From AI to Phygital Experiences: Trends Driving Retail Transformation and Consumer Engagement in 2025

By Alonso Vargas, SVP of Product, Flybuy

Retail media will become a cornerstone of the retail industry, offering retailers a significant opportunity to unlock new revenue streams by leveraging their captive audiences in both physical and digital spaces. By transforming e-commerce sites, mobile apps, and even in-store displays into advertising platforms, retailers can provide brands with powerful tools to engage consumers at key moments in their shopping journey.

This shift goes beyond traditional product placements as brands will be able to integrate tailored offers, promotions, and content directly into the shopping experience, creating seamless and personalized interactions. These networks offer unparalleled insights into consumer behavior and campaign effectiveness, making them a compelling proposition for advertisers. As a result, retail media will solidify its role as a major revenue driver for retailers while enhancing the customer experience.

The retail landscape will be defined by a truly seamless omnichannel experience. Consumers will expect to transition effortlessly between digital and physical touchpoints, whether browsing online, trying products in-store, or receiving same-day home delivery.

Emerging technologies will enhance the shopping journey, from real-time inventory updates and instant deliveries to advanced “buy online, pick up in-store” (BOPIS) options. Physical stores will evolve into hubs for experiential retail, blending the convenience of e-commerce with the tactical appeal of in-store shopping. Retailers must integrate these innovations to meet growing consumer expectations for speed and convenience.

AI will play a transformative role in retail, driving innovations that enhance both the consumer and retailer experience. By leveraging vast datasets, AI will enable hyper-personalized shopping recommendations, optimize supply chain efficiency, and streamline operations. However, simply using AI as a standalone strategy will not suffice. Retailers must first establish a solid foundational strategy and use AI to support and fuel that vision.

For consumers, AI-driven tools will create more engaging and tailored shopping journeys, whether through personalized product suggestions, dynamic pricing models, or automated customer service. By applying machine learning to the customer journey, retailers can unlock new efficiencies and ensure sustained customer engagement. Flybuy’s ETAi technology, for instance, demonstrates how AI can predict customer arrivals more accurately, providing better signals to both customers and staff, creating a smoother overall experience.

For retailers, AI will provide real-time insights into purchasing behaviors, enabling better inventory management and marketing strategies. It will also enhance decision-making at every level, from forecasting demand to optimizing in-store layouts. IoT will further expand AI’s capabilities, as wearables and connected devices collect more granular data on customer preferences and behaviors. These tools will empower retailers to deliver hyper-personalized experiences, while also addressing emerging consumer needs, such as health and wellness.

As the technology matures, AI will continue to bridge the gap between physical and digital retail spaces, fostering deeper customer engagement and redefining the shopping journey. Retailers who embrace this opportunity with a clear and strategic approach will be well-positioned to thrive in the rapidly evolving retail landscape.

With online shopping becoming increasingly popular, retailers are evolving into online-first companies to maximize their reach and meet growing consumer expectations. As in-store traffic fluctuates, the fight to reclaim profits is intensifying. Many retailers are shifting toward proprietary delivery systems to reduce reliance on third-party providers, avoid shared revenues and gain greater control over the customer experience.

This shift demands more robust infrastructures to support seamless online interactions and enhance engagement technologies like personalized offers, real-time order tracking, and loyalty programs. These systems are not only critical for driving customer satisfaction but also for fostering repeat business and long-term brand loyalty. Retailers that prioritize investments in scalable e-commerce platforms and in-house delivery solutions will be better equipped to compete in a crowded online marketplace and maintain their edge in a rapidly digital-first world.

Retail spaces are undergoing a dramatic transformation, evolving from transactional-only venues to immersive, experience-driven environments that reflect the new phygital reality. In this world, customers’ preferences, behaviors, and decisions increasingly begin online before transitioning into the physical realm. This shift demands a radical thinking of store formats, products, and engagement strategies. Retailers can no longer design physical spaces as static entities; they must become dynamic, flexible environments that seamlessly connect the digital and physical worlds.

Innovative formats like pop-up shops, showrooms, and branded experiences will become essential for capturing consumer attention. Smart mirrors, AR, and virtual fitting rooms will help consumers visualize products in ways that align with their online habits. Some stores may even abandon traditional staffing models entirely, relying instead on sensors, AI, and automation for self check-out, real-time inventory tracking, and personalized recommendations.

To thrive in a dynamic retail landscape, businesses must embrace a multihyphenate model - diversifying revenue streams by offering services like personalized styling, subscription boxes, or exclusive digital content. This approach fosters stronger customer relationships while opening avenues to reach new segments and generate additional revenue.

For example, clothing retailers are transforming from simple merchants into lifestyle curators, offering personal styling services or subscription-based product deliveries that keep customers engaged and loyal. Data analytics will be critical in tailoring these offerings to consumer preferences and ensuring they remain aligned with market trends.

The retail industry in 2025 stands at a crossroads, where innovation, technology, and personalization are no longer just advantages—they are imperatives. Success will hinge on retailers’ ability to embrace bold trends like retail media, seamless omnichannel experiences, and AI-driven solutions while rethinking store formats to align with the phygital world consumers now inhabit. Those who adapt quickly and decisively will not just survive but dominate a rapidly shifting market landscape.