How AI is Reshaping Retail

Retailers have a powerful new tool at their disposal: artificial intelligence. For most marketers, it's now an essential resource. Firms that fail to take full advantage of the technology will face a serious competitive disadvantage, warns Sudip Mazumder, senior vice president and retail Industry lead at digital transformation consulting company Publicis Sapient, in an email interview. 

Mazumder believes that AI is opening significant marketing opportunities for retailers in 2024 and beyond. He notes that AI's integration into retail isn't merely about the technology's creative potential, it also relates to innovative real-world applications and strengthening personal connections with consumers. "As more retailers delve into AI, they stand a better chance at gaining from impactful transformation with enhanced customer shopping experiences, improved operational efficiency, and business growth." 

Making an Impact 

By adopting a forward-looking, data-driven approach, retailers can use AI to deliver unique product selections customized to demographics, community, local events — even the weather, says Janine Flaccavento, executive vice president and retail vertical lead at customer experience management company Merkle. With the power of AI, understanding how short-lived — yet lucrative — trends take hold, adopters gain the ability to see how certain product or service trends are moving regionally through social media. "This allows retailers to buy based on coming demand, not past demand," she observes via email. 

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Leading retail brands are already pushing ahead with AI-backed online digital experiences, says Jill Standish, global retail lead at enterprise consulting firm Accenture, in an email interview. "Macy's, for example, uses AI-powered shopping assistants to improve customer experiences by allowing customers to have their questions about product availability and location automatically answered." 

Standish notes that over the past several years, many retail brands, including Starbucks, have used AI algorithms to offer personalized product recommendations. "But generative AI’s ability to crunch vast amounts of data, and provide insights in real time. will take this to a whole new level.” 

Consumer Benefits 

As AI technologies begin spreading through the retail industry, consumers can expect a more personalized shopping experience, in addition to improved speed and quality of service, says Deborshi Dutt, US AI strategic growth offering leader with business advisory firm Deloitte. "Generative AI agents can deliver customized, conversational responses to customers through real-time analytics, significantly reducing the time required compared to manual searches performed by human agents," he says in an email interview. "Additionally, AI and IoT customer service platforms have the capability to detect sentiments and needs of connected customers, providing real-time recommendations and decision support, ultimately bolstering customer lifetime value and loyalty." 

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Getting Ready 

Flaccavento says she's advising her retail clients to rethink their marketing plans, shifting from a retailer-centric approach to become customer-centric, listening to what shoppers actually want. "With AI, this promise can be realized," she states. "AI allows large amounts of shopper data to be turned into insights that can be used for merchandising, advertising, content, and product mix, based on what shoppers want." Flaccavento notes that retailers can start small by using AI to "customize batch and blast emails into something that feels more bespoke, especially for higher-price point or high-touch purchases." 

AI can also be used to strengthen assortment optimization, determining which items should be stocked or substituted to optimize sales, margins, inventory, and customer satisfaction, Dutt says. By tapping into past purchasing behavior, AI analytics can predict consumers’ next actions and their responses to market trends. "In turn, this allows retailers to have a better understanding of which items are expected to be in high demand, enabling more informed decisions about which items to prioritize for stocking." He also suggests centralizing data and analytics platforms to enhance data consistency and reliability. 

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Dutt notes that retailers can also use AI to more effectively understand consumer interests and needs and by analyzing macroeconomic elements and following competitor activities. "Through this analysis … marketers can create hyper-focused, segmented groups out of their audiences, generating deeper insights and increasing the connections between data points." 

Achieving the full benefits of AI at scale requires an integrated business and technology plan. "IT leaders and management colleagues must ensure alignment on AI capabilities and limitations throughout the organization," Dutt advises. He adds that enterprise-wide AI education is necessary to help managers and team members understand AI's potential, helping to broaden the range of future business applications. 

Final Thoughts 

Before doing anything else, Flaccavento suggests identifying specific enterprise AI goals. "For instance, will your use cases be efficiency-based to start, or do you want to launch with something shopper-facing to increase personalization or store experience?" 

From stores to warehouses and customer service, AI's potential in retail is only just being explored, says Accenture's Standish. ”We've only had a taste of AI's true impact on retail, but the technology is advancing incredibly fast,” she notes. "There’s little doubt that strong AI capabilities will be a baseline requirement for any retailer that wants to keep pace with its peers."