I was stuck on this for like 3 days but finally figured it out. You need to add 2 stores even if you have one location. Name your second store Pick Up or something. Edit the shipping zones on them, of course the pick up store will have no zones.
The trick after that is YOU MUST click that "this is a physical product" that you see. AND on the product click "edit location" then select the Pick Up (or the store name you gave it).
There is a glitch known i found in the community the customer will still be able to select shipping in the cart but it will not let them pay and proceed since the product is not shippable. That is the best I could figure out and it does work, so I am going with it. I would just think the system would have a more elegant way to have a mixed business of only in store items (big items) and be able to ship other items.