Why Retailers Should Play Their Own Game Instead of Playing Amazon’s Game

The current retail landscape is indelibly marked by the “Amazon Effect,” a phenomenon most keenly felt through the financial burden of free shipping and, more critically, free returns. Amazon’s Prime membership model, which effectively uses subscription revenue to subsidize a vast, customer-centric logistics network, set a standard of convenience that has been financially prohibitive for most other retailers to match.

This dynamic has created a crucial dilemma: compete on Amazon’s costly terms, or find an alternative path to thrive.

The survival of retail giants such as Walmart and Costco offers a powerful answer to this question. Rather than engaging in a losing battle over costly reverse logistics, these category leaders have strategically doubled down on their unique core strengths to redefine value for the contemporary shopper. Their resilience is not an act of resistance, but a calculated pivot that leverages their physical footprint and membership models.

This strategic execution has proven so effective that it has fueled the “Great Trade-Down,” attracting an increasingly affluent customer base who, in the face of persistent inflation, are drawn by the universal appeal of value and convenience. 

The Amazon Effect: Free Shipping, Free Returns, and the Retailer’s Dilemma

Amazon has undeniably revolutionized online shopping, largely thanks to its ubiquitous free shipping and returns policy. This customer-centric approach, while a boon for consumers, presents a formidable challenge for other retailers. The sheer cost associated with such a model is often prohibitive, raising the question: how can other retailers compete?

At the heart of Amazon’s ability to offer this seemingly unsustainable luxury is its Prime membership. The annual fees collected from millions of Prime subscribers act as a crucial financial offset, helping to subsidize the vast logistical network required for rapid, free delivery and hassle-free returns. Amazon made $44.38 billion from Prime subscriptions in 2024,which was a 10% increase from the $40.2 billion in 2023. This creates a powerful ecosystem: Prime members shop more frequently, justifying the subscription cost, which in turn fuels Amazon’s shipping capabilities.

The retail giant has created a virtuous cycle that few, if any, other retailers can replicate on the same scale.

So, how can other retailers navigate this landscape without bankrupting themselves trying to match Amazon’s costly amenities? The answer lies in doubling down on their core competencies and understanding their unique value propositions. Instead of engaging in a losing battle on shipping costs, savvy retailers are focusing on what they do best, which is catering specifically to the needs of their established customer base.

Consider giants such as Walmart and Costco. These retailers have thrived by recognizing their strengths and tailoring their strategies accordingly.

The Great Trade-Down — Why Costco and Walmart Are Capturing Higher-Income Shoppers

Walmart, for instance, has always been synonymous with value and convenience for everyday essentials. While they do offer online shopping and various shipping options, their primary strength remains their vast network of physical stores, offering instant gratification and a comprehensive selection of goods. In the realm of fashion, Walmart doesn’t try to compete with high-end boutiques. Instead, they focus on providing affordable basics and trend-conscious items at accessible price points, meeting the needs of shoppers looking for practical, budget-friendly clothing.

But that’s not the whole story of Walmart’s success.

Costco and Walmart are not merely surviving the current challenging retail environment; they are thriving, fueled by an unexpected market shift: the increasing patronage of higher-income shoppers. This success is a result of both a persistent economic climate — namely, sticky inflation and economic uncertainty — and calculated, strategic retail execution that plays directly to the universal consumer desire for value and convenience.

The primary driver is the lingering effect of high inflation on essential goods such as groceries and household staples. While lower-income shoppers are forced to seek maximum value, this environment has created a new price sensitivity even among affluent households (those earning $100,000-plus or more a year). Other factors include:

1. Greater financial Control: Higher earners, whose financial cushion has shrunk due to rising costs, are “trading down” to mass-market retailers to stretch their dollars. Shopping at Costco or Walmart for everyday goods provides a sense of financial control and security, allowing them to maintain spending in discretionary categories.
2. A de-stigmatization of value: There is less stigma associated with shopping at “budget-friendly” retailers today. Affluent consumers now recognize that quality and price do not always correlate and are actively seeking deals for premium products.

Strategic Retail Execution

Both retailers have implemented distinct strategies that cater specifically to the needs and expectations of this newly engaged, wealthier demographic:

Costco: The Exclusive Value Proposition

Costco’s success with affluent shoppers is built on its unique membership model and curated assortment:

• Membership Loyalty: The annual fee creates a perception of exclusivity and high value that appeals to higher-income consumers. The 2% cash-back on Executive memberships further incentivizes bulk purchases and loyalty.
• Curated Premium Products: Costco is known for its “treasure hunt” experience, stocking high-end, name-brand items — from fine wines and electronics to designer clothing and even cars — alongside its low-cost bulk groceries. This blended assortment allows wealthier shoppers to find both essential value and selective luxury in one trip.
• Kirkland Signature: The highly-regarded private label, Kirkland Signature, offers national-brand quality at a significant discount, directly contributing to the “smart financial decision” feeling that attracts value-conscious affluent shoppers.

Walmart: Omnichannel Transformation and Assortment Upgrades

Walmart has made strategic investments that address the high-income shopper’s demand for convenience and a better experience:

• Service and Convenience: Growth in market share among higher-income households is significantly supported by premium services like Walmart+ memberships and enhanced online grocery ordering, pickup, and delivery options. These services save time, which is a key value metric for affluent consumers.
• Store Upgrades: The company has been actively remodeling stores, adding brighter lighting, better layouts, and enhanced product displays to create a more aesthetically pleasing, “frictionless” shopping environment. This directly addresses the expectation for a nicer experience that wealthier shoppers might traditionally seek elsewhere.
• Upleveling Assortment: Walmart has intentionally expanded its e-commerce and in-store product portfolio to include more high-end brands and luxury items like Apple products and designer goods, increasing its relevance to a broader demographic.

Market Impact

The sustained influx of higher-income shoppers provides a critical revenue hedge for Costco and Walmart, particularly as lower-income consumers become more financially constrained. This shift primarily puts competitive pressure on mid-tier retailers and traditional grocers, forcing them to compete on both price and in-store experience.

As a result, the definition of a “mass-market” retailer is expanding, proving that value wins across all income cohorts when delivered with strategic convenience and a quality product mix.

Meanwhile, the long-term implication is the creation of a two-tiered market. One, where Amazon sits on a throne of free shipping and returns, and the other, where successful retailers are the ones doubling down on their core strengths. Everyone else could be left behind.