot retail support center in Kansas City, Missouri. 

The state-of-the-art fulfillment center is centrally located as a means to quickly deliver products to the company’s network of over 5,000 locally owned stores throughout the U.S. 

"It exists for one reason only: to help our locally owned stores serve their neighbors with excellence that has made Ace famous,” CEO John Venhuizen said in a statement. 

The company declined to disclose specific financial details regarding the opening of the facility, but Retail Support Director Travis Thomas in an email to Retail Dive called it a “significant investment in our long-term growth.” 

The retail support center measures half a mile, nearly twice the size of the company’s average distribution center, and contains advanced automation technology to streamline operations and minimize environmental impact. The facility joins a network of over a dozen distribution centers across the country. 

“This investment is one more way we’re helping our neighborhood retailers stay well-stocked, competitive, and ready to meet the needs of their customers, with the backing of a supply chain that rivals the biggest names in retail,” Thomas said. 

In its latest earnings, Ace Hardware reported revenues of $2.2 billion, an increase of 4.2% year over year. Net income in Q1 was down 35% to $30.3 million, in part due to a planned increase in marketing spend and investments in the company’s supply chain infrastructure.

Ace warned that tariffs would increase its cost of goods, and that the company intends to pass those increased costs on to consumers. 

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Retail leaders have always been disciplined about protecting margin. They can recite the levers instinctively: shrink, pricing, markdowns, labor productivity. Entire operating models have been built to optimize them, and over time the industry has become highly effective at identifying where margin is under pressure.

What is becoming clearer now is that the next wave of margin improvement is coming from somewhere less obvious. Not from new levers, but from how work moves across the business when something needs to be resolved.

The retailers getting ahead are already thinking about this differently.

Modern stores are more connected than ever. A single issue, whether it is a refrigeration alert, a POS failure, or a compliance gap, rarely sits neatly within one function. Resolution depends on coordination across IT, store operations, facilities, and third-party partners, often under time pressure and with incomplete context.

For many retailers, that complexity still shows up as delay. Work moves through escalation, handoffs, and coordination. Each step is logical, but each step also introduces friction.

The leaders are approaching it another way. They start from the idea that how work flows is just as important as what work gets done.

Over the last decade, the industry has invested heavily in visibility. Most large retailers can now see more of what is happening across their estate, in real time, than ever before. Alerts fire instantly. Exceptions surface quickly.

The difference is what happens next.

The retailers pulling ahead are not adding more tools or more process. They are redesigning how operational work flows across the business.

Instead of monitoring signals in isolation, they connect them, bringing together events from IT systems, store operations, facilities, and partners into a shared operational view. Issues are understood in context and prioritized based on business impact, not functional boundaries.

Ownership is also being redefined. Rather than issues moving between teams until someone takes accountability, ownership is defined upfront and embedded into the flow of work. When something happens in a store, the question of who owns this has already been answered.

And instead of relying on sequential handoffs, work is coordinated across teams. Each function contributes to resolution as part of a shared flow, reducing delays and ambiguity.

The impact is tangible. Issues that once took days to coordinate can be resolved in hours. Trading disruption is reduced. Repeat issues are addressed more effectively because ownership extends beyond immediate resolution to fixing root causes.

Just as importantly, it changes how leaders spend their time. Store and regional teams spend less time chasing fixes and more time focused on performance, execution, and the customer experience. Consistency improves, not because teams are working harder, but because the system they operate within is working better.

What emerges is a different operating model for retail. Not one built around functions managing their own domains, but one where work is orchestrated across the business.

For an industry where margins are measured in single digits, how work flows is no longer an operational detail. It is a margin strategy.

After introducing digital shelf labels to about 2,300 U.S. locations, Walmart is expanding the technology to all of its locations within the next year. 

The system allows the retailer to easily update product prices, reduce errors and eliminate the need for paper labels. The technology helps store staffers identify low-stock items and fulfill online orders quickly via a mobile app, which activates LED lights on the relevant shelf labels. 

The company will maintain the same price for all customers in any given store regardless of demand, time of day or which customers are shopping. The labels run on a closed system and don’t interact with shoppers or collect their data, the retailer said.

Walmart’s digital shelf labels are part of the retailer’s ongoing efforts to modernize its supply chain and order fulfillment operations. 

After piloting the technology at its Grapevine, Texas, supercenter, Walmart in 2024 set out to install it at 2,300 locations by 2026. Last May, the retailer opened its first “Store of the Future” supercenter in the U.S., which featured digital shelf labels, an updated vision care center and a full-service fuel station. 

Without its paper labels, Walmart’s store associates will now have more time to assist customers. Outside of typical shopping hours, store associates will review and implement approved price changes, so the retailer can maintain consistent prices throughout the day, a move it hopes will earn customers’ trust, the release noted. 

“Before [digital shelf labels], that meant walking up and down aisles swapping out paper tags by hand,” the company said in its announcement. “Now, associates manage planned price changes through a centralized Walmart system, making it easier to keep shelf prices accurate and aligned with what customers see at checkout.”

Digital shelf labels are helpful for retailers fulfilling grocery delivery app orders in stores as well. In 2024, Aldi, Gelson’s, and Hornbacher’s partnered with Instacart to integrate the delivery app’s pick-to-light system of its Carrot Tag software. The integration helps workers find items faster using flashing lights. 

Along with its new labels, Walmart has deployed other tech tools to improve its inventory management, fulfillment and other supply chain functions. The retailer, for example, is using AI and other automation technology to identify and resolve problems “in real time without requiring constant manual intervention,” Indira Uppuluri, senior vice president of supply chain technology at Walmart, told Supply Chain Dive. 

Walmart’s infrastructure investments will continue apace in the near future. Walmart president and CEO John Furner said during an earnings call that its supply chain investments will “probably peak this year and next year.” Days later, the company’s business data applications arm, Walmart Data Ventures, debuted Scintilla In-Store, a store data aggregator for supplier field representatives.

Investors, developers and retailers are taking a fresh look at B malls, especially those in areas with little competition. One thing that hasn’t changed much about these lower-traffic shopping centers — along with their flooring, layout and signage — is the challenge of running a store in them.

“Get the hell out of there. Leave. Being in a B mall is not an optimal situation, just to begin with,” Lee Peterson, executive vice president of thought leadership at WD Partners, said by phone. “But if you're going to be there, there are certain thought processes that go into the A-plus stores that still need to go into those B stores.”

This flows from Peterson’s notion that every store is a flagship.

The idea is to maintain the brand's vibe and meet customer expectations on a smaller scale and usually with fewer resources. 

Every store is (not) a flagship

Above all, Peterson said, every location — whether in the Flatiron District in Manhattan or a B mall in Lincoln, Nebraska — needs top-notch employees. This requires incentive, and it’s not a coincidence that the most beloved retailers, including Wegmans, Costco and Ikea, pay the best, he said.

“The importance of associates in any store, and especially a store in a mall that could be struggling a little bit, is paramount,” he said. “It's No. 1. When a customer does go there — which they don't do as much as they used to — and there's an associate in there that really knows what they're talking about, who is friendly, who remembers your name, who’ll do anything for you, those types of things create a loyalty that is often missing from a B mall.”

Hiring, like merchandising, should be localized and personal, according to Peterson.

“If associates is the No. 1 reason people go back to stores, then there's a lot of work to be done in B stores,” he said. “And I can almost guarantee you that the way headquarters and now AI is analyzing resumes is a huge mistake.”

Merchandising the store requires thought, too, in order to maximize the sales potential and maintain the brand’s vibe.

“If a retailer puts certain flagship items in flagship stores and not in your B store, what do you think is going to happen?” Peterson said. “That B store is going to fail.”

Still, while starting with a flagship mentality can be effective, a B mall store is likely to do better with less space and a smaller assortment, according to Peterson and Jeff Sward, founding partner at Merchandising Metrics. In some cases, it may be wise to shrink the space and assortment from what it has been, they said.

“Any retailer in a B mall wants to think in terms of the best possible brand storytelling, without succumbing to the exuberance of thinking it's an A store,” Sward said by video conference. “You've just got to make the math work in terms of the investment — in fixturing and visual merchandising and inventory — and buy accordingly so that it sells through and you make a buck at the end of the year. It’s about telling the brand story as robustly as possible without tipping over into over-sorting and over-buying.”

This is a balancing act that requires not just data but also occasional store visits, he said.

“There are no secrets there,” he said. “The retailer’s got to analyze the data through the eyes of the customer. That's why store visits are so critically important for everybody.”

The idiosyncracy of location

Where a store resides in a B mall also matters, experts say.

Considerations for anchors and in-line differ, for example, according to Bryn Feller, managing director and senior vice president at commercial real estate firm Northmarq.

Box stores that have taken over space once filled by department store anchors thrive “with a low-capex, value-oriented model that fits the trade area and embraces alternative access points,” she said by email, citing Burlington, Ross and T.J. Maxx/HomeGoods as examples.

“They’ve been able to step into carved-up department space, keep the build simple, and connect to exterior entrances,” she said. “Fitness users like Planet Fitness and entertainment concepts like Round1 or Cinemark have also been very successful at stabilizing B malls because they create a dependable traffic engine.”

Meanwhile, successful in-line stores “are those that build a habit loop with the customer, giving them reasons to come back regularly beyond passive walk-by traffic,” according to Feller.

Both need a good partnership with the landlord, she said.

“Successful tenants in B malls are the ones that proactively engage with mall management, share traffic and sales data, and adjust to where the center is going,” she said. “That’s often on the store manager and district leadership, it can’t all be done from the corporate office. In B malls especially, being plugged into what the landlord is trying to reposition the property into is critical.”

Those stores also remain dependent on anchors no matter how the mall is rated, according to Sward. In one mall with a long-empty Sears store, nearby specialty retailers saw traffic and sales pick up meaningfully after Primark took over the space, he said.

“If you're in an A mall, tucked in the most remote corner where you don't get much foot traffic, it might be a B store, just because of the location in the mall,” Sward said. “That's the idiosyncrasy of location.”

Retailers must appreciate such variables and remain realistic about any shopping centers’ prospects, but particularly at B malls.

“The tenants who right-size their economics, embrace the community, and collaborate with ownership are the ones who carve out sustainable success,” Feller said. “At the end of the day, retailers succeed in B malls by leaning into what the mall is, not what they wish it were.”

Shrink — a mismatch between inventory a retailer has on hand and what records say it should have — continues to confound the industry. But several companies in recent weeks reported that shrink is less of a problem, dropping, in at least two cases, to a low not seen since the pandemic.

“It's becoming a nonevent,” loss prevention consultant Brand Elverston, who works with major retailers and brands, said by phone. “I don't feel comfortable saying it's prepandemic levels. What I'm saying is it's down significantly from its apex during COVID and is more manageable.”

In recent weeks, executives at Kroger, Target, Dollar General and TJX told investors that lower shrink was boosting margins and profits. At Target and TJX the decline has been especially dramatic, down to pre-pandemic levels, according to the chief financial officers at both companies.

This is a sharp turnabout from a couple of years ago, when retail executives at these retailers and others lamented high levels of inventory loss, often to theft, contradicting surveys from loss prevention executives that found shrink levels had been more or less flat for years.

The issue only got more opaque in 2023 when the National Retail Federation retracted a key statistic from a special report on retail crime, after a Retail Dive investigation found an error that vastly inflated the problem. The following year the group canceled its annual shrink report, which it had published for more than three decades.

Using various benchmarks and its own data, loss prevention platform Appriss Retail calculates that the industry lost $90 billion to shrink last year; the firm is working on a comprehensive survey of the problem. These days many analysts, including some loss prevention experts, believe the causes of shrink are multilayered rather than strictly crime-related.

The lack of clarity around shrink now extends to why or how things have improved because retailers aren't providing any details. Most of the retailers contacted for this story didn’t immediately respond to requests for more information about how they mitigated their risk; TJX declined to comment. On earnings calls, most alluded to operational improvements. Target CFO Jim Lee is the only executive so far to call out “industry and community efforts to combat retail theft across the country.” 

David Johnston, NRF vice president of asset protection and retail operations, credited a “balanced approach” of operational adjustments plus antitheft measures.

“Retailers reporting lower inventory shrink is an encouraging sign that reflects stronger focus on operational drivers of loss within their control such as process accuracy, inventory integrity and in-store execution,” he said in an emailed statement. “These efforts are improving overall results while retailers continue to address losses driven by external factors like shoplifting and fraud.”

Some of the operational advancement is thanks to better staffing, after a period of “rapid hiring to reopen stores” during the pandemic, according to Appriss Chief Revenue Officer Pedro Ramos.

There are still plenty of forces making shrink hard to pin down, though.

The move to change prices fast and often is poised to make it harder to analyze shrink, as seen with swiftly changing tariffs, according to Elverston. It’s especially difficult for retailers using the retail inventory method because, with every price change, that accounting system introduces errors in counting inventory on the books versus on the shelf, he said. Target, Dollar General and Walmart are among the retailers still using RIM.

Returns last year represented $706 billion of total sales, with up to 50 cents of each dollar lost in value in the process, “just to frictional costs, handling costs,” Ramos said. At least 20% of shrink is attributed to false refunds, and that continues to grow, he said by video conference.

While crime is a factor in returns-related shrink, as it is in stores, it is “an outdated angle on loss prevention,” according to an Appriss report. The only way to combat the problem is for retailers to take a holistic view of their operations, according to Ramos.

“There’s been a ton of money spent on fighting shrink,” he said. “Everybody tries to look at the world as good and bad. The world isn't good and bad. The world is this murky, complex thing with an infinite number of variables in it.”

Walmart's U.S. business is seeing improved operational efficiency from automation investments in its supply chain, the company announced.

More than 60% of Walmart's U.S. stores receive a portion of their freight from automated distribution centers, and over half of its e-commerce fulfillment center volume is moving through automated systems, per the release. Walmart said the increased use of automation is driving improved productivity on a per-unit basis.

"That translates into lower shipping costs," CFO John David Rainey said of automated fulfillment on an earnings call. "Our shipping costs have been down consistently for many quarters in the 30% range. This was another quarter where we saw double-digit improvements, and that really helps our e-commerce economics, but also helps the overall SG&A of the company."

Although Walmart has been making progress in its push to implement automation, the retail giant is still in the early innings, David Guggina, Walmart U.S.’ chief e-commerce officer, said during a Goldman Sachs conference. It's deploying automated technology within its perishable and nonperishable distribution networks, but the company is furthest along in the implementation process at its fulfillment centers, where products are shipped to customers, according to Guggina.

"They're about twice as productive as a legacy fulfillment center," he said, referring to the newer automated fulfillment centers. "And they're becoming more and more capable over time as we continue to bring more and more robotics into the different processes."

Walmart has launched several "next-generation" fulfillment centers since 2022 featuring automated technology, with another slated to open next year. The company said in its latest annual financial report that it operates 29 dedicated e-commerce fulfillment facilities.

In recent years, Walmart has highlighted several uses of automation in its supply chain, including a high-density storage system developed with technology company Knapp, autonomous forklifts from Fox Robotics and inventory-tracking sensors from Wiliot that reduce manual tasks.

The retailer's stores are also playing an important role in its evolving fulfillment efforts. Walmart posted a jump of nearly 50% in store-fulfilled delivery in Q3, per an earnings presentation. About 35% of store-fulfilled orders were delivered in under three hours, close to the one-third the company reported in August.

Academy Sports and Outdoors has big competitors — Dick’s Sporting Goods made more than double what Academy did last year — but its solution for growth is going small.

Academy CEO Steve Lawrence said on an analyst call that the sporting goods retailer plans to open 125 stores over the next five years (an increase of almost 40%), but it’s not prioritizing locations close to major cities. Rather, the retailer is pursuing an “outside-in” strategy that focuses on opening stores primarily in exurbs and satellite markets before attempting to move inward.

Approximately 40% of those stores will open in legacy markets, 40% will open in states Academy has operated in for at least five years and 20% will open in new markets. The strategy puts Academy closer to where its customers actually are, according to Lawrence. It also pushes the retailer out of the densely populated areas where Dick’s often opens stores.

Three examples of this new store strategy — in Searcy, Arkansas; Zanesville, Ohio; and Palestine, Texas — are roughly 20 to 50 miles from the nearest Dick’s. Others are closer, including a planned location in Celina, Texas.

But all, according to Academy, are focused on capturing the “Always Game Family,” who plays sports, fishes, hunts and focuses on value.

“We think by having this outside-in strategy, we're going to be able to build brand awareness in these new markets and then push our way into the outer suburbs over time,” Lawrence said.

It’s a sound strategy for a retailer like Academy, according to Matt Powell, senior adviser with BCE Consulting.

“Smaller markets are many and most are underserved,” he said in emailed comments, noting that Hibbett pursued a similar strategy at the beginning. “Hibbett’s early business model was to be the only sneaker store in small markets.”

Likewise, Lawrence said at the company’s investor day that he believes Academy is “the best sports and outdoor retailer in our geography.” In some smaller markets, one of the only competitors offering athletic and outdoors goods is Walmart, Lawrence said, leaving a gap for Academy to fill.

“The population is not big enough to support a full-line just sporting goods-only store or a full-line only outdoor store,” Lawrence said. “The fact that we have both sides of the box and carry other things like outdoor puts us in kind of a unique position.”

Also in service of those customers is a broader assortment of goods, both in terms of category and quality. Academy Chief Merchandising Officer Matt McCabe told Retail Dive that the retailer’s assortment expansions are intended to support how customers live their lives; that means providing organizational solutions for sports gear, portable power products for activities like camping and even pet goods.

“It's never going to be a big business for us,” McCabe said of pets, “but it's something that we know that we can have in the store as kind of an accessory … to help our customers pick something up easier and just allow them to go to fewer stores.”

Academy is also increasing the number of high-quality products it sells to avoid losing customers as they grow more proficient in their chosen activity. In the past, the retailer has sold a lot of opening price point items, which it dubs a “good” level. But when it came to “better” and “best” levels of product, it was lacking.

“We were a great place to get your kids their first gear for T-ball … when they decided six months later they hated T-ball and they wanted to play soccer, you could come back in and not break the bank again and move them on to soccer,” McCabe said. “But what we found was — if they stuck with baseball — when they got to about eighth grade or so we were graduating them to other places to get their gear.” 

The retailer has worked for several years to improve its “better” and “best” assortments, so that shoppers can stay with Academy even as they become more proficient in their chosen activity. That includes not just sports, but also outdoor pursuits like fishing or even casual activities like barbecuing. 

“That's allowed us to expand the customers that we cast a net to and carry them on their entire journey, from when they get started through when they're an expert,” McCabe said. “And along the way, that's allowed us to attract a more affluent customer into our stores as well that maybe wouldn't have thought of us for that in the past, but now comes in and finds that merch and appreciates some of the other value we have in the store too.”

Indeed, Chief Financial Officer Carl Ford said customers with a median household income of $100,000 or more are now Academy’s fastest-growing demographic, which helps to balance out the price pressures facing lower-income households. Still, about half of the retailer’s merchandise mix is at the “good” level, to ensure that Academy doesn’t leave behind its core customer base, McCabe noted.

“Our goal here is not to move away from our existing customer base to attract newer customers. That's like the quintessential mistake in retail,” Lawrence said. “We want to expand our reach.”

Growth in e-commerce, aided by AI, is poised to lead retailers to close more than 40,000 stores over the next five years, UBS analysts led by Michael Lasser said in a research note. Department stores and specialty retailers are most at risk, while off-pricers will keep expanding, they said.

Current U.S. policies — including tariffs and net-negative immigration — could drive further closures, too, if they remain in place, the analysts found.

Speed, location, assortment, experience and price are increasingly important differentiators, and consumers are prioritizing experiences over goods. Large chains like Walmart, Costco and Target stand to benefit, as many small and independent retailers struggle to withstand these trends, UBS said.

From the third quarter 2024 to the same period in 2025, there were 5,000 fewer stores in the U.S., UBS said, citing Bureau of Labor Statistics data, a shift from recent years when the country saw more openings than closures.

As of that point, there were fewer than three stores for every 1,000 people in the U.S., down about 12% from 2003. If the country’s population falls — which hasn’t happened yet but could given flat birth rates and today’s immigration policies — the decline could drive nearly 70,000 store closures, per UBS.

“While the sector is closer to equilibrium today than it was several years ago, it has not yet reached stasis,” the analysts said. “This trend should reward the larger, better positioned retailers and penalize the smaller, marginal retailers.”

UBS analysts also see relentless growth in e-commerce as a major reason for closures, though not all observers see this as clear-cut.

Online sales now account for more than 20% of total U.S. retail sales, up from just over 10% in 2019, and the UBS team expects e-commerce to reach 27% by 2030. However, analysts from Colliers and elsewhere believe the impact has stabilized.

It’s possible that retailers haven’t adequately positioned their stores to be worth the trip. Research from WD Partners has consistently found that consumers frequent stores where sensory details and customer service outweigh the convenience of online shopping. 

Placer.ai researchers recently found that many retailers are under-leveraging their stores despite shoppers’  preference for physical locations for a variety of reasons — including to check out products in person, enjoy the shopping experience and discover merchandise.

Both Placer.ai and UBS found that AI will help out physical retail as well as e-commerce, though UBS said the “combination of eCommerce and AI-enabled shopping has been steadily siphoning sales away from physical stores, reducing the revenue needed to sustain large store fleets.”

“Physical locations remain critical components of the omni-channel ecosystem, particularly as fulfillment hubs for delivery and pickup,” they said. “Still, we continue to believe the U.S. retail sector has excess store capacity.”

The pressure on consumers from higher prices is also a factor, with tariffs alone driving store closures significantly if they stay in place until 2030, UBS said.

“Higher tariff levels increase the likelihood that a greater share of these costs is ultimately passed through to consumers,” the analysts said, noting that a third of U.S. households make less than $50,000 annually. 

UBS estimates that retail sales could drop about 0.5% on an annual basis as retailers absorb about $100 billion of increased costs while lower-income households cut down on spending.

Walmart will expand its drone delivery coverage with Wing to 150 U.S. stores over the next year, reaching more than 40 million potential customers near those locations, the companies announced.

The partnership will continue to scale further, with plans for the drone delivery service to cover over 270 Walmart locations in 2027. Walmart has roughly 4,600 U.S. store locations overall.

The expansion plans include stores in Los Angeles, St. Louis, Cincinnati and Miami, with other locations to be announced at a later date. “The question is no longer if Wing and Walmart will deliver to your city, it’s when," the announcement said.

The Wing expansion helps Walmart in its fast shipping race with rival Amazon — which has its own drone delivery capabilities — while satiating consumer demand for deliveries in 30 minutes or less.

The growth of Walmart and Wing's partnership builds on existing drone delivery operations in Dallas-Fort Worth and Atlanta, along with planned launches in Houston, Orlando and Tampa in Florida and Charlotte, North Carolina. Delivery volume has increased in turn, tripling in the past six months, per the announcement.

"Whether it’s a last-minute ingredient for dinner, a must-have charger for a phone, or a late-night essential for a busy family, the strong adoption we’ve seen confirms that this is the future of convenience,” Greg Cathey, Walmart's senior vice president of digital fulfillment transformation, said in the announcement.

Drones from Wing, a subsidiary of Google parent company Alphabet, can fly up to 60 miles per hour and travel up to 12 miles round trip, per its website. The drones ferry goods weighing up to five pounds from stores to destination addresses. They are designed to carry items typically requested for rapid delivery, such as a carton of eggs or a loaf of bread.

Walmart customers can check whether Wing drone delivery is available at their location by entering their address in Wing's app or website.

Walmart and Wing's momentum in the space comes despite various challenges drone delivery operators have faced in scaling service over the years, from regulatory hurdles to noise complaints. The Federal Aviation Administration aims to launch a clearer pathway to approve longer-distance drone operations, which stakeholders say could benefit the industry.

Amazon is testing half-hour or quicker deliveries of groceries and household essentials in parts of Seattle and Philadelphia.  

The ultra-speedy delivery, dubbed Amazon Now, is about $14 per order, or about $4 for Prime members. Orders under $15 also incur a fee of about $2.

In order to facilitate this offer, the company said it has placed small fulfillment facilities designed for efficiency “close to where Seattle- and Philadelphia-area customers live and work.”

Amazon has closed more stores than it’s opened in recent years. The e-commerce and tech giant shuttered its entire nonfood fleet, about 70 stores, a few years ago, and it has recently pruned its Amazon Fresh operation.

That may not matter much, as its delivery has expanded and gotten faster.

The company is speeding up delivery to 4,000 rural communities and expanding same-day fresh grocery delivery to more U.S. cities. Amazon is on pace to set another record for Prime delivery speed, aided in part by a strategy to arrange inventory placement so that the distances goods travel are shorter and package handling during fulfillment and transportation is reduced.

With about 535 Whole Foods Market stores and 60 Amazon Fresh stores, Amazon has a small fleet compared to rival Walmart, which runs more than 5,000 U.S. locations, or even Target, with nearly 2,000. But its delivery operation is increasingly able to compete with that, according to Bank of America analysts led by Justin Post. The service also vies with the likes of Instacart and DoorDash, the analysts noted.

“While this offering is in early test mode, we think Amazon Now is potentially an important step toward Amazon matching or even surpassing the immediacy benefit of in-store purchasing,” Post said in a client note.

This would not surprise Amazon CEO Andy Jassy. During an earnings call with analysts, Jassy stipulated that there would come a day — accelerated by AI — when brick-and-mortar sales no longer dominate retail.

The Amazon Now delivery option could also bolster the appeal of Prime and drive advertising revenue on the Amazon site, according to Bank of America.

At least in the short term, Amazon Now is likely to have low, if not negative, margins, Bank of America said. But given the scale of the pilot, that wouldn’t impact overall profitability or margins; the latter, thanks to inventory placement, robotics and slow headcount growth, will likely expand next year, they said.