From Clicks and Mortar to AI: What’s Next for Physical Retail?

Oct 14

6 min read

As technology transforms how we discover, choose and buy, what does the future hold for the spaces we still choose to visit?

I remember when everyone was talking about clicks and mortar.

It was the late 1990s, and established retailers were trying to work out what the internet was going to mean for their businesses. How would a brand that had always existed in the physical world translate online? Would people really buy clothes without seeing them, touching them or trying them on?

At the time, I was working in the marketing department at Oasis PLC. I spent six months there as the business was developing its online presence. We were having to rethink even the way we photographed clothes on models, creating imagery in a completely new way specifically for this emerging online world, and working out how people might shop when they couldn’t see, touch or try something on first.

It felt like a pivotal moment - because it was.

More than 25 years later, I think we’re at another one. Only this time, the question has almost reversed.

We’ve become extraordinarily good at bringing the physical world online. Artificial intelligence, automation and increasingly sophisticated technology are transforming how we discover, choose and buy. And as AI becomes better at anticipating our needs and recommending what it thinks we might like, the relationship between brands and customers is changing again. So what happens next to the physical world? What role should physical retail play when customers no longer need to visit a store simply to buy?

Convenience or discovery?

Recent McKinsey research into shopping in the age of AI offers an interesting way of looking at this. It suggests that physical retail increasingly needs to understand two very different customer missions: frictionless convenience and discovery, inspiration and human connection.

On one side, technology can make the physical shopping experience increasingly effortless. If I know exactly what I want, help me find it quickly. Tell me whether it’s in stock. Let me collect it easily, pay without unnecessarily queuing, return it without fuss and move seamlessly between the digital and physical versions of the brand.

In other words, remove the friction.

But there is another side to physical retail that becomes more interesting as convenience becomes easier to deliver: give me a reason to be there.

Give me something to discover. Inspire me. Let me try something, learn something or experience something I couldn’t from my sofa. Introduce me to something I didn’t know existed. Let me talk to someone who really knows and loves what they’re selling. Bring people together around a shared interest or a brand they already feel connected to.

Many leading retailers are already doing elements of this brilliantly. Beauty brands have long understood the value of demonstrations, consultations and masterclasses. Fashion flagships host launches and collaborations. Department stores increasingly mix retail with food, culture, entertainment, events and changing experiences.

None of those ideas is particularly new in isolation. What’s interesting is what they collectively tell us about the changing role of physical retail.

The value of discovering something unexpected

One of the most fascinating consequences of increasingly personalised technology is the way it shapes what we see. Algorithms recommend products based on what we’ve searched for, bought previously or shown an interest in. There is enormous value in that convenience, but there is also something wonderful about encountering something entirely unexpected.

JLL describes this as serendipitous discovery - and I love the idea.

It might be wandering through a department store and discovering a designer you’ve never heard of, stumbling across a collaboration or installation, watching someone demonstrate a product or simply finding something you didn’t know you wanted until you saw it.

That element of surprise could become increasingly valuable as our digital experiences become more personalised and predictable. Sometimes we don’t want to be shown more of what an algorithm already knows we like. We want to be inspired by something we didn’t know we would like.

JLL also identifies human connection and sensory experience and content-driven culture as increasingly important opportunities for physical retail. Taken together, those ideas suggest a very different role for physical environments — places that allow us not simply to transact, but to discover, touch, taste, participate, meet and share. And perhaps that is one of the things the physical world can continue to do particularly well.

More than a transaction

Of course, this doesn’t mean every shop needs to become an immersive experience or start running workshops. Research from Deloitte identifies a number of different roles a modern store might play, from selling products and providing services to supporting omnichannel fulfilment, creating experiences or building brand communities. That last point is particularly interesting.

Brands have become extraordinarily sophisticated at building communities online: followers, subscribers, members and fans. But there is an opportunity to bring some of those communities together in the real world too.

A sports or lifestyle brand can bring people together around a shared passion. A fashion or beauty brand can offer access to expertise, launches or creative experiences. A department store can use its scale to bring together retail, hospitality, culture and entertainment in ways that give people reasons to return beyond simply needing to purchase something. Those interactions can build familiarity, belonging and, ultimately, loyalty. And the physical experience doesn’t have to remain physical. A great event, installation, collaboration or unexpected discovery can become content that travels far beyond the people who were actually there.

The physical experience creates the story. The digital world helps it travel.

Does every store need to do the same job?

This is perhaps where the conversation becomes most interesting from a business perspective.

McKinsey’s research suggests that retailers should think carefully about the particular role individual locations need to perform, rather than assuming every store should offer exactly the same experience. Deloitte reaches a similar conclusion in considering the different functions a modern store can fulfil, while PwC’s recent retail research also points towards the need to combine compelling customer experiences with technology and operational efficiency.

So perhaps the question isn’t simply, how do we make our stores more experiential?

It is much more fundamental: what is this space actually for?

One location might need to deliver exceptional convenience. Another might be somewhere customers primarily come for discovery and inspiration. A flagship could become the place where a brand experiments, launches ideas and brings its community together. An underused floor in a department store might present an opportunity to create something entirely different. And a store conceived around customer behaviour ten years ago may simply no longer be serving the same purpose today.

There isn’t one universal answer - and that’s what makes the challenge so interesting.

So, what comes next?

Looking back to those early days of clicks and mortar, it’s extraordinary how quickly something that once felt revolutionary became completely ordinary. Today, we barely think twice about buying something from a screen, and AI is likely to transform the way we discover, choose and buy all over again.

But perhaps the future of retail isn’t simply about becoming more digital. Nor is it about trying to recreate a nostalgic version of shopping from the past. The opportunity is to understand what technology can do brilliantly, while becoming much more imaginative about what the physical world can offer in return.

Sometimes that will mean frictionless convenience: removing queues, simplifying payment, improving stock visibility and creating a seamless relationship between online and offline. At other times, it will mean almost the opposite: creating opportunities for discovery, inspiration and human connection.

And perhaps that contrast is what makes this next chapter of retail so interesting. In a world where algorithms increasingly predict what we might like, physical spaces can still surprise us. They can introduce us to something we weren’t looking for, allow us to touch, taste, try and participate, connect us with knowledgeable people and bring communities together in real life.

The best retailers are already exploring many of these possibilities. The challenge now is to keep asking what comes next as technology, customer behaviour and expectations continue to evolve.

More than 25 years ago, the big question was how we could take the physical shopping experience online.

Perhaps the more interesting question now is what will make us want to step back into the physical world.