The future of physical retail: 5 actions to elevate customer experience

Shoppers are finding their way back to brick-and-mortar stores. Despite the higher growth rate of e-commerce sales, Forrester forecasts that physical retail will make up almost 80% of global retail sales in 2025. In North America, 83.8% of retail sales for the fourth quarter of 2024 are projected to occur in physical stores, with the remaining 16.2% happening via e-commerce. 

Generation Z in particular stands out for its growing interest in in-store shopping. In a recent survey from retail member organization ICSC, 97% of Gen Z respondents said they shop at brick-and-mortar stores. That’s significant because Gen Zers are critical for retailers’ success when it comes to sales; in 2023, they were responsible for more than $100 billion in combined spending power globally, according to Deloitte.

In-store shopping isn’t just about picking up a needed item — it’s a social experience and an opportunity to physically gather with friends. People of all ages enjoy touching and trying out new products. While online shopping may be convenient, shopping in-person provides valuable social interaction and immediate gratification when shoppers leave with products in hand.

It’s troubling, then, that the quality of customer experience in retail declined significantly from 2023 to 2024, according to Forrester. Anemic in-store sales growth (0.7%) for Black Friday 2024 indicates that retailers need to laser-focus on customer experience, and the fact that more stores in the U.S. closed (4,548) than opened (4,426) from January through August 2024 reinforces the idea that physical stores still have a long road ahead of them.

We believe that retailers need to invest in five key areas to stay relevant:

1. Optimizing merchandising. Consumers yearn for a cohesive experience when they’re shopping with a beloved brand. This means ensuring that the in-store experience is just as streamlined and engaging as the online one. 

Retailers need to coordinate what they are selling online and in-store and make sure that stores fulfill customers’ desire for instant gratification. Nothing is more frustrating than going all the way to a store only to find that what you want to buy is unavailable. 

Part of effective merchandising is presenting the most-desired options to consumers. Recently, some companies have pruned their offerings, scaling back on limitless choice to instead feature curated products. Coca-Cola, for one, has reduced its brands by 50% over the past few years by trimming slow-growing products. 

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2. Leveraging artificial intelligence and other emerging technologies. Executives’ responses to Gartner’s 2024 survey on retail priorities indicated that, on average, they expect to see their 2025 budgets for generative AI increase by 34%, in artificial intelligence by 33%, and in business intelligence/data analytics by 31%.

With these advanced technologies, there’s huge potential to deliver a superior customer experience throughout the entire shopping journey, by making it more efficient, enjoyable, and secure. For instance, eMarketer has found that mobile apps are integral to enhancing the in-store experience for Gen Z. 

The challenge lies in the implementation of these new technologies, and success is dependent, in part, on experimentation. For example, Sam’s Club, which is owned by Walmart, recently kicked off a new way to verify self-checkout purchases in select stores: Cameras at store exits take a photo of items in shoppers’ carts to verify purchases rather than making customers wait to have their printed receipts hand-checked by a cashier. Last year, some merchants that use J.P. Morgan’s Payments platform piloted a biometrics-based payment option that allows customers to pay by scanning their palm or face in-store. 

3. Reducing the wait time in queues. With so much choice today, consumers won’t stand for long lines. They’ll choose a competitor with shorter wait times or even buy what they need online on their smartphone before walking out of a brick-and-mortar store. One recent research report showed that shoppers will leave a queue after nine minutes without buying anything, while 86% will avoid a store where they expect to encounter long lines. To ensure that in-person customers get through a checkout line, it’s more important than ever to invest in ways in which to make lines shorter. Otherwise, shoppers are more likely than not to abandon their carts out of frustration.

It is fine to have a self-checkout option for those who want it; however, many customers like to have someone else do the checkout in stores. Therefore, it is important to have enough checkout counters staffed by employees, in addition to providing other options, such as kiosks for those who like self-service. Rather than cutting store floor personnel to the bare bones, it is important to hire more shop floor personnel not only for checkout but also for interactions with shoppers.

4. Making return policies less restrictive. Yes, returns are expensive. Some can even cost retailers up to one-third of the product’s original purchase price. So it’s understandable that when returns stacked up after last year’s holiday season, many retailers responded by making their policies more restrictive. 

But this fell flat for consumers, who expected easy returns to continue to be a basic part of the shopping experience. A report from Loop, a returns software platform, found that 98% of customers will buy from a store again if returns are easy. 

Some companies, like Urban Outfitters and J.Crew, are taking a measured approach by charging customers to mail back online orders but letting them return those items in-store for free. This has the added benefit of getting more traffic into the shop, where customers might be tempted to pick up additional items. 

5. Offering shoppers an attractive store with exceptional experience. To entice people to leave their homes, retailers need to be strategic about how their stores look and feel by investing in setups and experiences that engage all five senses. 

Social and entertainment approaches, in particular, draw people in. In Massachusetts, Jordan’s Furniture features ropes courses, 3D theaters, and special events like a holiday enchanted village to bring the crowds in. Its tagline: “Not just a store, an experience!” 

Likewise, malls across the country are converting failed big-box stores into pickleball courts as a fun way to draw customers in. There is — and there has to be — pleasure in in-store shopping.

The bottom line

The future of retail is a hybrid of online and offline channels, facilitated by business intelligence and data analytics, that delivers to customers a seamless shopping experience. To keep customers coming back, retailers need to make strategic investments, experiment with new approaches, and, inevitably, engage in some trial and error as they figure it out. 

The time to start is now.

Sharmila C. Chatterjee is a senior lecturer in marketing and academic head of MIT Sloan’s MBA Certificate in Enterprise Management. 

Zoran Latinovic is an associate professor of marketing at Emlyon Business School in Lyon, France, and a research affiliate at the MIT Sloan School of Management.