The Changing Face of Retail — the AI Impact

Written by Deepa Naik

Artificial Intelligence has had its impact across industries and retail isn’t any exception. The retail industry has over the last few decades seen several transformations with technology changes and innovative business models. Consumer shopping behavior is changing as customers are embracing the new technology innovations and making their shopping experience more fruitful and efficient, from traditional brick and mortar stores to internet retailing, e-commerce and m-commerce; the world’s largest store is in every pocket.

Amazon.com claims that 35% of its revenue is generated by its recommendation engines, one of the most popular and upcoming concepts in AI (source). It is also referred to by marketers as Real Time Product Targeting, where segments of customers are targeted with products based on their preferences and purchase history. Conversational Commerce — creating conversations through AI — in which businesses leverage the power of social messengers for customer communication using Chatbots, is another area of AI which has far reaching impact in retail and is deemed to be the future of e-commerce. According to Gartner, 85% of interactions with a customer will be handled without a human by 2020. And by the end of 2018, faces and voices of customers will be recognized by digital assistants (source).AI is creating a unique customer experience that so far has been achieved by brick-and-mortar stores.

Using AI applications, retailers are able to provide personalized experience to their customers. Customers find it easier to get the right products at a cheaper price. Apart from customer engagement and relationship developing; the other areas where AI is marking its footsteps are efficient inventory management, autonomous replenishing systems, discovering buying patterns, effective pricing, and promotions, targeted and localized marketing, tailored assortments, anticipating changes in customer traffic patterns, determining optimal distribution routes and allocations. It uses data analytics and the science of predictive data models and predictive intelligence. This not only improves the customer experience but also goes a long way in improving the overall profitability of the retailing business.

To take this discussion further we can look at AI products in retail at four abstract levels

  1. e-Commerce

e-Commerce refers to the buying and selling of goods and services using the internet. In B2C ( Business to Customer) businesses like Amazon.com, typical AI applications used are the chatbots for conversations with the customers and recommendation engines to provide personalized and tailored recommendations in order to improve conversion. In B2B (Business to Business) AI-powered sales and marketing processes are getting smarter. For instance today, Salesforce Einstein can provide information like predictive lead scoring and opportunity insights, which alert a sales rep on how a deal is trending making the sales rep more productive. Predictive Intelligence and Contextual Sales Messages are helping sellers to engage the right prospects with the right message at the right time.

2. e-Tailing / Internet Retailing

e-Tailing refers to retailing using the internet and encompasses the complete lifecycle including e-commerce (buying and selling), branding and advertising, website management, order fulfillment, management of the entire supply chain. Predictive Analytics is catching momentum in this area and retail technology platforms are looking to add in AI features to improve efficiency in areas such as inventory management, pricing and promotions, targeted and localized marketing and others. In the data analytics segment, “Retail Analytics” is a maturing and analytics companies like SAS and FractalAnalytics are coming up with improved ways to enhance retail business performance. Apart from Shoppers personalization and forecasting, retail analytics also provides concepts such as “path to purchase of the customer” and supply chain optimization.

3. In-Store retailing

Traditional brick and mortar stores are finding new ways of transformation with an aim to attract and retain customer amidst of the online competition. AI in-store innovations include a focus on robots usage. Target joins a growing list of retail companies testing robots in an effort to improve store operations and even customer service. Simbe Robotics is one of the leading companies providing robots for retail business including a mobile robot for tracking inventory on the store shelf and other areas of the supply chain. Walmart is working with Five Elements Robotics and has filed a patent application for its own robotic shopping cart ‘Dash’. Zugara is a company that provides virtual dressing technology with ‘Virtual Dressing Mirrors’ enabling shoppers to try on clothes to check one or more of size, fit or style, but virtually rather than physically. Amazon Go — the internet giant’s first foray into retail brick-and-mortar grocery is a new kind of store with no checkout required. At the Amazon Go store, you don’t have to wait in line. With the “Walk out Shopping” experience, customers use the Amazon Go app to enter the store, take the products they want, and go. No lines, no checkout.

4. Omni Retail

As consumers shift shopping habits, for many retailers their very survival is at stake. In 2017 alone, there are 21 retailers closing 3591 stores (source). In such turbulent times, retailers are now embracing the concept of Omni Retail — a multichannel approach to sales that seeks to provide the customer with a seamless shopping experience whether the customer is shopping online or in a bricks and mortar store. Though this sounds lucrative as a business model proposition, executing such a model has its own challenges with the biggest one being in supply chain management. For Omni-channel retail, managing inventory becomes very complicated. Here is one example; a leading footwear retailer implemented a system that links inventory across channels. When a customer orders a pair of shoes online at full price, the system looks across the network for the store that has that pair in its inventory and is least likely to sell it at full price before the end of the season. The system then balances the extra cost of shipping that order from the store against the expected markdown from continuing to hold the shoes in the store. This exercise determines whether the order ought to be fulfilled from a store or from a centralized warehouse. In short, the system helps the retailer to make real-time fulfillment decisions that maximize expected profit. There are quite a few vendors in the Omni-channel solution segment and they are gradually maturing in the AI space.

Features of AI Powered Retailing

Having looked at the AI impact from the business model perspective lets deep dive a little into the AI applications across retail. As per IBM’s CMO, Michelle Peluso, “AI Powered Retail” is changing the customer experience and here are a few important features

  • AI powered Guided Selling — Using recommendation engines to define personas and provide the customers with defined choices
  • AI powered Gift Selection — Behaves like your own “personal assistant” and learns your preferences as you interact with the system
  • AI powered Product Selection — This helps consumers discover and refine product selections based on their responses to a series of questions
  • AI powered Inventory Management — AI does a better job of managing and monitoring supply chains to right-size inventory levels and avoid out-of-stocks
  • AI powered Customer Service — One of the first line of business to embrace AI and one of the fastest growing segments, customer service using chatbots is all set to change the way customer engagements will exist in the future of retail
  • AI powered Customer Insight — Consumer insights is a very powerful tool for marketers and the opportunities to use this data are unlimited
  • AI powered Advertising — AI will kill mass email marketing tools and the problems related to spam mail. It will be replaced with tailored and personalized communication. Concept of “programmatic advertising” is still new but catching up. Companies like Coca-Cola have started experimenting with “automated narratives,” including using bots for music and editing the closing credits of commercials
  • AI Powered Virtual Dressing Room ( Sizing and Styling) — Currently, in its infancy, this technology which includes Augmented Reality (AR), Facial and Gesture recognition, social sharing and analytics is promising and with features like Virtual Style Sense, it is all set to give a big hand to conversions
  • AI Powered Walk-Out Shopping — Pioneered by Amazon Go, this AI-based technology which will make check out payments redundant, promises to make customers experience much better and retail businesses more profitable

Conclusion

Artificial Intelligence is leaving a great mark on the way retail industry is evolving. It is changing the retail experience for consumers. It is changing the retail business. The people in retail need to accede to this change and embrace the innovations brought about by AI products to make retail business more efficient and productive in coming years.

References:

http://www.guided-selling.org/ai-in-retail/

https://www.digitalcommerce360.com/2014/12/08/engageclick-integrates-artificial-intelligence-advertising/

http://www.mckinsey.com/industries/retail/our-insights/how-retailers-can-keep-up-with-consumers

https://www.forbes.com/sites/nikkibaird/2017/02/28/robots-in-retail-stores-closer-than-you-think/#446a6f1e5d96

About the Author:

Deepa is a founding member of Humans For AI, a non-profit focused on building a more diverse workforce for the future leveraging AI technologies. Learn more about us and join us as we embark on this journey to make a difference!