The Future of Retail

Explore the future of the retail industry and stay ahead of the curve to prepare for what's next in retail.

The Future of Retail

The Future of Retail

From the growing role of TikTok influencers to the frenetic pace of technological innovation, retail is in a state of near-constant flux. Generational shifts are spurring far-reaching changes in the values and priorities of many consumers – and COVID accelerated trends that had begun to percolate even before the pandemic.  

Retailers seeking to successfully adapt to this fast-changing landscape need to understand the developments that are shaking up the industry. What do consumers want in 2023? And how can the retail space best meet their needs? 

This article will explore six major trends that are shaping the future of retail in 2023. Keep reading to discover some of the key strategies chains are adopting to stay ahead of the curve – both on- and offline – and delve into some of the more interesting examples of retailers that are finding success through nimble adaptation.

Six Trends Shaping the Future of Retail

The six key retail trends that will be discussed in this article include:

  • The evolving balance between digital and traditional retail. 
  • The changing role of the physical store and the added value of “phygital.”
  • The emerging priorities and shopping preferences of Gen Z consumers.
  • The impact of AI and machine learning on retail operations.
  • The growing importance of data, including location intelligence.

1. Digital Versus Traditional Retail

People have been talking about the so-called “retail apocalypse” for more than a decade. Waves of store closures and bankruptcies during the Great Recession prompted many analysts to proclaim the demise of traditional stores. Then, just as the economy began to recover, pandemic lockdowns dealt physical retail another devastating blow, followed in short order by spiking inflation. At the same time, the continued rise of digitally-native, direct-to-consumer (DTC) brands – from footwear to eyeglasses – threatened to render retail middlemen obsolete. By late 2020 and throughout 2021, brick-and-mortar retail appeared poised on a precipice, with digital set to win the day. 

But offline shopping turned out to be significantly more popular – and resilient – than expected.. Digital and social commerce have continued to grow, but the centrality of the physical store remains unchallenged. And instead of a retail apocalypse, what has emerged is a retail evolution that increasingly seeks to combine the best of the digital and physical worlds. 

Online and Social Commerce Continues to Flourish…

The past decade has witnessed a dramatic increase in the popularity of digital sales channels across retail segments. And during COVID, consumers that would never have dreamed of skipping their weekly trip to the supermarket found themselves embracing the ease and convenience of digital grocery shopping. Some projections estimate that by 2026, e-commerce will account for over 24% of retail purchases – generating more than 8 trillion dollars globally. 

And much of that activity will take place on social media: In the U.S., some 96.9 million people shop social, with 18-24 year-olds leading the charge. Social media and online influencers also drive a significant chunk of offline purchases, from food to footwear. And as Gen Z’s spending power increases, the impact of social is likely to continue to grow.  

Social media and online influencers drive significant traffic to brick-and-mortar stores

… But Brick-and-Mortar Will Continue to Lead

But virtual retail therapy, it turns out, can’t always replace the real thing. As the pandemic receded, interaction-starved consumers flocked back to stores, eager to browse the aisles, see other people, and experience new products in person. In 2022 and Q1 2023, in-store purchases still accounted for about 85% of total U.S. retail sales. And many DTC brands that built on the principle of eliminating the overhead cost and logistical complexity of offline locations discovered they had to maintain a physical presence in the real world to engage with their audiences effectively, 

The majority of visits to leading retailers like Walmart and Target still take place offline

2. Retail’s Phygital Future

Still, people are interacting with stores differently than they used to. Increasingly, consumers are realizing that they don’t have to choose between digital and in-store shopping. They can enjoy the best of both worlds. Shoppers might visit a store to learn more about a particular product, ask questions, or try something on – and then go home and mull things over before placing an order online. Or they may do their initial research on the web, but then go into a physical store to see and touch the item before purchasing. 

Phygital Retail in Action

Retailers are leaning into this understanding by investing in omnichannel capabilities and going “phygital” – i.e. merging their physical and digital channels to provide a single, blended shopping experience. Some examples of phygital strategies include:

  • Displaying online customer reviews in-store. Offering shoppers an easy way to conduct research in-store can boost sales by facilitating on-the-spot decision-making.
  • Offering virtual try-on. Many chains are providing customers with creative ways of trying out new products from anywhere. Ulta Beauty’s GLAMlab feature, for example, lets customers sample cosmetics virtually – whether from home or in-store – without having to use open tester bottles. 
  • Providing customers with mobile tools to facilitate BOPIS (buy online, pick up in store), or to make it easier to find items in-store. The Home Depot, for example, offers an app that allows customers to photograph home design features, use AR (augmented reality) tech to see how they would look in a particular space, and then find the products needed to build them in-store. Sephora, long a phygital pioneer, offers an app that gives customers personalized product recommendations and easy access to multiple purchasing channels. 
  • Creating new ways of engaging with experts Retailers are offering customers multiple ways to engage with relevant experts, whether in-store, on the go, or at home. As part of its phygital strategy, GNC lets customers conduct live video calls with in-store coaches before making purchases online. The chain also provides its experts with mobile point-of-sale tech to facilitate sales at external events
  • Adjusting sales incentives. Retailers can also lean into phygital by adapting their incentive structures. Sales clerks can be incentivized to conduct online follow up with interested customers and be credited for digital purchases that stem from an in-store interaction. Promotional return on investment can be assessed in a manner that accounts for sales through multiple channels.

3. The Changing Role of the Physical Store

This sea change in how consumers interact with brands is also leading many retailers to re-imagine the “telos”, or overriding purpose, of their physical footprints. In a phygital era, stores are no longer just places to rack up sales. Instead, they serve as community hubs meant to foster brand awareness and position retailers as go-to destinations for particular categories or products – both online and IRL.

The Evolving Physical Store: Real World Examples

The evolution of shoppers’ needs and expectations is leaving its mark on everything from fleet configuration to layout and in-store experience. A growing number of retailers are embracing experiential models that position their stores as places to explore hobbies, meet people with common interests, and learn new skills. Other chains are rightsizing – downsizing their fleets, expanding their footprints, or experimenting with different store formats – to create a physical presence best suited to the phygital world. 

Some examples of retailers that are finding success through a reimagining of the role of the physical store include:

  • Buff City Soaps, the all-natural, handcrafted soap chain that exploded onto the scene in recent years, boasts onsite “makeries” designed to make the shopping experience “fun, playful, and interactive”. Customers can choose their scents and then watch as their order is made from scratch – or decorate their own bath bombs. The chain also holds birthday parties and nights out. 
Buff City Soap’s experiential approach to retail has propelled dramatic expansion
  • Dick’s Sporting Goods is drawing crowds with its House of Sport concept. House of Sport stores boast a range of attractions, from climbing walls to golf simulators, as well as individualized coaching sessions. 
  • Adidasflagship 5th Avenue location in New York features a running track and treadmill shoppers can use to try out different sneaker models. It also offers a “Run Genie” that assesses visitors’ gaits to offer the right running shoe. Nike famed House of Innovation, for its part – also on NYC’s 5th Avenue – boasts a by-appointment-only customization lab where shoppers can build personalized sneakers.
  • In May 2022 DSW Shoe Warehouse opened a smaller-format tester store in Houston, TX, designed to optimize the interplay between online and offline shopping. The store features self-checkout options and QR codes that shoppers can use to research products before buying them. 
  • Furniture behemoth IKEA, known for its huge, big-box stores, is also experimenting with small-format venues that embrace the blurring of boundaries between online and offline shopping. The chain has begun opening a series of more conveniently located, urban “Planning Studios” – where customers can consult with in-store design experts and then order products to be delivered.

4. Gen Z and the Future of Retail

The future of retail is also being increasingly shaped by the preferences and habits of younger consumers – and especially Gen Z, born between the late 1990s and early 2010s. Members of Gen Z – also known as Zoomers – are digital natives, and more likely than other consumers to base purchasing decisions on the recommendations of social media influencers. Some other defining characteristics of this cohort include:

  • They care about sustainability and support businesses that share their values.
  • They do their research and expect brands to be transparent about how they make their products. 
  • They view things like beauty differently than their parents did. They’re more interested in self-care, body positivity, and inclusivity than in abstract beauty ideals. 

As of 2022, Gen Zers made up a little over 20% of the US population. As the spending power of this demographic grows, it will become more important than ever for retailers to understand and meet its needs and expectations.

Ulta Beauty is one retailer that is finding success by leaning into the concerns of younger shoppers

5. Technology Shaping the Future of Retail: AI and Machine Learning

The future of retail won’t just look and feel different for consumers – innovation is also impacting the way companies manage and operate their businesses. Retailers are realizing that to stay competitive in 2023, they have to leverage the operational advantages offered by newly emerging technologies. And from automated fulfillment systems to chatbot customer service reps, retailers across categories are harnessing AI and machine learning techniques to revolutionize every aspect of their operations. 

  • Walgreens has established a series of robot-powered prescription fulfillment centers to ease workload, save money, and free pharmacists up to provide advice and otherwise engage with customers in-store. 
  • Kroger is partnering with autonomous box truck company Gatik to “future proof” its supply chain – leveraging AI tech to more efficiently fulfill customer orders, lowering costs and reducing the risk of products being out of stock. 

Many retailers use AI to create personalized shopping recommendations, forecast product demand, manage supply chains, and offer customer support. AI and machine learning also power many of the more advanced data analysis tools retailers utilize to make informed decisions.

6. Data (Continuing to) Reign Supreme

Indeed, succeeding in retail has always required robust data – on top of good people skills and a healthy dose of common sense. And in today’s phygital retail environment, the importance of hard data is only growing. Retailers rely on retail business intelligence (retail BI) tools to track a broad range of KPIs (Key Performance Indicators) and conduct in-depth analyses. And increasingly, businesses are utilizing location intelligence platforms to understand and analyze consumer behavior and preferences.

Location Intelligence: A Must-Have in Today’s Retail Environment

In the online world, analytics platforms offering insight into shoppers’ habits and characteristics – the websites they visit, the subjects they engage with on social media, and the products they like to buy – have long been de rigueur. And with the advent of advanced location intelligence tools, retailers can now apply this same kind of analytical approach to their offline enterprises. By harnessing foot traffic data, and layering it with demographic and psychographic data sets, retailers can gain a comprehensive understanding of actual customers’ offline shopping habits, interests, and characteristics. 

Location intelligence platforms like make it easy for retailers to analyze visitation patterns to their own venues, as well to those of their competition. Location analytics lets retailers answer questions like: 

  • How many people visit a particular chain each day, and how long do they stay? What are the most popular visit times? And are visits trending upwards or downwards? 
  • Which specific venues are drawing the most visits and making the most efficient use of square footage? Which events and promotional activities draw the crowds?
  • What are the demographic and psychographic characteristics of a venue’s customer base? Where do visitors come from, and where else do they like to shop?
Location intelligence lets retailers conduct in-depth analysis of visitation patterns on both a chain and location level

As the decade progresses, tools that enable retailers to efficiently leverage location analytics will be table stakes – a truly minimum requirement – across retail categories. 

To read more about how location analytics are transforming retail in 2023, and how can help retailers take operations to the next level, check out more of our Guides here.  

Looking Ahead: The Future of Retail in 2030

The world of retail is in for some interesting times. The continued blurring of the lines between digital and physical spaces is transforming how consumers interact with the brands they love. And the changing of the generational guard is leaving its mark on consumer preferences across segments. At the same time, technological change and enhanced data capabilities are changing how many retailers manage day-to-day operations. 

Looking ahead, 2030 will likely be an even more seamless blend of online and in-person experiences. And retailers that succeed in navigating the brave new phygital world – while leveraging emerging technologies and data science insights to cut costs, improve efficiency, and drive online and offline traffic – will remain ahead of the game. 

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