Should retailers close stores or make them work harder?

Although the overall percentage of offline retail spend is expected to decline from 77% in 2025 to 73% in 2028, there is still a long way to go before e-commerce overtakes physical sales. The store remains the dominant format for most consumers, with offline estimated to contribute US$14.4t of total retail sales of US$18.9t in 2025, according to Euromonitor research.

While there is undoubtably a trend toward digital channels, the pace at which digital growth outstrips physical growth is not predictable and varies from country to country, as well as by category, demographic group and channel. In fact, as e-commerce growth levels off, a balance is likely to be struck between online and offline sales where the store still plays a pivotal role across many markets. For example, Coresight Research, a research and advisory firm, expects 15,000 store closures in the US in 2025, but also projects that 5,800 new stores could open.

Across generations, consumers continue to prefer traditional stores for essentials due to habit and trust, favoring supermarkets for their convenience and reliability. But they also seek out stores that deliver positive experiences or trusted advice and move online for speed and convenience in categories like home and household care, personal care and clothing and footwear.

Younger shoppers seeking discovery and engagement gravitate to experiential stores such as specialty and outlet stores for household and personal care (HPC) and clothing categories. Their digital adoption is rising at pace, and this demographic is driving purchases in discretionary categories like clothing.

However, while consumers are experimenting across digital channels, they keep coming back to the store. Future Consumer Index data shows 94% of consumers make purchase decisions instore after browsing across channels.

Consumers still spend over US$40b per day in physical retail spaces¹ but as retailers look to a future where online sales grow, they should explore how to use their stores to drive revenue growth in new ways, both as hubs in their own right and as an integral part of their omnichannel engagement strategy.

Rather than digital being the anthesis of the store, successful retailers should look to find the right blend, and balance, between the two, shaping shopping behaviors and enhancing experience, loyalty and trust in the process. By bringing digital and physical spaces together, retailers are reimagining spaces to emphasize experience and personalization.

Stores remain a key factor in product discovery. Almost half (45%) of consumers find new brands in-store, and 24% discover new products through active in-store demonstrations. In addition to this, retailers can use their customer data and knowledge of individual purchasing patterns to deliver targeted innovative advertising solutions such as digital signage, interactive kiosks and product trialing via augmented reality (AR) or in-store screens.

Retail media is already attracting interest from investors and will continue to develop as a tool for driving sales and as a lucrative additional revenue stream as retailers monetize their customer data and brands pay for enhanced profile. A store is an essential part of this as brands build campaigns with retailers that can engage consumers digitally but guide them to installations, promotions and experiences in physical retail spaces.

With 58% of consumers being loyal to their favorite brands but largely open to new options, and 18% being brand agnostic, being front of mind at point-of-purchase is a valuable place to be.

Retailers are also exploring virtual reality (VR) and AR to build immersive, personalized shopping experiences that enhance in-store engagement and make shopping more efficient, sociable or just plain fun. Customers can try on clothes virtually using AR mirrors or apps, perhaps with the selection curated by AI based on previous purchases. Some retailers are offering interactive demonstrations where customers can experience products in a simulated environment, such as test-driving a car or visualizing furniture in their own home. Others provide gamified AR environments to encourage customers to explore products in a fun and interactive way or enhanced in-store navigation, guiding shoppers through stores to help them locate products more efficiently.

While AR and VR could enhance in-store offerings, AI is set to have a more transformative role across both physical and digital channels. The EY AI Sentiment Index Study, which surveyed 15,000 consumers globally, found that 60% of consumers are already using AI to shop, most commonly to access customer services, with half agreeing they like companies to use AI as part of their customer journey, and 45% seeing better shopping experiences as a result of AI.

Beyond transaction points, stores can be key experiential hubs where consumers explore before buying. The advantage that incumbent retailers can draw upon is the gravitational pull of their existing digital and physical spaces.

Essential categories, such as food and beverages, remain store-driven for browsing. However, categories like beauty and personal care are seeing a blend of online and in-store exploration – creating opportunities for retailers to tailor experiences to enhance engagement. Reinventing stock-heavy stores into more experiential spaces may drive up loyalty, even if customers use other channels to buy the products. Personal care experiences in retail stores now include using facial recognition to assess skin needs and recommend products, while many beauty counters focus more on providing advice than promoting specific products.

The growth of “retailtainment” involving interactive zones, storytelling layouts and curated events, makes shopping even more of a social experience, and unlike buying online, provides immediate gratification at the till point. Retailers are increasingly leveraging a wide variety of in-store activities such as cooking schools and gym classes to bring their value propositions to life. 

As stores remain fundamental to both browsing and purchasing, retailers can use them to support alternative revenue streams that improve experience and sales, by positioning them around new value propositions. Service-based models such as health care, nutrition services, expert advice or repair, rental and resale can all deliver additional revenue streams, improve margins and boost footfall.

In grocery and pharmacy, integrating health services, such as in-store clinics and wellness programs, offers further opportunities to meet evolving customer preference for convenient and accessible well-being solutions. The Future Consumer Index found that 63% of consumers have been looking to make healthier food choices over the last two years, while 28% have been seeking out products that provide functional health benefits.

In categories such as apparel, luxury, homeware and electronics, retailers are piloting rental, resale and repair services, and stores can showcase sustainable, cost-effective solutions that appeal to the eco-conscious or value-driven consumer. The EY Future Consumer Index shows that 62% of consumers see sustainability as becoming a more important factor in their purchase decisions, but 53% of consumers have had to focus less on making sustainable product choices due to the rising cost of living.

The global second-hand apparel market is growing at three times the overall global apparel market and according to the latest EY Future Consumer Index report, 72% try to repair rather than replace things and 36% are purchasing more second-hand or “pre-loved” items. Providing these services in-store or via marketplaces not only diversifies revenue streams but also drives increased foot traffic and customer loyalty. Any consumer visiting a fast fashion chain over the last few years may have noticed an increase in space given over to repair services.

Additionally, retailers are repurposing store spaces into community hubs or to cater for behind-the-scenes activities such as dark store fulfilment centers, click-and-collect hubs or ghost kitchens, maintaining their retail footprint while meeting the needs of trends for “anytime anywhere” services and home delivery.

As retailers look to pivot physical spaces to serve new purposes, they must be mindful of maintaining their relevance to the communities they serve. Opening a health center in a supermarket or a repair desk in a fashion outlet is no guarantee of success, as some retailers have learned. Evolving the value your store can bring requires looking at new opportunities through the lens of Three Ps – permission, pragmatism and patience and partnerships.

Retailers must first consider whether they have their customers’ “permission” to explore new areas. Any new initiative should align well with their core business and not require their customers to make a leap of faith that could alienate them.

Secondly, retailers should be both patient and pragmatic. Traditional retail is a volume-focused business, but services are more margin-led and can take time to scale. Retail media has generated significant interest recently but has been developing in the background for decades.

Finally, retailers should consider partnerships outside their core sector. This will enable them to develop offerings that play to their strengths while leveraging the relative strength of others to help accelerate success.