Why Retailers are Doubling Down on Physical Spaces

Physical stores are proving to be as indispensable as ever for retailers and shoppers. In fact, 2024 has solidified itself as the "Year of the Store," with retailers continuing to invest heavily in brick-and-mortar spaces and making further plans to do so in 2025. And for today’s consumers, physical retail remains a vital part of the shopping ecosystem where they can engage with brands, products, and experiences, building connections that can’t be replicated online – underscoring stores’ importance to a retailer’s business.

Retailers recognize the enduring power of physical locations as an essential driver of their overall strategy. In a recent study of retail executives, ICSC found that retailers continue to be bullish on physical locations, as more than two-thirds of respondents said their company is currently looking to grow and expand its fleet of stores. The majority also expect in-store sales, foot traffic and dwell time to increase over the next 12 months. The demand for stores is indicative of a broader pendulum swing post-pandemic: rather than retreating from physical spaces as consumers navigate economic uncertainty, brands are leaning into them.

And it’s clear why: brick-and-mortar stores serve as “billboards” for the brand. Research from our “The Halo Effect III: Where the Halo Shines” report shows that when retailers open a new store, their online sales increase by an average of 6.9% in that trade area. Conversely, when a store closes, online sales in that area drop by 11.5%. This interconnectedness between physical and digital sales highlights how essential stores are to maintaining a strong presence with consumers. Our recent data reiterates that truth – most consumers feel it’s important for a retailer to have a physical location near their home or workplace, with one in three saying they trust and value the retailer’s reputation and brand more because of its physical presence. Retailers understand this as well – retail executives ranked “driving customer loyalty” as the number one role of physical stores for their brand.

From an economic standpoint, the resilience of physical retail is also tied to broader trends in the economy and consumer behavior. While inflation and interest rates remain top concerns, job growth and rising wages have kept consumer spending buoyant. And although high interest rates have limited the development of new retail spaces, demand for existing retail properties remains robust, outpacing supply. Retail vacancy rates recently hit a 20-year low, and this scarcity of available space only intensifies the demand for well-located retail properties – driving retailers to get creative with non-traditional offerings like pop-up shops and small-format stores.

The sustaining success of physical stores isn’t just about quantity; it’s about how these spaces are evolving. Retailers and developers are increasingly focused on reimagining their spaces to create more engaging, experience-driven environments. The growth in "non-traditional" tenants—such as personal services, medical offices, and entertainment spaces—has diversified the tenant mix, creating hubs of activity that drive foot traffic for all tenants and create convenient community centers for consumers.

As retailers continue to adapt to consumer preferences, physical stores remain a critical part of their strategy. Whether through immersive in-store experiences, seamless integration with the online channel, or community-driven spaces, brick-and-mortar retail is thriving. As we move through the rest of 2024, it’s clear that the narrative of retail isn’t one of decline; instead, it’s a story of adaptation and growth, where physical stores are central to the future.