In the five years since the global shutdown that heralded the Covid-19 pandemic, the retail industry has weathered a once-in-a-generation evolutionary spasm which, like the asteroid that wiped out the dinosaurs, has forced brands and companies to adapt or die. As the industry grapples with a new challenge—the squabble over tariffs—it’s worth pausing a moment to reflect on what has changed, what hasn’t, and what we’ve learned.
1. E-commerce is dead as a discrete retail channel.
Today it is just one of many elements called the omni-channel. And as a percentage of the consumer economy, it has peaked.
Five years ago—as malls, shopping centers, and all but essential merchants went dark, victims of the worldwide quarantine—Amazon was solidifying its role as a retail Goliath. The Amazon juggernaut was portrayed as inevitable, and in-person retail as doomed. Amazon had Walmart—an e-commerce newbie—on the ropes.
At the time, the e-commerce share of total U.S. retail sales was surging, reaching 16% in 2020, according to the U.S. Commerce Department. That share was widely projected to continue growing, with some speculating that it might one day eclipse bricks-and-mortar retail.
Not so fast.
Consumers have since voted with their feet, demonstrating an unshakable preference for in-person shopping. They like to find deals they didn’t expect and merchandise they didn’t know they wanted. As a result, e-commerce as a share of total retail sales stalled out. Five years later, it is still 16%.
Meanwhile, national retailers are busy building new stores, but with a twist. As we noted here previously, heavy hitters like Walmart, Target, IKEA, and others are growing by building smaller stores located in neighborhood shopping centers, closer to their customers.
Amazon, meanwhile, has struggled without much success to build a physical retail presence while Walmart has built a competitive robust e-commerce platform that is growing fast.
2. The consumer spending binge is over.
In 2021 and 2022, when a gusher of federal stimulus payments hit the nation’s bank accounts, America went shopping—revenge spending. A lot of that money was spent on cocooning (home goods, setting up home offices, renovation projects) and, as restrictions eased, on eating out and travel. Discretionary spending boomed, according to this U.S. Bureau of Economic Analysis chart.
After a quarter century of annual year-over-year growth averaging about 2.5%, the quarterly spend surged by as much as 6%, reflecting the spree and a spike in inflation. Two-plus years later, first quarter 2025 growth in personal consumption (excluding food and energy) has cooled to 3.5%.
Meanwhile, credit card debt is at or near record levels, and delinquencies of every loan type are rising. Movements like “No Buy 2025” and a developing trend of underconsumption among upcoming generations suggest a sea change in the culture. An expensive cup of barista coffee is no longer a treat, it’s a frivolous luxury.
There is a widespread sense that everything has gotten too expensive. Price trumps most other considerations, but with a twist—it’s about “value.” On Amazon, for example, an AI program scans product reviews and summarizes them in a paragraph that usually mentions whether reviewers found the item a “good value for money.”
Lowest-cost grocers like Aldi are growing fast. On the other end of the spectrum, brands like Nordstrom are growing fleets of smaller, more profitable branded stores that sell discounted merchandise.
Austerity is the new normal.
3. The definition of retailer is changing.
The sophistication of customer data thanks to AI and other technologies has been phenomenal and inspired savvy retail execs to reimagine how they run their businesses. As we noted here previously, Tractor Supply turned out to an unlikely beneficiary of the pandemic when the work-from-home mandate drove thousands of families out of the cities, looking for homes with room for an office.
These newly-arrived country cousins needed lawn mowers and snow shovels and they didn’t want to drive 30 miles to the nearest big box store. So they ended up at Tractor Supply, typically located on the edge of the suburbs.
Then these urban refugees got lonely and acquired pets. The company noticed and began to stock and promote kitty litter and dog toys as well as supplies for housing, feeding, and raising chickens, a new suburban hobby. Tractor even began carrying fashion apparel, like Carhartt jackets, that appealed to these newly-minted suburban cowboys. More recently, Tractor has added veterinary services.
Five years after the pandemic, successful retailers are using data to develop the business equivalent of peripheral vision. In 2021, Walmart sold $119 billion worth of general merchandise, a huge $10 billion decline from a year earlier. But it’s lower-profit grocery business was strong, growing 8% over 2020.
In spite of the profit challenge, the company doubled down on groceries and today Walmart sells less general merchandise than it did in 2021 but has steadily grown its revenue and profits, driven by food and other consumables.
Walmart noticed that Amazon was making a lot of money selling advertising to vendors, and since has successfully launched its own retail media network, a low-cost, fast-growing source of revenue. As part of its strategy, the company also bought the television brand Vizio, which has huge potential as an advertising platform.
Home Depot has been hit hard by the downturn in spending on home improvement projects and on home building. But the company discovered it had a money maker in a most unlikely section.
According to a recent article in The Wall Street Journal, its garden business generates revenue of about $20 billion a year—more than appliances, lumber or paint. The company has doubled down on everything from plants to patio furniture. According to The Journal, “Home Depot makes more money from its garden divisions than Hermès does from all of its luxury goods.”
In general, the pandemic and its side effects have made both retailers and consumers better informed. The key to success for retailers and brands at this point is being agile enough to take advantage of rapid and unexpected changes in consumer behavior or even better yet use AI with customers to anticipate. A huge unlock.
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