Revenge of brick-n-mortar stores

Intuitively, most wrote off physical retail, or brick-n-mortar commercial spaces in this age of online commerce. The wars, geopolitics, trade and tariff battles, and volatility enhance the desire to write such obits. Yet, the numbers defy imaginations, and offer a counterintuitive narrative. CBRE stated that the retail real estate market witnessed a record nearly nine million sq ft absorption in 2025, nearly half of it coming in as new supply. More than two million sq ft of new supply was operational in the second half of 2025. JLL stated that gross leasing volume hit 12.5 million sq ft in the top seven cities, the highest in three years.

Physical stores, or malls, where footfalls fell, are back with a vengeance. Indeed, in this hoopla, and rightly so, about e-commerce, physical retail serves multiple functions, which include brand theatre, logistics node, trust engine, data collection point, and margin management tool. The evidence stems beyond the metros, and into the smaller cities. Trent, the Tata Group retailer behind Westside and Zudio, added more than 100 stores in the first three quarters of 2025-26, and took the overall number to more than 1,100. Nearly two-thirds of the new stores came up in new towns, new cities, and peripheral micro-markets.

At the top end of the retail market, the problem is not weak demand but too little space. According to a news agency, India has three true luxury malls, two in New Delhi, and one in Mumbai. DLF, a renowned realtor, feels that there is “zero availability” for new brands, and at least 15 major labels were ready to enter if there is enough space. DLF plans to double the leasable area of luxury-mall, Emporio, from 1,60,000 sq ft, but it will be operational in end-2028. The luxury goods market is estimated at $12.1 billion, less than three per cent of China’s.

Of course, the physical store is not, and cannot, replace or substitute online. The former adds another layer to an omnichannel system. Hence, Reliance Retail, which operates more than 19,000 stores and serves 350 million, hopes to pilot a search-and-discovery platform to integrate physical and online experiences. Shoppers scan QR codes in the stores to get tailored suggestions. The point is not merely digital convenience. It is to use the stores as traffic, fulfilment, and data assets. Physical retail, whose efficacy was judged by sales per sq foot and footfalls, reduces prices, improves conversions, lowers returns, raises attachment rates, enables click-and-collects, and supplies fulfilment.

Across categories such as fashion, electronics, and beauty, physical can reduce the uncertainties, a factor that online platforms struggle with. Indeed, several segments of e-commerce, especially quick commerce, have grown around physical retail. In effect, brick-n-mortar becomes a hedge against digital fragility. Quick commerce compresses delivery windows but does not always solve the issue of product discovery, fit, advice, or premium presentation. Online channels expand reach, but intensify discounting, and make brands hostage to algorithms and positioning. Physical stores give brands more control over the overall ecosystem, environment, pricing, and customer interaction.

CBRE’s chairman and CEO, Anshuman Magazine, noted in early 2025 that leasing momentum is being driven by experiential flagship stores, kiosks, and Gen Z-focused formats. This is not a decorative trend but a response to the limits of digital-selling. The macro backdrop, however, is shifting beneath store expansion. Retail inflation stood at 3.2 per cent in February 2026, but experts expect energy-led pressures to push it higher. For retailers, this feeds into a chain of costs that is rarely visible to consumers, and includes freight, AC, operating expenses, imported merchandises, packaging, fit-outs, and store launches.

Mall supply is tight, premium brands want space, some categories view stores as conversion engines, and large chains have room to expand into smaller towns. In such a scenario, the last six months may look like a strong build-out phase in which retailers used stores because of the rise in digital growth. The fact remains that margins are under a squeeze. Reliance Retail’s core margin slipped to eight per cent in the October-December 2025 quarter, down from 8.6 per cent a year earlier, partly because of festive discounting, local-delivery investments, and labour-related impacts. If the Iran war continues, the trend may escalate.

A prolonged shock may create segmentation inside physical retail. Large players with stronger balance sheets, supply-chain depth, and omnichannel capabilities may expand using market stress to lock in locations and negotiate better terms. Smaller brands, especially the digital-first labels that desire to move offline, can find the store economics harder to sustain if rents, fit-out costs, and working capital needs rise. The possibility is missed in broad “offline comeback” narratives. In essence, the stores may be back but not every retailer can afford a strategic version that the next phase may require.

Question of timing around supplies matters. The high-end retail infrastructure is thin. Even if demand strengthens, new premium mall projects in Mumbai, Hyderabad, and Gurugram will take years. This implies that parts of the physical retail may be constrained by supplies when global brands want more exposure. In a weak external environment, this works both ways. Scarcity protects the best assets, but limits how quickly retailers can monetise demand. The useful way to read the last six months, then, is not as proof that physical retail has defeated digital retail. It is that the store has changed.

Stores are no longer just the physical spots where deals and transactions happen. They are places where the brands defend pricing, reduce returns, capture intent, localise fulfilment, and create presence in a market where distribution matters. In other words, the benefits are counter to what happens in the online spaces. Whether this turns into a long runway, or a more selective phase of expansion will depend less on ideology about “online versus offline” than on what happens to the economic macro fundamentals over the next few months.

Hence, unlike 2025, when physical retail expanded by leaps and bounds, and possibly complemented online commerce, or the former countered the disadvantages of the latter, this year will not be the same. There are additional pressures to global trade and tariff issues. There is a real possibility of a real global recession. If the Iran war, energy crisis, logistics problems, fall of currencies, trade disruptions, and manufacturing upsets chip off a couple of percentage points from potential growths among emerging economies, and flake off a few basis points from major economies, retail will be in trouble. So will real estate and, of course, the future of the commercial malls.