Could the Rise of E-Commerce Sales at Walmart and Costco Spell Trouble for Amazon?

Amazon (NASDAQ: AMZN) has an unmatched e-commerce presence and a lead so wide it would be impossible for any competitor to get even close to it in the near future. But no company, even Amazon, is immune from competition. Anyone in the lead will always have to anticipate changing trends and up its game to match them.

These days, there are consumer expectations in e-commerce that Amazon can't easily address, but Walmart (NYSE: WMT) and Costco Wholesale (NASDAQ: COST) can, and are. Does this spell trouble for Amazon?

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The rise of the omnichannel model

E-commerce has firmly become a mainstream form of shopping for Americans and most others worldwide. Although companies are developing new technology all the time to account for some of the deficiencies of buying based on a screen image and description, there are reasons it's always going to fall short.

What many customers are discovering is that combining in-store and online shopping -- even for the same purchase -- often makes the most sense. And retailers that can provide some of those options are reaping the benefits. Walmart and Costco are two examples of companies that are leveraging their physical store assets to drive higher digital sales. And they happen to be two of the three largest U.S. retailers by sales, sandwiching Amazon.

E-commerce was one of the main drivers of a 5.5% year-over-year increase in Walmart's revenue in the 2025 fiscal third quarter (ended Oct. 31). Online sales increased 27% over last year, and store-fulfilled pickup and delivery played a key role in its success. It was particularly pronounced in the international segment, which enjoyed a 43% increase in e-commerce sales.

Walmart has 4,600 U.S. stores and more than 10,600 worldwide. It's already bringing merchandise to these outlets, which it's using as a base for shipments. The digital element provides exposure to a greater number of shoppers, and it can also use the online platform to offer a greater variety of products than it can house in a store that's limited by size. That's bringing in new shoppers who wouldn't necessarily shop at a Walmart store, particularly a more affluent consumer.

Costco is experiencing a similar trend. E-commerce was a major growth driver in its fiscal 2024's fourth quarter (ended Nov. 24), increasing 13% year over year, versus 7.5% for the company's total sales. Management said that much of the e-commerce sales came from big and bulky items. It has said in the past that pickup for smaller items isn't cost-effective considering the labor that goes into preparing the orders, but the savings on delivery for larger items outweigh those costs, and the increase in this category is boosting the top line without damaging Costco's margins.

How Amazon falls short

Amazon took an early lead in e-commerce by quickly branching out of selling books and acquiring company after company to create what it is today. It accounts for more than 37% of all U.S. e-commerce sales, which means that more than a third of U.S. e-commerce dollars are passing through the company's platform. That's an almost mind-bending lead.

There are so many strengths that combine to make this a reality. Amazon's logistics network is unmatched, and it can often get orders to members faster than if they would go to their local physical retailers. It's always upgrading its network, and it's piloting new robotics that cut processing time by as much as 25%. That's expected to cut costs at peak delivery times by the same percentage.

The company recently transitioned from a national to a regional fulfillment model to mimic some of the benefits of a robust physical store network. It's still working on improving its process for getting goods to its regional distribution centers, and it already has a strong system to get goods from these warehouses to customers' doors.

Amazon has been reporting robust growth across its broad and diverse businesses. In the third quarter, sales increased 11% year over year to $159 billion, which is really impressive for a company as large as it is.

And since it's so large and diverse, it's worthwhile to break down the sales and growth. Online stores and third-party sales together were nearly $100 million, or about 62% of total sales. E-commerce provides the bulk of Amazon's revenue. However, they grew slower than other segments in the quarter: Online store sales were up 7%, and third-party sales were up 10%.

Amazon has tried to enter physical retail in various ways over the past few years, and some efforts have been more successful than others. It currently has a few Amazon Fresh and Amazon Go locations, in addition to Whole Foods, but it doesn't have any large network of stores that can act as a network for omnichannel shopping.

Amazon is e-commerce

The company may lose some sales because it can't service customers with omnichannel options, but that's not its business. It's investing in what it does best, which is pure-play e-commerce.

Will that hurt its retail business in the long run? Probably not enough to worry shareholders. It also may still take market share from competitors in the categories outside of omnichannel because its platform is that much more effective. This is something I would keep an eye on but not worry about right now.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.