Why the Future of Retail Still Includes Physical Stores

The trendiest of the trendy are shopping in stores again. Gen Zs, Millennials and Europeans are yearning for an in-person experience and retail tenants are ready to provide it.  

Physical retail stores are becoming more important than ever despite the convenience and constancy of online shopping. ICSC President and CEO Tom McGee dubbed 2024 the “Year of the Store” as retailers doubled down on their brick-and-mortar investments. This renewed focus on physical locations reflects a broader shift in the industry.  

Physical retail spaces are integral to engaging consumers, fostering brand loyalty and driving sales across channels. As brands adapt to changing shopper expectations, the future of physical retail is increasingly tied to stores that deliver convenience, visibility and in-person connection.

Why physical retail stores are thriving 

Research from ICSC’s “The Halo Effect III” report found that physical stores directly influence online sales. When a new store opens, online sales in the area increase by 6.9%.  

Conversely, digital sales in that region drop by 11.5% when a store closes. This crossover shows the power of a physical presence as a core part of retail strategy. 

CoStar Group - the world leader in commercial real estate market data - echoes these sentiments in the Q2 2024 State of Retail report, "Demand for retail space has increased nearly 42 million square feet during the past 12 months and over 200 million square feet since the start of 2021." That demand reinforces the value of physical retail stores in today’s market.

Physical stores are essential for building consumer connections in ways that online channels cannot replicate. Shopping in-store allows customers to engage directly with products and experience the brand firsthand. This engagement leads to stronger brand loyalty. Many shoppers feel a deeper trust and connection to retailers with a nearby physical presence.  

Key benefits of physical retail stores

Physical retail stores give brands advantages that digital channels alone cannot replicate. Beyond creating a place to transact, they help retailers build stronger customer relationships, increase visibility and support performance across channels.

• A more direct and memorable brand experience
• Stronger consumer trust
• Better product discovery and engagement
• Support for online sales and omnichannel growth
• A local presence that keeps brands visible in-market

"Demand for retail space has increased nearly 42 million square feet during the past 12 months and over 200 million square feet since the start of 2021."

CoStar Group

State of Retail Report

CoStar Group

Why retailers are investing in physical retail stores 

According to recent studies by the ICSC, two-thirds of retail executives are looking to expand their fleet of stores. The majority anticipate increases in foot traffic, in-store sales and dwell time over the next year. Brands are not letting economic uncertainties stop them. Instead, they are discovering the special advantages of having physical stores. 

From an economic standpoint, the resilience of physical retail aligns with broader economic trends. While inflation and high interest rates remain concerns, job growth and rising wages have supported steady consumer spending.  

Furthermore, retail vacancy rates have recently hit a 20-year low, reflecting high demand for well-located spaces. The scarcity of available retail properties has sparked a trend of creative solutions. Pop-up shops and small-format stores meet consumer demand while maximizing limited real estate. 

For many brands, physical retail stores now serve multiple purposes at once:

• They create in-person brand experiences
• They support ecommerce performance
• They help brands stay visible in competitive markets
• They give shoppers more flexible ways to buy and return products

The future of physical retail stores is experiential 

It's not just the number of stores that matters. The future of physical retail stores also depends on the quality of the in-store experience. Today’s consumers want more than a place to buy products—they seek engaging, experiential retail environments.

Retailers and developers have embraced this shift, transforming stores into immersive spaces that entertain, educate and engage. Stores are evolving into multi-functional community hubs, often featuring non-traditional tenants like medical offices, personal services, and entertainment options. This blend of experiences brings people together. Like the malls of the 90s, this kind of retail creates a hub of activity that benefits all tenants and cultivates a strong community feel.

In other words, the future of physical retail is not just about having stores. It is about creating stores people want to visit.

What's happening in malls?

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What's happening in malls?

Retailers are also tapping into the power of the hybrid shopping experience, where online and in-store channels are woven together. Many brands now offer in-store pickup, online ordering with in-store returns and digital kiosks.  

These options make shopping more accessible and more flexible. This is one reason physical retail stores continue to play such an important role even as digital shopping grows. This omnichannel approach ensures that physical stores are not competing with online channels but complementing them, providing a seamless shopping journey for consumers.

How lease management software supports physical retail help 

Retail real estate teams need quick access to comprehensive insights, from evaluating site locations and managing rent rolls seamlessly to identifying savings in co-tenancy, tenant improvement allowances (TIA) and common area maintenance (CAM). 

CoStar Real Estate Manager lease management software empowers you to analyze market trends—such as space availability, demographics, and forecasts—enhancing your portfolio decision-making. Additionally, it streamlines the tracking of co-tenancy, TIA and CAM for easy management. 

You can track all changes to real estate and equipment leases with a unified view. You can also share data safely across teams. 

This is one reason physical retail stores continue to play such an important role even as digital shopping grows. This omnichannel approach ensures that physical stores are not competing with online channels but complementing them, providing a seamless shopping journey for consumers.

Lease admin software will save retailers money

Maximize co-tenancy savings

Lease admin software will save retailers money

Physical stores are a future-ready strategy 

Physical stores remain a cornerstone of retail and real estate strategy as the landscape evolves. These stores offer unique value by creating brand experiences, connecting with the community and improving online and offline shopping. 

The "Year of the Store" tells a story of growth and change. It highlights an industry that values face-to-face engagement. If consumers continue to value these in-person experiences, physical retail will remain a vital part of the shopping ecosystem. 

That is why the future of physical retail stores looks less like a comeback story and more like an evolution.

The future of physical retail will belong to stores that combine convenience, experience and flexibility in ways online channels alone cannot match.

FAQs about retail real estate and physical stores

How are physical retail stores influencing portfolio strategy today?

Physical retail stores are no longer viewed only as sales channels. For many retailers, they serve as portfolio assets that support revenue, brand visibility, customer acquisition and omnichannel performance. That shifts store decision-making away from simple four-wall sales and toward broader portfolio strategy, including market presence, trade area coverage and lease flexibility.

What role do physical retail stores play in omnichannel performance?

Physical retail stores often support omnichannel performance by improving fulfillment options, reducing friction around returns and increasing local brand visibility. For retail tenants, that makes store performance more closely tied to both in-store demand and the store’s ability to support digital sales within the surrounding market.

What makes a physical retail store location more valuable in the current market?

A valuable store location typically combines strong visibility, access, co-tenancy, demographic alignment and the ability to support both shopper experience and operational efficiency. In a tighter retail environment, well-positioned locations can play a larger role in long-term portfolio performance.

How should retail tenants evaluate the future of physical retail stores?

Retail tenants should evaluate the future of physical retail stores through a combination of customer behavior, market opportunity, store role and lease economics. The question is no longer just whether a store drives direct sales, but whether it supports broader portfolio goals, strengthens market coverage and adds strategic value across channels.

Why are physical retail stores still important despite ecommerce growth?

Physical retail stores remain important because they create in-person engagement, reinforce brand presence and influence how customers shop across channels. For many retailers, stores continue to shape market penetration and customer experience in ways digital channels alone cannot fully replace.

How does the future of physical retail connect to retail real estate decision-making?

The future of physical retail is increasingly shaped by real estate decisions around location quality, occupancy costs, lease terms and store format. As retailers refine their footprints, the most effective strategies are likely to balance customer experience goals with portfolio discipline and site-level performance.