The future of retail? Physical storefronts, digital touchpoints.

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With 6,300 stores shutting down across the US this year, shopping appears to have moved from traditional retail stores to digital channels. However, to say that digital commerce is eating into traditional retail is only half the story and an incomplete view. In fact, in a couple of years, there won’t be any more debate about whether digital is taking from traditional stores because the two will be one and the same. That’s how retail will reinvent itself going into the future.

Two trends part of a single retail revolution

Traditional retail businesses are caught between stagnating sales and long-term financial commitments typically associated with renting retail space. The wave of retail bankruptcies and stores closing down reflects an industry going through changes. It’s moving away from a vastly overstored retail landscape still built for the pre e-commerce shopping mindset. As a part of that strategy, traditional retailers are buying pure-play online retailers to extend their digital channels. Most notably, Wal-Mart is leading an acquisition binge that includes buying Jet.com, Modcloth and Bonobos.

Interestingly, the same is happening at the other end of the spectrum but in the opposite direction where online retailers are investing in physical stores, the very sort they once made seem obsolete. Warby Parker opened its first physical storefront in 2013 and by 2014 operated eight stores that were profitable, with average sales per square foot higher than nearly all other retailers except for Apple. However, what really got everyone’s attention was when Amazon, leader of online shopping, spent $14 billion to buy Whole Foods and its nearly 500 physical locations.

This goes to show that the retail industry is at an inflexion point where we are seeing traditional retailers struggle with large footprints and e-commerce companies realizing the value of physical storefronts. Both offline, as well as online retailers, are responding to changing consumer mindsets, behavior and expectations. So instead of announcing that retail is dead, or that e-commerce is moving backwards, we should look at the two movements as a single revolution of the retail industry where the two business models converge to shape the future of retail.

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The future of retail is a blend of both worlds

Regardless of how convenient online shopping is, consumers still like to visualise, try-on and feel products before purchasing them. According to McKinsey & Company, in 2020 80% of US retail sales will still happen in physical stores. As offline brands move into the digital space, and e-commerce brands buy physical stores, we should be seeing novel takes on retail where stores are laced with digital touchpoints.

Successful brands will be the ones that are inventing new kinds of shopping experiences integrating stores as part of the customer journey, rather than completely separate channels. Physical stores should be complementary to the online experience to create personalized customer interactions and offer something special to enhance what the customer can already do online. Interactive technologies will be key for replicating the online experience in stores and capturing data to make customer’s profiles available to store associates who can then provide a personalized service.

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The challenge for online brands moving into physical locations

Most young brands starting out will still be online-based as it is far cheaper to build a national brand online than to open several storefronts across major cities. However, to grow the business, online retailers will need a few stores in good locations. But not all online brands can afford to open their own physical locations. Retail is expensive and the many “available for lease” signs seen around major shopping destinations suggests a gap between the demands of new retailers looking for flexible arrangements and the real-estate owners holding out for long-term leases.

This has created the need for marketplaces that make short-term retail spaces available, which offer online brands a way to reach consumers offline. Pop-up stores are leading the way as the preferred channel for new brands to test markets, locations and launch new products. Brands immediately benefit from a boost in brand legitimacy that comes from having (even temporary) physical locations. Storefronts and pop-ups stores strengthen the relationship between the brand and consumer, boosting customer loyalty.

The future of retail is bright as we continue to blur the lines between online and offline experiences.