The Evolution of US Retail Channels: From Physical to Digital and Back Again

The retail landscape in the United States has undergone a remarkable transformation over the past two decades, witnessing a fascinating circular journey from brick-and-mortar dominance to e-commerce disruption and now back to a reimagined physical retail resurgence. This shift presents both substantial opportunities and significant challenges for retailers, particularly as leadership demographics evolve alongside these channel transformations.

The Brick-and-Mortar Resurgence

Despite predictions that digital retail would make physical stores obsolete, we’re witnessing a powerful retail comeback in the brick-and-mortar sector. Business analysts project a strong revival of physical retail, with compelling statistics supporting this resurgence.

In the United States, brick-and-mortar stores still account for nearly 80% of total retail sales, according to the U.S. Census Bureau6. More specifically, 85% of all U.S. retail sales dollars came from brick-and-mortar stores as of 20237. This dominance is expected to continue, with Forrester research indicating that 72% of U.S. retail sales will still happen in-store by 20242.

The landscape of retail has been undergoing a dramatic transformation in recent years, marked by the simultaneous decline and resurgence of offline stores. While traditional brick-and-mortar retailers face closures and diminishing foot traffic, a new breed of retailers, born in the digital age, has emerged to embrace offline spaces in innovative ways1. This creates what experts call “a paradoxical situation [that] encapsulates the idea that offline retail is both in decline and simultaneously undergoing a renaissance”1.

The Changing Nature of Physical Retail

Today’s successful physical retail spaces look markedly different from their predecessors. The transformation points toward “a future where the size of the store becomes less significant than the quality of the customer experience”1. Modern retailers are shifting from fulfillment-centric to experience-centric spaces, with a focus on creating immersive, high-touch environments.

Consumer expectations from in-store experiences have evolved substantially. Today’s shoppers expect:

1. Seamless omnichannel integration between online and offline channels
2. Personalized experiences (71% of consumers expect businesses to understand and cater to their individual interests)4
3. Technology-enabled immersive shopping (75% of consumers state immersive experiences in retail shopping “might be impactful and valuable”)4
4. Speed and convenience (over 70% of American consumers say these are the most important elements of a positive customer experience)4
5. Sustainable and ethical practices (77% of consumers prioritize sustainability when selecting products)4

The Leadership Gap in Physical Retail

An intriguing aspect of the current retail evolution is the demographic makeup of e-commerce leadership teams. Many successful direct-to-consumer (DTC) brands operate with extremely lean teams – often fewer than ten full-time employees supplemented by freelancers and consultants19. These small teams frequently consist of younger professionals who grew up with internet shopping but lack operational experience in traditional retail environments.

This creates a significant knowledge gap as these digital-native companies attempt to expand into physical retail. Although e-commerce has become an increasingly important channel for many organizations, “sales leaders with the right mix of digital and traditional sales skills are in short supply, largely because the channel is still a relatively new frontier”20.

This situation presents an interesting parallel to the early 2000s, when traditional brick-and-mortar retailers struggled to understand and implement effective e-commerce strategies. Today, we see the reverse: e-commerce-native brands grappling with the complexities of physical retail operations.

The consequences of this knowledge gap can be severe. As one retail expert explains, “If a founder makes the wrong hire — or, adds an executive too early — it can be a costly mistake in more ways than one. Making the wrong executive hire could result in a startup expanding too quickly into the wrong area, lowering company morale and causing other talent to leave”21.

Cautionary Tale: Kit and Ace’s Catastrophic Failure

The story of Kit and Ace serves as a dramatic warning about the dangers of mismanaged physical retail expansion. Founded in 2014 by Shannon and JJ Wilson (family of Lululemon founder Chip Wilson), the company expanded at breakneck speed from a single store to 61 locations across five countries in just two years12.

This aggressive expansion strategy proved disastrous. In April 2017, Kit and Ace announced the closure of all international stores – 26 locations in total – and laid off staff at its Vancouver headquarters10. This marked the third round of layoffs that year for the company11.

Industry experts identified several critical failures in Kit and Ace’s brick-and-mortar strategy:

1. Premature expansion: “Kit and Ace made the mistake of expanding before having validated their business model. Going from one store to 30 in a year left no time and resources to understanding what their customers wanted from a physical store (or whether they even wanted one)”12.
2. Lack of market validation: The company expanded before fully developing its e-commerce presence, which could have provided valuable data about customer locations and preferences12.
3. Poor location selection: They expanded into smaller markets like Saskatoon before establishing a strong presence in major cities, contrary to typical retail expansion strategies12.
4. Misapplied business model: “He was misapplying a technology strategy to [retail] growth,” explains David Ian Grey, founder of DIG360 Consulting. “[Wilson] seemed to believe too much in a tech model of ‘fast fail'”10.

Industry insider Craig Patterson noted that Kit and Ace “may have grown a bit too quickly for its own good, pushing for international expansion before fully forming its own identity as a brand”10.

Success Story: Vuori’s Strategic Expansion

In stark contrast to Kit and Ace’s failure, activewear brand Vuori demonstrates how strategic brick-and-mortar expansion can drive substantial growth. In 2021, Vuori announced plans to open 100 stores by 2026 after securing a $400 million investment at a $4 billion valuation1314.

Unlike Kit and Ace, Vuori has implemented a measured, data-driven approach to physical retail:

1. Strategic pacing: “We’re really focused on maintaining quality and really smart, paced growth in terms of our real estate decisions, our store locations, our teams,” explains Catherine Pike, VP of retail at Vuori. The company aims for a “sweet spot” of 20-25 new stores annually14.
2. Data-driven location selection: “Vuori weighs several factors when deciding where to open new stores. To start, it looks at zip codes throughout the country where its e-commerce sales are high in proportion to that area’s population”14.
3. Focused international strategy: “We’re approaching our international business with a focus on fewer, bigger key markets like China and [the] U.K., and adopting a true omni-channel approach to connecting with the consumer,” says founder and CEO Joe Kudla15.
4. Community engagement: “Community engagement has been a critical part of our approach to building our brand from day one,” explains Kudla. “Internationally, we see connecting via community outreach as equally critical”15.
5. Early wholesale adoption: Vuori “has also steadily built out its roster of wholesale partners over the years in order to further expand its reach”13.

This methodical approach has yielded impressive results. By August 2023, Vuori was operating around 40 stores globally, quadrupling its store footprint since announcing its brick-and-mortar plans in October 202113. The brand has remained profitable since 201713 and continues to gain market share even as competitors lose ground15.

The Quantifiable Impact of Physical Retail

The evidence overwhelmingly demonstrates that brick-and-mortar retail remains a crucial ingredient for overall retail success, with several quantifiable benefits:

The Revenue Impact

Research shows that “the net effect of adding the store channel is to increase revenues by 20%”17. This substantial boost comes primarily from increased purchase frequency rather than order size, with the “availability effect” more than compensating for any potential cannibalization of online sales17.

The Halo Effect

One of the most compelling advantages of physical stores is known as the “halo effect” – the phenomenon where brick-and-mortar locations boost online sales in the surrounding area.

“The Halo Effect III found that opening a physical store boosts online sales in the trade area surrounding that location by 6.9% on average in the immediate weeks following the opening. That number is even greater when looking at emerging, direct-to-consumer retailers, who saw a 13.9% increase in online sales after opening a new location”9.

The halo effect is particularly pronounced in certain retail categories: “online spending in the trade area surrounding a new department store increased 50.6%, while apparel brands saw an 11.6% positive halo”9. Moreover, “retailers also benefit from increased online basket sizes – or dollar amount per online transaction. Both emerging and established retailers saw average online basket sizes increase between 8.1% and 10.6% following a store opening”9.

This effect provides traditional retailers with “a very important weapon in the tough battle with the purely online players,” as “you sell more online in the direct catchment area of your physical stores”8.

Operational Advantages

Physical stores offer several operational benefits that purely online retailers can’t match:

1. Reduced returns: “While in-store return rates average 8-10%, online purchases see return rates of 20-40%.” This is because “online shoppers often misjudge size, color, or quality. By giving customers the ability to see and test products before buying, physical stores reduce returns”6.
2. Additional purchases during pickups: “Over 37% of shoppers make an additional purchase when picking up an order in-store, and this figure jumps to 86% during peak shopping seasons according to NRF”6.
3. Trust and brand awareness: Physical presence generates “a positive vibe and generates trust. Does a customer require a service from you, want to return something or wish to make a claim on a warranty? Then the physical store is always close by”8.

Conclusion: The Omnichannel Imperative

The data clearly demonstrates that the most successful retail strategy today is not choosing between online and offline channels but seamlessly integrating both. The retail landscape has evolved beyond the false binary of e-commerce versus brick-and-mortar into an omnichannel reality where physical and digital experiences complement and enhance each other.

For e-commerce-native brands contemplating physical expansion, the lessons are clear: proceed strategically, use data to guide location decisions, expand at a sustainable pace, validate your business model before rapid scaling, and invest in creating exceptional in-store experiences that digital channels can’t replicate.

The knowledge gap among digital-native leadership teams regarding physical retail operations represents both a challenge and an opportunity. Those who successfully bridge this gap – learning from both the failures of companies like Kit and Ace and the successes of brands like Vuori – will be best positioned to thrive in retail’s next evolution.

As the pendulum swings back toward appreciation of physical retail’s unique value, the quantifiable benefits of brick-and-mortar – from the halo effect to reduced return rates to increased customer loyalty – make a compelling case that physical stores remain not just relevant but essential to retail success in 2025 and beyond.