Retail Landscape Evolution: Phygital Retail

11 Nov 2024

The retail landscape is the most dynamic commercial real estate segment, constantly evolving and adapting to consumer preferences and expectations. More consumers are choosing to make their purchases online instead of in-store, and this trend is expected to continue.

But it seems that the role of the physical store is not dead, though it is changing. From Gen Z's immersive online experiences to baby boomers' desire for in-store convenience, hybrid shopping, or "phygital" retail—a fusion of physical and digital—has emerged as a dominant trend in 2024.

Phygital retail, a seamless blend of traditional brick-and-mortar retail and online shopping, allows customers to browse products online, check in-store availability and make purchases in a way that suits their preferences. This hybrid approach provides an immersive experience going beyond traditional transactions, offering a more personalized and engaging shopping experience than ever before. Leveraging these personalized experiences, brands can enhance customer service and create a dynamic shopping environment that resonates with consumers of all ages.

Through the integration of technology, such as interactive displays and augmented reality (AR) try-ons, retailers can deliver immersive experiences that captivate customers. Additionally, QR codes, mobile apps and real-time data collection help brands gather valuable insights into personal customer behavior and preferences, enabling them to optimize their phygital strategy for maximum impact. A March 2024 study from McKinsey indicates that personalization can increase revenue by 15% and reduce customer acquisition costs by 50%. By tailoring experiences to individual needs, retailers can cultivate loyalty, foster brand awareness and ultimately drive higher sales.

Understanding generational preferences is crucial for developers and retailers in navigating the phygital landscape. Older generations often prefer the tactile experience of in-store shopping but are also more adept and willing to make online purchases. And while younger consumers are increasingly using digital platforms to research products, compare prices and personalize their shopping journey, they also value the experience of visiting physical stores. Thus, the future of retail lies in the phygital, where brands that can integrate online experiences into their brick-and-mortar stores will be best positioned to attract and retain customers across generations.

"CBRE believes that frictionless shopping will become increasingly important, especially for younger demographics. A recent report by CBRE Research (Global Retail Outlook, August 2024) indicates sustained growth in e-commerce penetration in all generations across key markets. Notably, China, the United States, Australia and South Korea lead the way in e-commerce adoption. Interestingly, the report also highlights the rise of social commerce in younger generations, particularly popular among Gen Z. Morningstar predicts that Gen Z will become the largest shopping group by 2035" Ms. Chotika Tungsirisurp, Head of Research and Consulting, CBRE Thailand, said.

While online shopping is not slowing down, physical stores are not being abandoned but rather embraced as part of the shopping journey. Despite predictions of in-store shopping's demise, a February 2024 eMarketer survey indicates that younger customers, especially Gen Z, still prefer physical stores for new purchases. This suggests that, despite technological advances, younger consumers continue to appreciate the tangible experience offered by shopping malls.

We believe that in the age of phygital retail, where the physical and digital worlds intertwine, retail developers must innovate to ensure their shopping centers remain competitive.

Key strategies include:

  1. Prioritize Experiential Retail: Curate unique events, workshops and pop-up stores to create memorable experiences and attract a diverse customer base
  2. Foster Tenant Collaboration: Encourage synergy among tenants within a mall to offer complementary products and services attracting a wider audience
  3. Adapt to Changing Tenant Needs: Provide flexible lease terms, including short-term leases for pop-up spaces, and offer shared services to reduce operational costs for retailers.

By embracing these strategies, retail developers can transform their shopping malls into thriving destinations that cater to the evolving needs and preferences of today's consumers across generations.

In the coming years, more developers are expected to prioritize creating immersive shopping experiences that blend retail, dining, entertainment and services. Strategic collaborations and partnerships between retailers across various categories will be essential to creating a cohesive and engaging shopping environment. Additionally, increased investment in online capabilities, particularly for mobile devices, as well as in AR and artificial intelligence (AI), will be necessary for success in the evolving retail landscape.

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