Three lessons from Costco, Dillard’s, Walmart, and more.
Life has been challenging for U.S. retail chains over the past decade. The Covid-19 pandemic forced widespread store closures, long-standing supply sources became uncertain, and customers’ buying habits changed rapidly, with online retail sales growing from 7.
4% of total retail sales in the fourth quarter of 2015 to 16.4% in third quarter of 2025. In the last few years several major retailers declared bankruptcy, including Bargain Hunt, Big Lots, The Container Store, Eddie Bauer, Forever21, Francesca’s, Joann Fabrics, Party City, Rite Aid, and Saks Global. To assess how these pressures have affected retailer chains—and how successful companies have adapted—we analyzed the financial performance from 2016 through 2024 of the 32 publicly traded, mature U.S. retailers with annual sales of at least $1 billion and top-line growth or decline between -1% and 10%. We also interviewed current and former senior executives from three of these companies. Many people—including us—have noted that retailers need to manage the transition that occurs as they mature and high-revenue growth slows to single digits. But what has not been fully appreciated is that retailers progress through three stages in their life cycle: 1) a phase in which adding physical stores remains profitable, 2) one in which the store network is largely built out but revenues can still grow through online expansion, and 3) a phase in which revenue growth opportunities are limited, leaving cost reduction as the primary lever to increase profits. This article explores those three stages and offers lessons to the many retailers that are struggling to navigate them. The Winners and Losers The first exhibit below gives statistics for the 14 retailers with stock market returns above the S&P 500 annualized return for 2016–2024 of 12.46%, segmented into the three life-cycle stages described above. Six of the retailers report their e-commerce shares. For the others we provide estimates from industry analysis, common historical trends, or reported commentary. Not surprisingly, the retailers reporting their e-commerce results tend to have the highest proportion of e-commerce sales. The second exhibit compares summary statistics for these retailers to those whose returns fell below S&P 500 annualized return for the years we analyzed. The more successful retailers grew revenue more than expenses while the less successful retailers were the reverse . The impact on annual profit growth rate was significant; a 7.1% increase for the successful retailers versus -.9% for the less successful. But the impact on stock market performance was even more significant, a 19.8% average return for the successful retailers versus. -0.6% for the unsuccessful. See more HBR charts in Data & Visuals See more HBR charts in Data & Visuals Now let’s turn to what we learned about how to successfully navigate the three stages of the life cycle. 1. Expand Your Store Base While You Can The five above-average retailers in this category increased their store counts by an average of 3.7% annually while growing revenue by an even stronger 7.6%. They grew revenue and profit by offering a well-chosen mix of low prices, excellent product quality, a broad assortment, bright, attractive stores, and a high level of service. Other retailers can draw a few important lessons from these five companies: Choose where to excel and sharply define the form of customer value to deliver. Of course, it’s not possible to excel on all these attributes; the art of retailing lies in strategically selecting the attributes a retailer can consistently deliver on and that gives customers a compelling reason to shop there. Costco, with the highest revenue growth in the group at 9.1% over the eight-year period, has chosen to compete on price and product quality. In exchange for this, customers put up with shopping in spartan, self-service stores and buying products in large, bulk-size packaging. Customers must like this recipe, because Costco has grown steadily to become the third-largest retailer in the United States, behind Walmart and Amazon. To better understand Costco’s customer value model, we talked with Richard Galanti, chief financial officer from 1988 until his retirement in 2024. Galanti emphasized that the Costco priorities are to take care of customers, employees, suppliers, and shareholders, in that order. It provides employees with generous benefits and relatively high pay. Its hourly store associates earn in the low $30s versus the low $20s at Walmart and Target. During the recession, when other retailers were cutting costs, Costco gave employees bigger raises than usual to help them weather the storm. As a result of the ways it treats employees, the turnover rate of Costco store associates averages around 12% versus an industry average of around 60%. A longer employee tenure translates into more productive employees, better customer relationships, and lower hiring and onboarding costs. Many retailers will seek to “make their quarterly numbers” by cutting the hours of part-timers towards the end of a quarter to reduce costs. Galanti told us Costco does not do this. It does not manage its business to make quarterly numbers. And what do investors think of this? In late February 2026 Costco stock was trading at around 53 times trailing earnings. One wonders why more retailers aren’t so forthright! Stay true to your core customer. Costco’s unwavering focus on the attributes its customers value stands in stark contrast to Foot Locker, which lost its way after Mary Dillon became CEO in September 2022. Dillon overlooked the company’s core customer—traditionally young, minority males—and, to attract middle-aged women, introduced higher-priced shoes that were largely unaffordable to its established base. The result was a steady decline, culminating in Foot Locker’s acquisition by Dick’s Sporting Goods in September 2025. Understand when to stop adding of stores or slow the pace. Costco has consistently reinvested profits to drive expansion. In fiscal 2025, it opened 27 new warehouse stores worldwide and plans 30 more in fiscal 2026. But how long can this strategy continue to fuel top-line growth? A comparison with Walmart offers useful perspective. For much of its history, Walmart relied on store expansion to drive revenue. This worked because each increase in store count produced an even greater increase in revenue. However, in fiscal year 2005 , Walmart hit a growth wall: a 16% increase in store count yielded only a 9% increase in revenue. Aggressive expansion continued without corresponding revenue gains through 2015, when Walmart adjusted course—not only halting new store openings but slightly reducing its total to around 10,800 stores worldwide as of early 2025. We have observed a consistent pattern: Companies often experience a five-year lag in recognizing when to stop expanding. With so many variables affecting revenue, it is easy to assume that a long-successful strategy remains effective indefinitely. Costco, however, appears far from reaching that limit. With 924 stores worldwide as of February 2026—less than one-tenth of Walmart’s footprint—Costco’s growth remains robust. Between 2015 and 2025, a 33% increase in store count drove a remarkable 137% increase in revenue. In 2025 alone, a 3% increase in stores produced an 8% revenue gain. 2. Grow Online While Costco and others in the “expand store base” group still have room to grow through new locations, retailers in the “grow online” stage largely do not. For them, revenue and profit growth depend on strengthening their digital capabilities. Retailers can increase online revenue through a series of initiatives, including optimizing website and mobile user experiences, providing real-time inventory visibility, improving search engine optimization, offering a buy-online, pick-up-in-store option, efficient merchandise returns, leveraging third-party marketplaces such as Amazon and Walmart, and using loyalty programs and targeted promotions. Walmart illustrates how to do all of this right. As discussed earlier, it finally recognized that it needed to slow store expansion and shift toward e-commerce—a move it accelerated with the acquisition of Jet.com in 2016. Today, Walmart ranks second only to Amazon in online retail revenue. Its ascendency to the number two spot in online retailing began with the appointment of Jet cofounder Marc Lore as the president and CEO of Walmart U.S. eCommerce in September 2016. When we interviewed Lore, he told us he was proud that, during his tenure, Walmart implemented many changes focused on rapidly growing e-commerce revenue, and that these changes continued to have an impact after he left in January 2021. Online revenue grew from $14 billion and less than 3% of Walmart’s total sales in 2016 to over $150 billion and 21% of total sales in fiscal 2026. Meanwhile, Walmart’s losses from e-commerce steadily declined, and those operations turned profitable for the first time in the quarter ending April 30, 2025. Correspondingly, Walmart’s price-to-earnings ratio grew from 16.7 at the end of 2015 to around 40 at the end of 2025, driven in no small part by its online success. Here are some lessons from Walmart’s successful e-commerce moves. Set prices appropriate for the channel you’re competing in. One pillar of Lore’s strategy was for Walmart’s online prices to be more competitive with Amazon’s. Walmart’s online prices had previously had to match those of the stores, which was fine for the stores but terrible for the online business. Lore worked with Walmart store teams to develop a new approach that set Walmart’s online prices at or close to Amazon’s. When concerns were raised that this would cannibalize store sales, Lore responded that if Walmart.com didn’t cannibalize store sales, Amazon would. Rationalize the stores’ and online product assortments. In each product category, Walmart e-commerce added products to compete with Amazon’s best sellers and, through acquisitions, brought in expertise in those areas. Lore also worked with Walmart stores to consider shopping patterns: For instance, items that cost $5 or less sold well in stores, while more expensive items, such as appliances and specialty categories, sold better online. Adjusting assortments accordingly improved the results of both the stores and the online business. Balance the desire for online growth with the long-standing interests of stores. Many of Lore’s online strategies were a departure from the Walmart culture that was forged over a half century of growth in the bricks-and-mortar business. Lore credits Walmart’s longtime leader Doug McMillon, who retired as CEO in January, for fostering collaboration between stores and the online business during this period, providing enough space for the latter to succeed, even though this went against Walmart’s long history of store-centric success. 3. Cut Costs In our earlier HBR article, we featured Ken Hicks, CEO of Foot Locker from 2011 to 2015. During that period, Foot Locker achieved annualized profit growth of 23.6% despite revenue growth of only 8%. The reason was that most revenue gains came from higher sales in existing stores, which are typically far more profitable than expansion-driven growth. Hicks believed this approach was viable so long as revenue grew by at least 2%. The growth rate of the three retailers in our study that succeeded by cutting costs fell below that threshold. For them, meaningful profit growth was possible only through being extremely disciplined in managing costs. Here are the lessons from what they did. Reduce the number of markdowns. Dillard’s, a major American upscale fashion retailer and department store chain, demonstrates what disciplined cost management can accomplish. Alex Dillard, the company’s president, and Michelle Dillard Hobbs, the chain’s director of exclusive brand shoes, told us that before the pandemic, they had been pursuing a growth strategy of buying more merchandise every year, but ending with significant markdowns of unsold product. Their closure of stores in 2020 during the Covid-19 pandemic afforded a time for reflection. They concluded that profit mattered more than growth so, starting in 2021, they reduced markdowns by buying more conservatively. Shrink hours and labor. In addition, they shortened the weekday store hours from 10 a.m.–9 p.m. to 11 a.m.–8 p.m., which let stores go from two overlapping associate shifts to one, reducing employee headcount from 38,000 in 2020 to 29,000 in 2021. These actions dramatically increased pretax income, which had averaged $132 million annually from 2016 to 2020 but grew to $1.1 billion in 2021. As a result, Dillard’s delivered a strong 26.7% stock market return over the 2016–2024 period. Redeploy excess cash judiciously. Dillard’s’ operations generate considerable cash, which the company has returned to shareholders and has used to buy the Longview Mall in eastern Texas for $34 million in August 2025. If this works out well, we believe it will continue on the path of becoming a retailer/landlord. It is not alone: In January 2025 Walmart bought the Monroeville Mall in Western Pennsylvania, also for $34 million. Dillard’s performance is even more striking when compared with that of Nordstrom. The two companies share many similarities: Both are department store chains, which were founded as family businesses and which continue to be managed by family members. However, their strategic approaches diverged sharply. While Dillard’s focused on disciplined cost control, Nordstrom invested heavily in opening new stores and other revenue-growth initiatives. Nordstrom’s investments did generate some revenue growth—averaging 0.4% per year in the period we studied—but its expenses grew even faster, averaging 0.9% annually. The result was a pattern of steady losses, ultimately leading Nordstrom to go private on May 20, 2025. . . . Recognizing when it is time to move from one stage of the retail chain life cycle to the next and then making the transition are difficult. Both Walmart and Dillard’s took roughly five years to make these transitions. While some might criticize the length of time Walmart and Dillard’s took, we believe a period of this magnitude is often necessary for a retailer to execute strategic shifts of this scale. Consider new store openings. It typically takes three to five years for a store to reach its full sales potential, meaning management must forecast what its mature performance will be based on only the first year or two of results. At the same time, new locations inevitably cannibalize the sales of existing stores, and estimating the degree of that impact is inherently difficult. Layer onto this the natural human tendency to persist with strategies that have worked for decades and it becomes easier to understand why transformations at companies like Walmart and Dillard’s required roughly five years. We acknowledge that implementing our suggestions is much easier said than done, but as the success stories prove, it can be done.
United States Latest News, United States Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Frank Thomas sues White Sox, retailers over jersey salesBaseball Hall of Famer Frank Thomas has filed a lawsuit accusing several companies, including the Chicago White Sox, of using his name without permission to sell merchandise.
Read more »
What to Know: Ohio's hemp ban takes effect, clearing shelves for non-licensed retailersNew state restrictions on intoxicating hemp products took effect Friday, clearing shelves at gas stations and convenience stores across Central Ohio as regulato
Read more »
Why the Honda Civic Is So Successful: Top 5 Reasons Behind Its Long-Running AppealDiscover the top reasons the Honda Civic has become one of Honda’s most successful models, from reliability and fuel efficiency to tuning potential and everyday driving fun.
Read more »
FedEx to offer same-day delivery as it battles with Amazon and other retailersFedEx said it will give customers the option of two-hour or end-of-day delivery, including for large and oversized packages.
Read more »
Driving Successful AI Transformation: A Masterclass with Tsedal NeeleyIn this episode, Harvard Business School professor Tsedal Neeley shares insights from the HBR Strategy Summit on how organizations can successfully implement AI. She discusses the 30% rule for AI understanding, overcoming organizational silos, and transforming workflows, using examples from Moderna, Domino's Pizza, and Rakuten. Amy Bernstein, HBR Editor-in-Chief, facilitates the discussion.
Read more »
Retailers Slash Prices to Attract Budget-Conscious ConsumersMajor retailers like Target and Kroger are implementing price reductions on thousands of items to alleviate financial strain on consumers and compete in a challenging retail environment. Experts note these moves are a response to consumers prioritizing value and essential spending amidst high inflation, with price wars potentially intensifying as competitors like Amazon and Walmart also focus on affordability.
Read more »