That shoppers no longer need to go into physical retail stores is incontestable. The strong migration of sales away from physical stores and into the online arena is surely one of — if not the defining feature — of the new landscape of retail in these early years of the 21st century.

It isn’t just the low-touch or low-involvement merchandise categories that have migrated online. The transformation of Amazon.com from selling low-risk books to — if not everything from A to Z, then at least from A (accessories) to W (wheels and tires) — is eloquent testimony to the relentless reach of the web into parts of the retail universe that, until relatively recently, have been considered the sole preserve of brick-and-mortar stores.

While the rise of internet retailing tells a lot about how shoppers value the 24/7 and never-leave-home convenience of the web, it also says something about the relative lack of appeal that traditional stores have for a lot of shoppers in a lot of product categories a lot of the time.

For retail businesses, the biggest cyclical challenge is how to sustain, and ideally grow, profitable sales — especially in environments as challenging as the current one. But the biggest structural challenge is surely how to ensure that those expensively assembled and expensive-to-operate portfolios of physical real estate remain as assets and do not become liabilities that shoppers no longer want to visit.

The good news is that, to paraphrase Mark Twain (13,252 results on Amazon.com, incidentally), reports of the death of the retail store have been greatly exaggerated. In a recent survey of 2,200 American shoppers, fully 50 percent agreed that there is still no substitute for going into the store and seeing the product in real life. In high-touch categories, 43 percent still like to touch and feel a product before they feel sufficiently confident to make a purchase.

However, two important provisos apply to this generally positive health check for the physical retail store. The first is that a substantial minority of American shoppers —around 20 percent in this survey — regard the internet as a good substitute for going into a store. In fact, they would prefer not to go into a store at all.

Secondly, many shoppers are making extensive use of the web to research and evaluate before they go into a retail store to make their final purchase decision. So, the key question for retailers is not how their physical stores can win out over the web; rather, it is how they can make their stores relevant and enticing in the context of the internet (see chart one).

This raises the important consideration of relative advantage. Physical stores are better placed than the online space to deliver some attributes of the shopping experience. Surely, stores should be capable of being more experiential, more engaging, more stimulating, and more theatrical even than their online counterparts. If they are not able to deliver beyond the web on these experiential elements of retailing, then it is very valid to question just what the relevance of the retail store becomes.

If stores are not places of engagement, ideas and inspiration, then they are subverted to the role of simply being pick-up points for products that have been bought online and which now need to be collected. In other words, they are playing the role of very expensive and inefficient mini-warehouses and cease to be engaging retail stores at all. If physical stores are relegated to this role, then they are indeed expensive liabilities and not productive and differentiating assets.

Retailers should have no doubt that, for many shoppers, the experience of visiting their stores is indeed a distinctly sub-optimal, unsatisfactory and underwhelming one. Retail businesses are essentially all about momentum — if they’re not cycling forward then they are almost certainly spiralling backwards, but very rarely are they ever standing still.

The key challenge is to build positive forward momentum. Clearly, many US retailers do not have this and the shopper is feeling under-served as a consequence. Without question, the deep and long recession and the extreme fragility of consumer confidence has exacerbated the challenge for retailers. This is the way that the cycle works: traffic to stores falls, sales decline, costs have to be cut, the experience suffers as a consequence, so traffic and sales fall further.

It’s an extraordinarily difficult spiral of decline to arrest, let alone reverse. The US retail landscape is littered with the bodies of businesses, malls and individual stores that have either failed to identify the problem or failed to reverse the decline before it was too late.

Fortunately, enhancing the appeal of physical retail stores need not require heavy amounts of investment which is unaffordable — indeed inconceivable — in these challenging times. Shoppers are still often disappointed by the inability of retailers to get the basics of price, product availability and service standards right (see chart two).

It might not be sexy, but there’s no question that there is considerable competitive advantage to be secured — and profits to be earned — by retailers who are able to consistently execute on the basics.

Even retailers such as Walmart, Sears, Target, CVS, Best Buy and TJ Maxx, which are perceived by shoppers as being very strongly led by price, are often seen by those same shoppers as disappointing in this, their core attribute and reason-for-being.

There has been a temptation to see the application of technology in-store as some sort of Holy Grail that takes cost out of the business (by reducing staff) and simultaneously delivers better and more consistent service through electronic kiosks and so on. But shoppers often do not see it this way. It would be fair to say that the promises that technology made in the in-store environment have often been unfulfilled.

In fact, shoppers often feel disengaged with the retailer as a brand when technology in the store dials out the emotional connection that they are looking to have with that retailer and that store. Retail businesses should be mindful indeed to ensure that the technologies they are applying genuinely enhance the shopping experience and the shoppers’ engagement with their brand, rather than undermine it.

There is also a case to make that the service model in many retail businesses is sub-optimal from the shoppers’ point-of-view. What shoppers are saying vocally is that they want service to be truly effective in-store, rather than merely to have their presence acknowledged.

Effective service adds dimension in terms of real product knowledge, knowing when to engage the shopper in their buying process and suggesting ideas to the shopper. These are areas where stores can win not by heavy investment but rather by executing smarter through better shopper understanding.

Delivering better on those attributes where physical stores should be able to win over the web is crucial to keeping stores relevant in a multi-channel landscape. But there’s more to it than this alone. There are real opportunities for store-based retailers to not just stay relevant but to truly excel and be desired by shoppers.

To achieve this, boldness is a pre-requisite. There needs to be a willingness not just to optimize the store experience within the context of the category in which the retailer competes, but also a willingness to break the traditional conventions of the category. It is characteristically the case that the most successful retailers are also the most innovative.

Consider Apple, Ikea or Victoria’s Secret (see chart three). For these retailers, stores are not liabilities or assets of doubtful value; rather, their stores are the very essence of their appeal and are at the very heart of their offer. Their stores are immersive, the experiences they create are unique and differentiating and clearly valued by their shoppers.

Nobody needs to go to an Apple store to engage with and purchase Apple products but the huge foot traffic in their stores, in the US and globally, is evidence that many shoppers want to have this experience.

Or consider Inditex, owners of Zara, the Spanish “fast fashion” retail phenomenon, whose global footprint and US presence is expanding strongly. Sales are up 14 percent in the first half of 2010, and profits are up 68 percent courtesy of 173 new stores opened in 37 countries. Recession — what recession? For Zara, the ability of the stores to bring to life the product is at the heart of their extraordinarily successful approach to retailing.

The multi-channel and recession-defined landscape that is the US retail marketplace is certainly no Field of Dreams: If you build it they won’t necessarily come. But they will if you understand how physical stores can win over the web, deliver at least to the expectations of shoppers on the “basics,” and create truly imaginative and inspiring experiences.