COMMENT The retail landscape has dramatically shifted over the past decade with the rise of e-commerce and omnichannel strategies. Although online sales remain critical, escalating fulfilment costs and complex logistics are prompting retailers to reassess the strategic value of physical stores. As online fulfilment expenses surge, physical stores are re-emerging as a vital asset, offering a solution to manage costs, enhance customer experience and drive profitability.
Online fulfilment costs have risen sharply since the emergence of e-commerce, driven by infrastructure investments, network complexity and returns processing. High inflation in Europe during 2022-2023 further increased this pressure, raising expenses for electricity, transport, wages and warehousing. One major global e-commerce operator saw fulfilment costs increase from 13% to 23% of revenue over 10 years. Infrastructure investments have lowered distribution costs for two major European fashion e-commerce businesses, but higher warehousing expenses have led to fluctuating combined costs ranging from 22 to 28% of revenue over the same period.
Reimagining the store
To counter rising costs, physical stores in strategic locations are helping retailers manage fulfilment. These stores are evolving into multi-functional hubs, facilitating in-store sales, streamlining returns, enhancing customer engagement and providing convenient pick-up points.
Stradivarius opened a click-and-collect store in Cologne, reducing last-mile delivery costs. Decathlon’s Retail Lab in Madrid tests innovative customer experiences and optimises package pickup using RFID technology. Major retailers such as Mango and Primark are also expanding click-and-collect services, leveraging their physical presence to offer online order fulfilment.
Looking at retailers operating stores in shopping centres across Europe’s largest economies, average occupancy costs, which include rent, service charge costs and other lease-linked expenses, currently range between 11% and 17% as a share of revenue. The rebasing of rents in various locations over the past four years has contributed to lower average occupancy costs. While the economics vary on a case-by-case basis, in many situations retailers now can generate a higher profit margin when consumers buy, collect and return goods in a physical store, compared with online fulfilment.
Retailers reinvest
This renewed confidence in physical stores is reflected in JLL’s Active Retailer Index, which tracks real estate decision-making across key European cities.
The index increased by 56% year-on-year in the first four months of 2025, reaching a pandemic-era high of 297 in April. Major brands are opening new and larger stores to improve their retail footprints, enhance omnichannel experiences and revive growth, despite economic uncertainty. These larger stores often include click-and-collect and returns services, which improve margins and drive impulse purchases. With physical retail sales across the EU and UK combined forecast to grow by 3.5% per year on average from 2025 to 2029, physical stores remain a strategically important channel for most retailers.
As retailers navigate the complexities of the modern market, a strategic blend of online and offline channels, with a renewed focus on the value of physical retail, will be essential for sustainable success. By serving as decentralised fulfilment hubs, physical stores reduce reliance on costly distribution networks and lower last-mile delivery expenses.
Furthermore, physical locations facilitate impulse purchases, enhance brand visibility and provide valuable opportunities for customer engagement, ultimately driving profitable sales. This makes a compelling case for retailers to strategically leverage their physical store network in the evolving omnichannel landscape.
Kate Edwards is a senior research analyst, retail, EMEA capital markets at JLL
