If you run physical stores and haven't read "Shopping in the Age of AI: Redefining Stores for a New Era," the new joint report from ICSC and McKinsey & Company, clear your calendar. It's the most data-dense framework for store strategy we've seen this year — and its central thesis is both reassuring and terrifying, depending on where you sit.
The reassuring part: physical stores aren't going away. Consumers still want them. The terrifying part: McKinsey estimates that the top decile of retailers will capture more than 85% of the sector's economic profit, according to the report. Everyone else will fight over scraps.
The Speed vs. Discovery Framework
Based on interviews with retail and real estate leaders and a consumer survey of 3,004 U.S. shoppers, the report identifies three forces reshaping physical retail: the growing use of AI in the shopping journey, consumers' rising expectations for transparency and convenience, and shifts in spending power and behavior.
The actionable insight is the report's store-design framework, which argues that retailers must stop treating all locations as interchangeable and instead design each store around a specific role — either speed (get in, get out, minimize friction) or discovery (explore, engage, experience).
Morningstar reported that the report urges retailers to align layout, assortment, technology, and talent around whichever mission each location serves. Convenience-led stores should deploy AI to reduce friction — think cashierless checkout, real-time inventory visibility, and predictive replenishment. Discovery-led stores should use AI to enhance personalization and service — AI-powered styling recommendations, smart fitting rooms, and associate-assist tools.
AI Is Already Reshaping the Funnel
The timing of this report tracks with data showing AI's accelerating influence on the top of the shopping funnel. Web traffic to retailers from AI sources surged 393% year-over-year in Q1 2026, with 39% of consumers now saying they've used AI to help with online shopping.
That shift matters for physical retail because it changes what the store needs to do. If a consumer has already researched, compared, and decided on a product through an AI agent before walking through the door, the store's job is pure execution — fast pickup, seamless checkout, zero friction. But if the consumer walks in browsing, the store's job is curation and surprise — the opposite of efficiency.
Most retailers are still trying to make every store do both. McKinsey's data suggests that's a losing strategy. The winners will specialize.
What Landlords Need to Do
The report doesn't just speak to retailers. It challenges real estate operators and mall developers to rethink tenant mix through this same lens. The report recommends that landlords curate tenant mixes blending retail, dining, and services into cohesive destinations — essentially programming shopping centers the way a festival programs its lineup.
This aligns with trends we've covered extensively, from Costco's AI-powered retail media play to Ulta Beauty's Gemini-powered agentic shopping integration. The retailers investing in AI aren't replacing stores — they're clarifying what each store is for.
The full ICSC-McKinsey report is available through ICSC's website and is worth reading in its entirety, especially if you're planning fleet strategy for 2027. The 85/15 profit split McKinsey projects isn't a distant future — it's happening right now, and the gap is widening every quarter.