How AI is redefining the role of physical stores, and what retailers should know

Artificial intelligence (AI) is not only changing how we shop online, but it's also transforming physical retail. While stores are still viewed as essential “anchors” for commerce in 2030, AI, together with shifting consumer behaviours, continues to reshape the purpose of physical retail. 

A new study released by ICSC and McKinsey & Company, titled "Shopping in the Age of AI: Redefining Stores for a New Era," draws on a survey of more than 3,000 US consumers and in-depth interviews with retail and real estate leaders, to identify the three main forces changing the physical retail landscape: the accelerating use of AI in the shopping journey, rising consumer expectations for transparency and convenience, and a generational shift in consumer spending power toward millennials and Gen Z. In order to remain relevant, as well as competitive, retailers and developers are encouraged to rethink their retail strategy and ensure they deliver what their customers want on all fronts. 

“AI isn’t eliminating the store—it’s raising the bar for what it needs to deliver,” said Colleen Baum, senior partner at McKinsey & Company, in a statement. “As more of the shopping journey moves upstream, the stores that win will be those with a clearly defined role—whether enabling speed and certainty or creating experiences worth the trip.” Here, we delve into three actionable steps retailers can take to ensure they continue meeting their customers where they are at.

Store visits will become less frequent — but far more deliberate

The most significant shift highlighted in the report is the rise of agentic AI: systems capable of searching, comparing, recommending, and completing purchases on a consumer's behalf. In regard to the fashion industry, a sector already heavily influenced by digital discovery through social media, algorithmic recommendation, and influencer-driven content, the implications are significant, with McKinsey estimating that the US B2C retail market alone could see up to 1 trillion US dollars in revenue from agentic commerce by 2030, with global projections reaching as high as 3 to 5 trillion US dollars.

As customers use AI for more and more research and comparison, eventually, using it to execute certain purchases, stores will no longer serve as the primary venue for product discovery and evaluation. Instead, physical retail units are increasingly likely to function as sites for order fulfilment, product validation, immediate access, or a differentiated experience. For fashion retailers, this means that a customer walking through the door will often already know what they want, having researched it upstream through AI-assisted search, social platforms, or automated recommendations. It’s then up to them to make sure the in-store experience meets that elevated baseline.

Retailers are cautioned to take this shift into consideration sooner rather than later. In spite of widespread awareness, the report found that of 50 executives surveyed, 45 had considered introducing an agentic commerce tool, but fewer than five had a board-aligned strategy in place. For businesses still navigating post-pandemic recovery and the ongoing threat of ultra-fast fashion rivals, falling behind on this front could be a costly error.

Every store needs a mission & clear purpose

Now, more than ever, visits to physical stores are split into two distinct purposes: convenience or discovery. The report argues that retailers would be wise to design their physical stores around one or the other, but not both. Why, you may ask? Convenience-optimised stores are built for speed and certainty. Layouts usually shorten the path between entry and checkout, assortments are tightly curated, select, and reliable, and in-store technology helps eliminate friction at every step, from real-time inventory visibility to frictionless checkout. This does not leave much room for casual discovery and product exploration. For apparel retailers, this type of store may represent a tightly edited, high-frequency replenishment model, one stocking basics, wardrobe staples, and reliable bestsellers, ideally located along popular commuter routes or within convenience-led retail destinations, for ease of access.

Discovery-led stores, by contrast, are designed to earn the consumer's time. Ideal for playing to fashion retailers' strengths, such as collection curation, storytelling, newness, and human connection, these stores tend to include rotating collections, limited-edition drops, exclusive collaborations, and visual merchandising - all key tools for building an immersive experience that justifies a deliberate trip. Critically, store associates working in this model shift from transaction facilitators to trusted advisers. Equipping them with AI-powered clienteling tools that provide real-time customer context is likely to enable more personalised, meaningful interactions on the shop floor, according to the report.

The generational divide between consumers is also important to keep in mind. More than 40 percent of Gen Z and millennial shoppers surveyed agreed that experiential retail makes them more likely to shop at a retailer, nearly twice the rate of Gen X consumers and four times that of baby boomers. As these demographics' spending power grows, set against the backdrop of what Merrill has described as the largest intergenerational wealth transfer in US history, potentially exceeding 100 trillion US dollars by 2050, according to the report, retailers that have invested in genuinely immersive, discovery-led store experiences will be best placed to capture a larger share of it.

Landlords must become placemakers

Lastly, the report’s third main takeaway extends beyond individual retailers to the real estate players that house them, which is key for brands navigating lease negotiations, flagship strategies, and wholesale partnerships. As AI continues to change how consumers shop, shopping centers, malls, and retail destinations can no longer rely on foot traffic as a given. Landlords and developers should evolve into what the report calls "placemakers": curators of cohesive retail ecosystems that combine stores, dining, entertainment, and services into key destinations worth visiting in their own right. For retailers, the quality and composition of the surrounding tenant mix is increasingly a strategic consideration, and not just an aesthetic one. The report points to Rockefeller Center in New York and The Battery Atlanta as examples of how mixed-use placemaking can generate sustained traffic and commercial resilience. 

It’s clear: a discovery-led boutique or flagship store located within a thoughtfully curated destination, surrounded by complementary food and beverage, wellness, entertainment, and cultural offerings, is structurally better placed to attract and retain the kind of high-intent, engaged consumer that fashion brands are competing for. For landlords, this means moving away from a transactional leasing model, aka filling space with whoever can pay the highest rent, towards a deliberate curation informed by consumer behaviour data and predictive analytics. For apparel retailers, this means being even more selective and precise about where their stores are located and becoming more proactive in advocating for the kind of environment that supports their brand mission.

“This report presents an opportunity for retailers and property owners: A clear mission for their physical footprint is essential to stand out in a landscape of intelligent technologies and attract consumers to their stores and centers,” said Tom McGee, president and CEO of ICSC, in a statement. “As AI transforms the shopping journey and customer expectations remain sky-high, retailers and CRE leaders will need to make disciplined, intentional investments that ensure every store in their portfolio is aligned to a clear strategic purpose – or risk missing out on growing spending power.”