The Comeback of the Physical Store—and What It Means for Your Business

The past seven years have arguably been the most tumultuous in recent retail history: Covid, major technology changes, tariffs, and higher interest rates have reshaped buying and selling in the sector. But the tumult has also clarified realities. Shopping-center vacancy in 2024 was 5.4%, the lowest in 20 years, and mall patronage is highest among younger Gen Z shoppers (ages 18 to 24) who grew up in the smartphone era. The dominant narrative of the past two decades—store replacement by e-commerce and direct-to-consumer (DTC) models—has stalled. According to Census Bureau data, e-commerce as a portion of U.S. retail sales in the 2025 were 16.4%, barely above the 16.3% it reached during the second quarter of 2020 (maximum lockdown conditions during the pandemic), and its annual increases in each of the past four years have been their lowest since the Great Recession of 2008-2009. Selling via digital channels is becoming less effective. Privacy changes on Apple, Meta, and others make it more difficult to target relevant customers in ad campaigns—a key part of digital’s value proposition versus alternatives. Average cost-per-click has risen an estimated 40–50% over the past five years. Further, even if a customer clicks your ad and adds the product to their cart, conversion rates are bad: About 77% of digital carts are abandoned—a rate that jumps to more than 80% on mobile devices. Hence, in a reversal of most expert predictions, there’s been a movement away from DTC as Wayfair has joined other DTC brands firms like Warby Parker, Casper Mattress, Glossier, Wayfair, and others add store distribution. Allbirds, once a direct-to-consumer success story valued at $4 billion, recently sold for just $39 million, a sign of the challenges facing that sector. These data points demonstrate that brick-and-mortar retailing is not dead, but the role of stores is changing. Based on interviews with seven retail executives in categories ranging from apparel and beauty products to home improvement and office supplies, a pattern emerges. The store now plays three complementary roles: a logistics hub, a services and experience destination, and a revitalized demand generation and brand-building engine. The Store as a Logistics Hub Even before the pandemic, some retailers used their stores as de facto warehouses for e-commerce orders. During the pandemic, those efforts grew as mandated closures forced retailers to offer curbside and pick-up services; that helped many retailers realize that their physical footprint is a competitive advantage, not a cost burden or simply a warehouse. Even as brands have poured resources into social media and other new marketing efforts, inventory and fulfillment remain fundamental to succeeding in retail. As one executive notes, “Order fulfillment processes are boring until you don’t have the right ones.” Consider Nike, which cut ties with many retail accounts in favor of e-commerce during the pandemic. That move shifted storage and shipping costs from wholesalers to Nike, which found itself with excess inventory that led to margin-slashing and brand-eroding discounting. Nike soon returned to selling through retail outlets. Today an estimated two-thirds or more of e-commerce orders touch stores. That includes merchandise that goes through the store during fulfillment or comes back during returns from the retailer’s website and third-party sellers. Returned goods can be inspected, redirected, and resold. This is especially valuable in categories with size, fit, or condition variability where returned merchandise can quickly lose value. The store helps to minimize write-offs and markdowns, and, as an apparel executive noted, the lag between when an online order is placed and picked up in the store creates an opportunity to reallocate inventory to higher-demand locations. Moreover, inventory-carrying costs in a supply chain increase with higher interest rates, and retail data can also help manage potential inventory imbalances across the network. In some retail formats, this advantage extends to damaged items. A hard-goods retailer explained how, for example, appliances dented during delivery or return can be routed to stores serving more price-sensitive customers—a win-win for buyer and seller. The store has become an active node in an omnichannel system, and our interviews suggested that more retailers are now treating fulfillment as a service to be promoted and merchandised. Same-day and one-hour delivery are increasingly available from stores, opening-up sales in urgent or business-critical categories. And in the store, kiosks provide access to the kind of choice once seen as unique to sites like Amazon. At Staples, kiosks offer access to its “endless aisle” of over 100,000 products and up-sell and cross-sell opportunities. Other retailers promote the environmental benefits of stores versus e-commerce. In-store pickup and shopping reduces packaging, emissions, traffic congestion, and vehicle accidents relative to delivery from an online site. One study found that by simply including sustainability labels, store pickup more than doubled and home deliveries dropped by 43% with no negative impact on customer satisfaction. The Store as a Services and Experience Destination Shopping has been a social experience since the Greek Agora, Istanbul’s Grand Bazaar, Le Bon Marche in nineteenth-century Paris, and through decades of internet use. Part of store shopping has always been serendipity: a great dress, shirt, or other item discovered by browsing. Technology now allows retailers to amplify the store as a destination for services, advice, inspiration, and engagement not available online or as a value-added complement to online search. Consumers often begin online, but stores are where they build confidence and choice criteria in the category. You get one chance to make a first impression and, as a footwear retailer explained, stores are where “customers get comfortable with fit and develop an appreciation for the materials. It’s still the best way to introduce the product; the store remains the gateway to the relationship.” A beauty products retailer agrees: “Customers can and do use online for replenishment, but only after in-store trial with our store team providing advice.” This distinction is important, because it allows retailers to reconfigure stores in closer alignment with buying. A hardgoods retailer explained how they distinguish between low-consideration categories (such as replenishment items), which are promoted online, and high-consideration categories (such as consumer durables like appliances) which now receive more in-store display space and associates trained on those products, delivery, and service arrangements. Once seen as the grim reaper of stores, digital technology enables retailers to accommodate buying journeys more fully and precisely. In early stages of buying, virtual store walkthroughs let customers browse, interact with chatbots, and view conditional content—i.e., different product pages based on a customer’s profile and preferences. FARM Rio, a Brazilian fashion retailer, estimates that 20% of their customers do this and their purchases are 3x higher. In later stages, technology aids customization, advice, and customer experience. AI, still searching for use cases in many sectors, lets retailers deploy automated or agentic personal shoppers at scale. Gen AI search has been available for two years on the Walmart shopping app, and Walmart has rolled out its own AI-powered in-store tools. One lets shoppers point a smartphone at shelves and find products based on their preferences; another helps them quickly locate online reviews for products. At other retailers, AI and other tech tools help point-of-sale employees again function as curators, not just order takers, by serving as a kind of cheat sheet with contextualized answers in customer interactions about products and services. Meanwhile, end-caps, displays, and even price tags can now link to immersive PDPs (Product Detail Pages) and social media featuring video, suggestions, and social proof, positioning stores as a “place to do,” not only a place to buy, in a brand’s ecosystem. The Store as Demand Generation and Brand-Building Engine A joke has long circulated among CMOs: “Where is the best place to bury a body? Page two of any search engine, because nobody goes there.” In contrast, stores provide visibility that can elevate a brand even once shoppers have left the store. A footwear marketer noted that opening a physical location typically produces a measurable lift in online sales as well. “The store has become a way of creating awareness, and we were able to reduce our overall marketing spend.” A beauty products retailer finds that opening stores in areas with strong existing online shipping volume accelerates growth without cannibalizing e-commerce. In other words, while online may or may not provide its long-promised targeting and personalization capabilities, it does improve site selection for stores. Another executive we interviewed noted that they “now think of the store as a form of advertising that communicates [their] authority in the category. If customers have a good experience in store, it gives them confidence online that there are people behind the brand.” A well-designed and merchandised store environment with knowledgeable staff still communicates brand benefits that are difficult to replicate online. For example, Sunday Citizen started as a DTC brand in 2019 but now sells through stores as well. One differentiator is the softness of its blankets–something consumers can’t sense from simply looking at a photo on a computer or mobile phone. Founder Mike Abadi notes: “A picture can only go so far. People need to feel it.” What This Means for Retail Leaders The future of retail is not smaller, but smarter. Successful retailers are explicit about the role each store plays and make changes in operations, technology, skill sets, and metrics. For example: Redesigning space to prioritize customer experience and managing operations to optimize inventory across a store network and buying channels, not simply inventory density within a store. Viewing online technology not in either/or terms (e-commerce or brick-and-mortar) but as an integrated set of tools that add value to physical and human assets, not to “disintermediate” the store. Investing in store teams with relevant skill sets, from fulfillment to consultative selling. A survey just before the pandemic indicated that about one-third of store associates received no formal training (the highest deficit in the industries surveyed). An incompetent salesperson is worse than no one. Knowledgeable personnel matter, and training is now more scalable and less expensive with AI. Using the right metrics, because when the store is a marketing asset, traditional metrics—sales per square foot and four-wall profitability—can be deceptive and lead to systematic disinvestment. Relevant metrics include customer acquisition across channels, lifetime value of those customers, and cost/benefit analyses throughout an omnichannel buying journey and post-sale experience. . . . There has always been “disruption” in retailing. A website called Department Store Museum offers a tour of defunct retail formats over the past century. In any market, some figure out the required changes and others do not. Contrast Saks, which filed for bankruptcy earlier this year, with Bloomingdale’s, which renovated its stores, refurbished fitting rooms, added 90 personal shoppers equipped with “Little Brown Books” (an app that provides detailed customer information), and has had five straight quarters of sales gains. A survey of 20,000 people in 26 countries indicates that nearly 75% prefer shopping in stores, but less than 10% are satisfied with their current store experience. The question is not whether stores still matter. It is whether retailers and the brands they sell will rethink what stores are for.

The Comeback of the Physical Store—and What It Means for Your Business

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