Everyone I know still buys from retail, as they care to have something physical.
Also UWP has the XBOX titles, and if Microsoft really wanted they could just pull all their titles out of Steam, assuming whatever contracts they have in place make it possible.
Typical Xbox games aren't implemented on UWP though, it's just a way for hobbyists to get small apps running on the Xbox without a costly developer account and devkits (https://docs.microsoft.com/en-us/windows/uwp/xbox-apps/). The restriction of Microsoft games to the MS App Store is an entirely political decision. I'm certain the actual developers down in the trenches would be more than happy to code against plain Win32+D3D12 (or D3D11) and distribute their games through Steam.
They don't need to be. Steam is a serious player in games distribution, and if avoiding certain APIs is necessary to publish on Steam, that's what developers will do. (Or rather, it's what they will continue to do.)
Same for uPlay, Origin, and whatever it was that Rockstar made. No-one uses Microsoft's app-store for distributing retail games, and that isn't about to change, even if Microsoft hold their own technologies hostage.
Digital overtook physical in 2010 [1] and has only taken a more commanding lead since then. Physical PC games are, essentially, dead, with only a quarter of sales being physical in 2016 [2].
That's pretty much a game-over for UWP in the gaming world.