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What Lies in Store for Brick-and-Mortar Retail as It Approaches $4.2 Trillion?
Reports of brick-and-mortar’s death, dubbed the retail apocalypse during the height of the COVID-19 pandemic, were greatly exaggerated.
Physical store sales rebounded in 2021 as the omnichannel future came into focus, with total spending topping pre-pandemic levels. Now Forrester expects offline sales to hit $4.2 trillion by 2028 — up from $3.6 trillion in 2022 — and account for 72% of the total retail market.
Offline retailer stores experienced massive 14% year-over-year sales growth in 2021 and healthy 6% growth in 2022 as shoppers flocked back to in-person experiences and sought out bargains from retailers looking to offload overstuffed inventories. Forrester expects growth rates to slow to pre-pandemic levels now that the initial burst is petering out, but brick-and-mortar will remain a vital part of the overall retail industry.
Forrester tagged “tangible experiences, immediate gratification, physical product comparison, social interaction, and personalized assistance” as the key advantages offline retail has over its digital counterpart. Research has shown that touching products can make shoppers feel a greater sense of ownership over potential purchases, and while e-commerce is getting better at replicating this phenomenon, the advantage remains with physical stores.
U.S. online retail sales are still growing rapidly and will increase from $1 trillion in 2022 to $1.6 trillion in 2028, according to additional Forrester research. Online retail penetration will grow to 28% during this period, and a double-digit compound annual growth rate (CAGR) is expected for 11 product categories. Brick-and-mortar isn’t dead, but digital still has space to grow.
Of course, e-commerce and offline retailing are at their best when they work in tandem.
Forrester estimates that click-and-collect options — including both BOPIS (buy online, pick up in-store) and curbside pickup — will bring in more than $100 billion in 2023, with that number doubling to more than $200 billion by 2028. Click-and-collect is expected to account for 12% of U.S. e-commerce sales by that point.
The post-pandemic years have proven that even digitally savvy shoppers are interested in the social and tactile experiences only a physical store can offer, and Forrester’s predictions confirm that brick-and-mortar is alive and well. The primary question that remains is how retailers will evolve in the coming years to keep their stores compelling in a thriving industry.
Discussion Questions
DISCUSSION QUESTIONS: What do you think the biggest contributors to offline retail’s continued growth will be? How can retailers best combine their physical and digital offerings to create a truly cohesive, convenient whole?
Poll
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Jeff Hall
President, Second To None
Peter Charness
Retail Strategy - UST Global
Not so long ago, thanks to the temporary pandemic-fueled spike in online sales, some were predicting the demise of physical retail. Such prognostications were bunkum, as time has proven. Physical retail will always be around and will continue to account for the vast majority of spending for the foreseeable future. There are many reasons why but, foremost among them, is people like shopping in person: we are social beings and most of us simply do not want to make all of our purchasing from home. Now, none of this means that stores won’t change. Nor does it mean that life will be easy for physical retail. How we shop, the type of stores we need, how those stores work financially, and how they link to online commerce will continue to shift. That requires retailers to think differently and to evolve the format of their stores. Many are doing this, just as they have always done.
Shopping and visiting physical stores is often more than just about procuring a product. To see, feel, and experience the shopping environment taps into emotions for some shoppers in a way that cannot be replicated online. And the most successful retailers all understand that online and offline retailing is not an either or proposition – retailers need to do both and it needs to work together as seamlessly as possible.
Ever since the inception of e-commerce, predictions of brick-and-mortar’s death have been predicted, and they have fallen short every time. Physical retail will likely ALWAYS account for more than half of retail sales. Why? The most powerful competitive weapon at retail’s disposal (and one that e-commerce retailers cannot replicate) is the ability to engage shoppers’ human dimension through all five senses. Research has proven that shoppers engaged through all five senses in-store spend more time and are more likely to make purchases.
Let’s not forget as well the rise of DTC brands looking for physical retail as a source of growth. Retail sales growth won’t just come from existing retailers growing same store sales or adding new locations – it will come from new ideas and upstarts who will increasingly find that online is not the easy path to rapid growth that it once was (and probably never a path to profitability anyway), and that physical retail really does do more to cement a brand in the mind of a consumer.
The most relevant retail brands have figured out how their retail locations can complement their ecommerce offerings – and how to continually evolve and iterate both to meet today’s consumer expectations, through intentional customer experiences. Offline, physical retail will always be important, given it can meet our needs for an emotional, social and tactile experience, combined with immediate gratification, that online retail simply can’t replicate. Continued growth in offline retail will be rooted in those brands willing to continually invest in their people and in creating consistent, engaging and authentic in-store experiences for their customers.
While this is not necessarily a statistically important enough distinction to change the main drift of those numbers, Retailers have to stop thinking in terms of online and offline sales and at least contemplate the entire customer journey. For some product categories, a shopper may have had 6 online touch points, ordered online and shopped or picked up in store, and the Retailer classifies that as an offline sale. Many Retailers themselves have trouble determining if a sale “belongs” to the online or offline channel. If I shop online and see 5 in stock I’m as likely to wander over to the store for a quicker pick up than going through a BOPIS experience that might take hours to be ready. Yes post covid (knock on wood) there will be more physical trips to a store than during the shutdowns and surges (didn’t need to buy a survey to prove that), but the reality is the nature of the shopping journey has changed and these old classifications of sale need to change as well.
You are absolutely correct, Peter. Further, the mindset that retailers are wringing their hands trying to determine where a sale “belongs” to are following a prescription of not understanding the big picture of reality.
Good point! Channel attribution is sometimes impossible and does not paint of full picture of the shopping and buying journey.
You got that right, Peter. I personally find it amusing when we use the term “offline” retail – as if it was some kind of innovation that followed ecommerce.
But seriously, attribution of the sale is not a simple matter. I’d submit that it may be more instructive to analyze by trip mission. That is, why did the shopper choose a particular channel path for this occasion?
The key to the continued growth of offline retail is humans, 8 billion of them (and growing). Ecommerce didn’t destroy brick & mortar and neither did the pandemic because, as the pandemic itself showed, humans like other humans (for the most part). Ecommerce has been trying desperately to mimic the physical experience and live video is the latest attempt at doing so. Many retailers are testing shoppable videoconferencing and livestream shopping to “add” humans to the digital equation and meet their customers in the comfort of anywhere. BOPIS is also doing a nice job of combining the benefits of digital and physical to offer a truly, “phygital” experience. The key as evidenced by these attempts including the overhyped metaverse and AI, is complementary not competitive and retailers who figure out how to unify their multiple channels by leveraging technology AND humans into a seamless experience will have a distinct advantage (for now anyway).
$4 trillion is a worthy goal for 2028. If retailers create positive, even memorable, customer experiences in their stores, it’s also a reachable number. Retail is theater, and live theater is always better. Those retailers who embrace the concept will reap the rewards. Also, each brick-and-mortar retailer needs to carve a niche and entertain their customers to create a truly memorable journey.
The key takeaway from the Forrester study for me is that combining in-store and online provides the best results. Be consistent with customer interactions as they can buy anywhere and at any time. And don’t forget that returns are just as important. The pandemic created more distribution and delivery options for customers, which made multichannel retailers’ lives a lot more complex. The right approaches and tech tools are available to handle every business model now. Retailers just need to figure out how to put them into play.
Forecasting in a dynamic environment is complex. It is particularly difficult in those areas where behavior and technology are vital components. To paraphrase (Bill) Gates Law, “Most people overestimate what changes in a year and underestimate what they will in ten years.” Anyone doubting that should consider what retail is like in 2023 versus what we were expecting in 2013. Think about lifestyle today vs. ten years ago. Also, consider that change is accelerating dramatically.
NRF is not quite as bullish as Forrester. NRF’s prediction for 2024 is brick & mortar will already be down to 72% of the total.
I can’t tell you which is correct. I can tell you that in ten years, both brick & mortar and online will be unrecognizable in ten years and in the five-year forecasted period, it will be somewhere in between
We still love stores – and they keep getting smarter as they evolve to align with our e-commerce habits. Blending the human touch with convenience (BOPIS, cashierless, retail media) will help stores earn B2C and B2B growth.
Using AI and other innovations can free up store teams to focus on attentive service and selling. Data unification for a single view of each shopper will help retailers personalize store experiences to drive conversions and loyalty.
After the massive disruption the industry experienced during the pandemic, it feels like we’ve settled in a new normal of around 25/75 percent online vs. in-store.
What have we learned?
Retail is very resilient and offline retail particularly so, talk of its demise was always crazy and largely media driven at a time when the pandemic was at its hight. People enjoy the social experience, interaction and as stated the instant gratification of offline shopping. That will not change and as retailers get better at understanding how to operate across all channels maximising the benefits from each other then that will only drive retail as a whole to be even better. As environmental concerns grow particularly in younger generations offline may well see even greater growth, also as more automation and AI driven technology replaces jobs people will have more time and hence look for activities such as shopping to pass the time. Where they get the income from to do so is another question completely!!
It is increasingly evident that the best combination is a robust online presence and an immersive in-store experience. I’ve been a strong vocal proponent of brick-and-click solution that meets shoppers when, where, and how they prefer to shop.
If the shopper journey is envisioned as a multi-lane highway, retailers (and brands) need to recognize — and support — the multiple on- and off-ramps that consumers will travel. The best advice I can offer is to embrace ALL of these points of intersection and build a seamless relationship with customers whenever, wherever, and however they choose to shop.
Physical retail creates confidence across the full range of senses. It turns Unknowns into Knowns. Physical retail satisfies the full equation for the customer: Explore + Experiment + Execution = Experience³. The confidence developed at the level of physical retail translates into confidence in shopping online. We now have abundant evidence about the symbiotic nature of the channels. Each is an extension of the other.
Digital enthusiasts have been given a free ride on the value of their sales channel for nearly 3 decades now. It’s incredible that we somehow forgot that humans are biological beings evolved to thrive in a physical world. As a result, even this Forrester list undervalues what customers get from a physical store.
in truth, the digital channel is almost entirely one of buying and not of shopping. And this makes all the difference for physical retail ensuring it will dominate for more decades to come. Digital has made little progress when it comes to shopping because it simply can’t. A flat, 2-dimensional screen of limited resolution is a poor communication compared with the real world of a store.
I think Peter Charness nailed it: Thinking about online and physical retail as silos is the wrong mindset. Smart retailers have figured out how to use BOPIS and other online tools to encourage store visits, and there is a hunger for communal experience that only a store visit can provide.
That being said, physical retail still faces some headwinds — mostly tied to the decline of regional malls and the demise of national chains like Bed Bath & Beyond. Online shopping will continue to gain share at a faster pace (as it has for many years) even after its pandemic-driven heyday.
In our sector’s evolution, concepts like Offline/Online integration, BOPIS, Last Mile/Last Inch delivery, and First Moment of Truth (P&G) vs. Google’s ZMOT have shaped our strategies. Yet, our Achilles’ heel is truly understanding how these impact the consumer/shopper journey. We must blend “coming attractions” with “value”, “convenience”, and “experience”, all while managing a transient workforce and volatile supply chain. Success lies in fusing it all together and grasping shifting consumer behaviors. This intricate balance defines modern commerce’s essence and new tech like AI and Computer Vision are just that – new tech that allows us to action the next best action that can capitalize the moments that matter the most.
It’s all about the customer experience. At the same time, it’s about I want what I want the way I want. Whether the customer is navigating in the store or navigating on the internet there must be a “feel good” component to the experience. There’s a bit of guess work involved with online shopping. You don’t’ always get what you want or at least expect. In the store what you see is what you get. There’s a need to pay attention to what the customer is craving for in the experience and the inventory. Offline is still a sure thing from the customers’ experiences.
The rather congratulatory tone of this article sems misplaced: as pointed out in the fifth paragraph, the “continued growth” of offline retail is, in reality, a slowly diminishing share of the total.
That having been said, recognizing it’s not a complete collapse seems like progress.
Given that they have choices for every purchase, shoppers naturally assemble their own solution for every occasion, according to their needs in the moment.
That may mean visiting several different food stores weekly plus an online order to stock their pantry every two weeks. That may mean ordering consumer electronics for curbside pickup after a careful round of research. It may mean a leisurely trip to the mall to try on shoes in several shops. Or it may mean running to the 24-hour drug store at midnight to pick up cough medicine for a sick child.
Every shopping occasion has an associated time factor as well as certain practical aspects that always will influence channel choice.
For me, that suggests there will be a natural equilibrium between in-store, hybrid and online shopping trips that will depend upon the category and its role in people’s lives. It also means that retailers who can provide all those options will be best positioned to serve their customers.
I’m less interested in classifying purchases by where the transaction was completed and much more interested in how leading retailers provide a constellation of options that best serves shoppers and encourages overall sales growth.
The death of brick and mortar is always in the news and some cities are doing better than others. As long as the value is there, whether it is convenience, assortment, ability to buy online and pickup in store or do returns, or great customer experience, the stores will remain a piece of the retail equation. As shipping and labor cost continue to increase, retailers can use stores as a means to grabbing shoppers wallets in a cost effective manner.
There has been so much focus on e-commerce sales that brick and mortar was nearly presumed dead. While the pandemic did forever change consumer ecommerce purchase behaviors; the truth is, it was always a matter of time before brick and mortar bounced back.
There is still an ingrained consumer behavior to shop in stores, despite having learned that most shopping needs can be filled online. Ingrained behaviors are hard to change. Compund this with an in-store experience that consumers have been deprived of for so long (socializing, warm greetings by familiar faces, touch/feel/smell everything etc.) and it’s clear why brick and mortar would bounce back.
Both retailers and advertisers need to adapt strategies as the market place continues to rebalance. It’s not brick/mortar or e-commerce. It’s building a durable omnicommerce strategy. Brick and mortar may have bounced back but the influence of digital media on in-store purchase must be factored into this new normal.
What we need to do is stop thinking of it as digital vs. physical. All channels have a role to play and retailers need to start with getting an understanding of customer needs from each channel. Everyone loves to talk about seamless Omnichannel experiences. I prefer to think of it as a symphony with each interaction point playing in harmony with the others at the precise time they are needed. The outcome being a cohesive and powerful combination. The customer doesn’t think of a retailer as .com or store. They think in terms of brand, and that means .com, social media, text/phone interaction, store and yes, even mail. One brand, many touchpoints and they all need to work together in service of customer needs.
Convenience will continue to be a significant factor for retail growth, whether someone is shopping offline or online. As the question mentions, the biggest thing will be bridging the gaps between online and in-store to create a unified commerce experience. This includes ensuring all your channels and the associated data are connected to offer seamless purchasing options – in-store, from the website, on social media, etc.
It also includes a digital-driven experience, in-store. For example, if someone was searching for a pair of shoes online, target them with an app notification that directs them to the right aisle or provides a coupon upon entry into the store. In any case, brands need to leverage their tech stack to view the retail experience as a whole entity, no matter where the consumer starts or ends their journey.
The flip side of Forrester’s estimate is that online will reach 28 percent of retail sales by 2028. That significant proportion validates the need for a hybrid retailing approach. While Forrester tagged “tangible experiences, immediate gratification, physical product comparison, social interaction, and personalized assistance” as offline retail’s critical advantages over its digital counterpart, we know that technology does not stand still. I expect digital experiences to challenge in-store shopping but never replace it. The leading retailers will creatively bundle online and offline experiences and services linked to products, community, and identity—an exhilarating time ahead for retailing in all shapes and sizes.
There are no lines between physical and digital commerce. In a society that is perpetually connected via smartphones and other devices, we are living in a channel-less world. It’s high time we no longer refer to operating models such as omnichannel and unified commerce strategies and focus on the overall commerce experience, which now includes immersive commerce. This transcends all channels.
The great acceleration brought on by the pandemic fueled a rise in the e-commerce percentage total of the retail business. At that time, the narratives about an impending retail apocalypse and the death of the physical store were clearly wrong. The consumer behaviors are continuously evolving. The smartphone is an intrinsic part of the shopping and discovery experience, however according to the latest US Census Bureau reports, approximately 85% of all retail business is generated in the physical store.
Physical retail will continue to exist in some form or other; it is not going anywhere. Physical stores play an essential role in the customer’s shopping experience, both before and after they purchase a product. Nevertheless, attempting to operate a brick-and-mortar store in the same manner as in the past would prove to be ineffective. Instead, merchants will have to combine physical and digital aspects of retail to offer customers a seamless shopping experience.
Within an omnichannel setup of online and offline networks, customers can make the initial purchase online via a mobile app or website, and have their orders delivered to them or pick them up directly at the store. Returns, which are otherwise a significant barrier in online retail, can be managed easily. Customers can easily replace or get a refund for their online purchases by returning them to their nearest store location.
Retailers must understand that today’s customers see the entire world through a smartphone. Everything from shopping to even seeking relationships can be done over the phone. Therefore, retailers will need to bring their stores directly to customers’ phones and assist them in their buying journey at the right moment.
Forward-thinking retailers are already doing this and have wasted no time in capitalizing on these opportunities. Those who fail to adapt to these changes will eventually be left behind.