Online Finally Breaks Brick and Mortar

The collapse of department stores did not end aggregation or discovery. It relocated them. What once happened inside physical buildings now happens online, increasingly shaped by algorithms and AI agents that organize choice at scale.

The signals have been visible for more than a decade.

In 2014, when eCommerce represented roughly 6% of U.S. retail sales, I argued that physical retail was not evolving fast enough to survive. At the time, that view was dismissed as alarmist.

In the way-back days before Nano Banana and Sora, this was the best I could do to emphasize that point.

Department stores like Macy’s and Sears still dominated the rankings. Malls were struggling but not yet collapsing. And the prevailing belief was that consumers would always prefer to touch, feel and experience products in person.

What that argument missed was not consumer sentiment, but something more fundamental.

Why the Data Lagged Behavior

As we enter 2026, excluding autos, gas and much of grocery — categories where in-person shopping persists largely out of necessity rather than preference — online and digitally influenced transactions outweigh purely physical sales for the first time.

This crossover feels sudden only because the industry has been looking at the wrong numbers. And taking careless comfort in them.

Headline Census data places eCommerce penetration at about 16 to 17% of retail sales in 2025. That figure has long been used to argue that brick-and-mortar remains dominant. But it relies on a denominator that is a mirage. It masks where consumer choice actually exists. And where purchases are shifting.

In discretionary, higher-margin categories — apparel, electronics, home, beauty and general merchandise — online already accounts for anywhere between 30 to 50% of sales. These are the categories that once sustained malls and department stores. Even grocery, long considered the final physical store holdout, continues its gradual digital migration as pickup and delivery become routine. Once consumers experience the convenience of ordering online, the physical aisle starts to feel less like discovery and more like friction.

Reframe the retail universe this way, and the crossover is no longer debatable. The story was simply delayed in the telling.

The Department Store Was the Real Inflection Point

This shift did not begin with Amazon, nor did it start with failing malls. It began when department stores lost their reason for existing.

In 1990, department stores accounted for about 14.5% of U.S. retail sales. By 2024, their share had fallen to 0.5%. Dollar sales peaked in 2001 and declined steadily from there.

That decline mattered because department stores were not just another retail format. They were the organizing infrastructure of physical retail. They aggregated demand, curated selection and subsidized the economics of the mall. Specialty retailers depended on their foot traffic. When the anchors weakened, the ecosystem built around them became unstable.

By late 2024, the consequences were impossible to ignore. Roughly 1,100 U.S. malls remained, with vacancy rates nearing 9%, more than double the broader retail average. Class C malls exceeded 13%. Anchor closures drained foot traffic, and the smaller retailers that relied on it followed.

Even luxury could not escape the logic. The Saks–Neiman Marcus merger in 2024 was framed as a digital-era reinvention, but it increasingly looks like consolidation under pressure. Its bankruptcy at the end of 2025 is likely to put dozens of Class A properties at risk as store closures shift from defensive moves to strategic necessity. And the ripple effect of the stores in those malls seems inevitable.

The department store did not fail because it failed to innovate. It failed because its core function, the physical aggregation and curation of products, became obsolete.

Aggregation Didn’t Disappear. It Moved.

What department stores once provided did not vanish. It just moved online.

The new anchors are no longer buildings. They are search engines, marketplaces, social feeds, recommendation algorithms and now AI agents that organize commerce dynamically and personally. And in seconds.

For more than a century, department stores solved the “too much choice” problem by curating assortments consumers trusted. Digital platforms took over that role by making search cheap and selection infinite. AI agents now take it one step further by acting on the consumer’s behalf. Finding, comparing, and deciding without requiring the consumer to browse at all.

This is the structural reason physical retail lost its advantage. Once aggregation and discovery could happen digitally, continuously and at scale, the economics of gathering inventory under one roof no longer delivered value to the consumer.

What the 2026 Crossover Actually Means

The 2026 crossover is not simply the moment when online sales exceed brick-and-mortar in the categories that matter. It is the moment when the economic logic of physical aggregation finally breaks.

Department stores were built to solve the “too much choice” and “too much friction” problems, and that logic held as long as discovery required physical presence and selection required shelf space.

Digital eliminated both constraints.

Search has reduced the cost of finding what you want. Marketplaces expanded selection without inventory risk. Social and algorithmic feeds reshaped influence. AI agents now compress discovery, comparison and decision-making into a single, continuous process that does not require a store visit at all.

Physical retail does not disappear. But it loses its role as the primary place where discovery happens and decisions are made. Starting in one channel and ending in another will be de rigor. Omnichannel will become more than a talking point for the retailers who prosper.

Stores become execution points. Fulfillment centers, pickup locations and showrooms. Not the anchors of the retail ecosystem.

The department store did not fail because consumers stopped shopping. It failed because the function it performed moved elsewhere.

That same shift now defines retail as a whole.

In 2026, online does not “win” because it is bigger. It wins because it finally becomes where aggregation, discovery and decision-making live.

The year in which the full extent of that shift finally becomes visible.

Find more observations and insights from Karen Webster about what may lie ahead:

What 2026 Will Make Obvious

Ten Structural Shifts Reshaping Payments, Commerce and the AI Economy