The State of Stores

Introduction

Amid the AI frenzy, retailers are still placing bets on brick and mortar, just more carefully. Nearly 78% report moderate or significant in-store investment, and about a third maintain a balanced mix of physical and digital channels, according to Morning Brew Inc. data. With more than 5,000 store openings forecast in 2026, according to Coresight Research, this wave is less about rapid expansion and more about strategic refinement.

Stores are increasingly viewed as brand builders, not just transaction hubs. In a survey conducted by Retail Brew, 62% of retailers said they’re investing to strengthen brand perception, and 58% to boost loyalty, outpacing conversion goals. Experiential formats reflect a push to create immersive, community-driven spaces that digital channels can’t replicate.

AI adoption is widespread at 82%, but it’s largely working behind the scenes in marketing and operations rather than reshaping the sales floor. All of this comes as 76% of retailers report heightened price sensitivity and more than half have raised prices amid tariff pressures, making stores a key differentiator in a cautious economy.

With the hype for AI solutions reaching a fever pitch, the humble brick-and-mortar store might seem like the last place retailers would be investing their money. Yet nearly 8 in 10 (78%) of retailers report moderate or significant in-store investment, and nearly a third (32%) are maintaining an even mix between online and physical channels.

Taken together, this data might not point to a return to unchecked expansion—though Coresight Research predicts 5,500 new stores will open in 2026, up 4.4% year over year—but it could be a signal that companies have a renewed sense of appreciation for the old-fashioned in-store experience. Indeed, some may see it as their best bet to attract customers in an increasingly digital marketplace.

“There is a realization that there is an inherent AI-proof opportunity for stores to create that kind of experience you can’t replicate via an AI agent,” Nikki Baird, VP of strategy at retail solutions provider Aptos, told Retail Brew. “Especially among younger generations, we see more and more a shift toward, ‘I want a real experience.’”

For some retailers, it’s the possibility of merging technology with the in-store experience that is driving investment. According to a 2025 Bain & Company survey, 75% of retail executives were planning a large-scale store transformation over the next two years, and 44% expected technology investments in their stores to improve their bottom line.

Now solutions such as AI-powered customer insight technologies, electric shelf labels, and scan-and-go options have gone from experimental to chainwide roll outs.

• At Walmart, the merger of new tech with brick and mortar is already driving sales. The company told Retail Brew in November 2025 that shoppers who used the AI-powered Walmart app in stores were spending 25% more on average.

The commitment to in-store investment has also proven surprisingly resilient, surviving multiple quarters—if not years—of economic uncertainty and cautious consumer behavior. The Home Depot, for example, has steadily increased its capital expenditures over the past five years, even as macroeconomic headwinds have dampened the housing market, while Target recently cut 400 jobs in its supply chain operations, with the goal of shifting those resources toward improving the in-store experience.

The demise of brick-and-mortar stores that some pronounced during the height of the pandemic has been greatly exaggerated. These days, in fact, retail executives are downright bullish about the in-store experience:

• Target CFO James Lee said the company would invest about $1 billion in 2026 to open new stores and remodel existing ones during a November 2025 earnings call.
• Dollar General announced it would undertake 4,700 real estate projects in 2026, encompassing both store openings and remodels.
• Brands including Uniqlo, Coach, and Ralph Lauren have added cafes to store locations to enhance the shopping experience.

Dick’s is widely lauded for its investment in stores and experiential store design, with its House of Sport store concepts that include hands-on features like climbing walls and batting cages.

It’s not just tottering old millennials and Gen Xers who are hot for brick and mortar. A PWC report in advance of the 2025 holiday shopping season found that 37% of Zoomers were planning to shop in-store for gifts, up from 27% the previous year.

When it comes to both Gen Z and Gen Alpha, “they want community, they want engagement, they want tactile,” Melissa Gonzalez, principal at MG2 Design with a focus on store design, told Retail Brew.

Whether it’s coffee shops or in-store events, it’s inside stores where brands build lasting relationships with consumers, Gonzalez said.

“It’s having them spend an hour with your brand instead of five minutes with your brand,” she said, adding that over time, this strategy “gets more loyalty, gets more engagement, and especially with the younger generations, that’s what they’re craving.”

That means store designs that have flexibility for moving merchandise around for events, or as Gonzalez put it, a “Murphy bed plan.”

In a practical sense, she said that means something as simple as “putting very discrete casters on the fixtures so that they can easily roll around” and thus turn the showrooms into lounges or dance floors.

It also means that store designers are thinking the checkout area can transform into something decidedly more festive.

“We design cash wraps that can flex for a DJ booth, or that also can flex to be a bar,” Gonzalez said.

The era of vague warnings about the death of brick-and-mortar retail appears to be fading, as brands increasingly recognize the strategic value of physical stores.

In a survey conducted by Retail Brew, 32% of respondents said they maintain a balanced physical and online presence, while 27% said they operate primarily physical stores with a limited online presence.

Companies cited several strategic reasons for continuing to invest in physical retail, some of which may surprise skeptics. When asked why they were opening stores, 62% said it was to improve brand perception, followed by driving foot traffic (60%), and increasing customer loyalty (58%). Conversion gains ranked lowest among the motivations at 32%.

Michael Brown, partner and Americas retail leader at consulting firm Kearney, explained why that may be the prevailing view.

“Physical stores are necessary to supplement the online business, because they create loyalty, familiarity, and a sense of community for the consumer and around that brand,” Brown told Retail Brew. “We think that they don’t have to have as many stores as the original brick-and-mortar companies did when they started there, but a large footprint within the large north metropolitan areas is very important for long-term success.”

Brown pointed to the “touch and feel” factor and the opportunity for consumers to become more familiar with a brand as key drivers.

“If you’ve not shopped from a brand before, you want to know what fits, how it works,” he said. “It’s hard to have it sent to your house, and now a lot of retailers are having you pay to have to return something to them if you’re not going to keep it.”

The renewed emphasis on stores also comes as retailers rethink the role of the physical environment itself. Half of respondents (50%) deemed upgrading the visual environment “very important,” while 48% said expanding experiential elements was “somewhat important,” signaling that brands increasingly see stores as immersive spaces rather than purely transactional ones.

Still, as far as personalization goes, Brown believes brands have a long way to go.

“I’ve not seen a lot of personalization in the stores,” he said. “It’s more about the familiarity with the consumer. As we start to look at all the brands that are opening up, they are just less destinations where people want to shop and more wanting to participate in the active shopping in a physical environment, which is very relaxing, comforting and sometimes for sport. For consumers, sitting at home on your phone or on your computer is a really utilitarian type of shopping.”

Brown added that stores ultimately help brands stand out in an increasingly commoditized digital marketplace.

“It’s very important for the consumer to have that inspiration, whereas online, it’s just a piece of cloth hanging on a mannequin, or just there on its own against a white background that the consumers look [at],” he said.

It’s no secret that the use of AI in retail has been concentrated behind the scenes rather than on the sales floor because, according to experts, it’s lower risk, easier to measure ROI, and eventually lays the groundwork for more customer-facing AI experiences.

In a survey conducted by Retail Brew, only about 16% of respondents have implemented or are currently implementing AI-enabled inventory tools and, separately, AI-powered recommendations to their in-store technology.

Retailers need to have their data infrastructure and models in place before rolling out in-store applications, so starting with backend work makes sense, Andy Szanger, director of strategy at CDW, a company that manages tech stacks for retailers, told Retail Brew. It also allows retailers to fail quietly and iterate quickly before scaling publicly.

“Retailers don’t just dump a lot of new customer-facing technology out into the wild pretty quickly,” Sanger said. “It’s usually a slow burn or a drip of bringing that technology in.”

“AI comes with a big investment in many cases,” he added, “and so, if I want to be able to prove [that] I’m getting that true return on my investment, it’s more difficult to do in the store than it is back in the back office.”

Over the last few years, AI adoption within retail has been strongest in marketing, content creation, customer service, and inventory planning. That stemmed from the basic thought process attached to the initial wave of ChatGPT, when companies got excited to try out the non-business use cases, aka content that over time bled into what businesses actually do.

“Content creation was one of the initial use cases that generative AI really took off with and people were just applying that to work-related tasks that involve content,” Sky Canaves, eMarketer analyst for retail and e-commerce, told Retail Brew.

As more shoppers start walking into stores with AI tools in hand, retailers will begin to see an opening: a chance to understand how customers are using those platforms in real time, and to experiment with their own AI-powered experiences on the sales floor, Canaves said.

Some retailers, including Target and Walmart, are already using AI in stores, integrating it within their apps.

“A lot more retailers are using AI tools in stores to help support their associates, to help make their jobs easier,” Canaves said.

Meanwhile, the initial use cases for in-store AI have been around empowering associates.

“I don’t think over the next year you’re going to see that gold rush or explosion of new AI solutions that are in your face,” Szanger said. “It’s going to be more of the subtle additions, and as people are doing A/B testing and piloting, you’ll start to see things roll out, and you’ll start to hear about things.”

Recent consumer price sensitivity can be traced back to rapid inflation driven by Covid-19 supply chain tumult. And while inflation has cooled, the threat of tariff-driven prices increases has continued to impact consumer spending and kept consumer sentiment relatively low.

And 90% of the cost of President Trump’s tariffs, implemented early last year, has been taken on by statewide businesses and consumers, per a Federal Reserve Bank of New York analysis published in February, so retailers have spent the past year managing tariffs’ impacts.

Consumers came out relatively unscathed from tariffs last year as retailers and brands worked through in-hand inventory purchased before tariffs were implemented, Murali Gokki, co-leader of consulting firm BRG’s Retail Performance Improvement practice, told Retail Brew. Still, a report from Goldman Sachs last October found that, across industries, US consumers had been taking on as much as 55% of the cost of the tariffs to that point.

Last year, brands and retailers undertook mitigation efforts to absorb the cost of tariffs, ranging from diversifying sourcing to changing their approaches to tagging products to pulling back on deep promotions during Black Friday. That focus on mitigation continued through the 2025 holiday season, John Mercer, head of global research at Coresight Research, said.

“What we saw is quite strong competition among retailers and brands to hold prices as much as they could during that key holiday season,” Mercer said. “And now we’re possibly seeing the first price rise effects as more of those costs flow through.”

Retailers including Walmart, Target, and The Home Depot, and brands like Levi Strauss and Adidas have been among those sharing plans for or executing price increases due to tariffs.

Retail spending in the last year held up relatively well, Mercer said, though this was largely driven by higher-income shoppers, underscoring the continued bifurcation between economic groups, as more price-sensitive, lower-income shoppers have become more cautious in their spending, and buying less.

The future impact of tariffs on retailers’ strategies and consumers’ spending behavior is uncertain, both Gokki and Mercer noted, particularly following the Supreme Court’s ruling that struck down one of Trump’s tariffs, as continued policy changes and sticky prices could indicate little relief for retailers or consumers.