Retail’s Gen Z Playbook: Bridging the Digital Divide In-Store

While Amazon and Walmart take a breather and process a fresh influx of returns, we thought we’d take a look into the interplay between online and in-store retail, which has been getting a lot of attention these days.

As 2025 begins, what roles will physical stores, digital retail and live shopping play in the next five to 10 years? The future of retail is taking shape through a convergence of physical stores and digital innovations like live shopping, according to retail experts interviewed by PYMNTS.

While live shopping in the U.S. has gained some traction, it remains far behind China’s explosive growth, with platforms like TikTok Shop reaching significant sales. Despite this, live shopping could account for more than 5% of U.S. eCommerce by 2026, according to a Friday (Dec. 27) Modern Retail article. Meanwhile, the MIT has noted that physical retail is making a strong comeback, with Generaation Z leading the charge.

As the retail environment changes, physical stores are becoming places where customers can interact with brands through immersive experiences, combining both digital and in-store elements to build stronger connections and enhance engagement, according to Kurt Staelens, a senior managing director for retail and consumer products at FTI Consulting.

Bridging the Gap

“In essence, physical retail will evolve into a complementary asset to eCommerce,” Staelens said. “The focus will shift from being purely transactional to becoming experiential and connected, playing a vital role in brand building and customer engagement. As such, physical stores will transform into experience hubs where customers can engage with brands through interactive displays, in-store events, or immersive experiences. Ultimately, we expect U.S. eCommerce market share of total retail sales to plateau near 35% by next decade.”

Staelens said that U.S. physical retailers are adapting to this changing landscape in four ways:

Blending digital and in-store journeys: Monitoring how consumers manage online and in-store experiences at various points of their respective shopping journeys.

Managing fixed costs of store fleets: As eCommerce cannibalizes store sales, retailers are reducing labor, closing unprofitable stores or moving to smaller format versions.

Using stores as fulfillment hubs: This helps retailers manage returns, leverage labor, improve inventory efficiency and optimize markdown/clearance processes.

Using artificial intelligence (AI) to increase customer engagement: More retailers are caring about personalized shopping experiences, including generative AI content descriptions that are tailored to customers.

In-Store Experiences

When it comes to live shopping, Staelens said live-streaming from within stores allows shoppers to watch demonstrations, get styling tips and see product applications in real-time, creating more dynamic and engaging experiences.

This blending of in-store and digital interactions aligns with the growing importance of omnichannel retail. As physical retail rebounds, younger generations are pushing brands to offer connected online-to-offline experiences, where technology such as interactive displays and mobile checkouts enhance the store environment, according to Bellamy Grindl, founder of retail consulting company Retailytics.

“Physical retail is making a comeback as younger generations crave experiences that go beyond the product itself,” Grindl said. “To succeed, brands must embrace an omnichannel approach, ensuring a seamless connection between online and in-store interactions. Technology such as interactive displays, mobile checkout and loyalty app enhancements can elevate the shopping experience, turning routine visits into memorable moments. Merchandising is now a non-negotiable — make it visually appealing. Authenticity and novelty are key: focus on surprising and delighting customers by revisiting the basics of exceptional service and innovative storytelling.”

Regarding live shopping, Grindl said challenges remain.

“Live shopping has proven successful abroad, and while many U.S. retailers are eager for it to catch on domestically, cultural differences present some challenges,” she noted. “That said, early adopters are seeing positive results by tailoring the format to align with U.S. consumer preferences. For live shopping to thrive, brands must prioritize authenticity, compelling storytelling and human connection, creating a sense of community rather than solely focusing on hard selling.”