Retail is set to be among the top industry beneficiaries of AI.

To date, retail has lagged behind more ‘AI mature’ industries, such as finance, science and the military, causing it to miss out on potentially major productivity benefits. Currently, just over a quarter of retailers (28%) regard AI as a ‘top investment priority’. There is, however, growing acknowledgment amongst retailers that AI warrants further investigation, and many are weighing up the level of investment to allocate. A recent study by Accenture identified retail as one of the top four sectors to potentially benefit the most from AI. AI could deliver a 59% boost to profitability across the Wholesale & Retail industry by 2035, compared to a wider average of 38%. Those who move fastest can reap even greater rewards: early adopters expected to enjoy 8% higher profit margins.[1]

AI offers a multitude of ways to drive profitability in the retail sector[2]:

1. Customer Insights and Personalization: AI helps retailers understand customer behavior by analyzing data from various touchpoints, enabling personalized recommendations, targeted marketing, and tailored shopping experiences. This personalization often leads to increased sales and customer loyalty.

2. Inventory Management: AI can optimize inventory levels by predicting demand more accurately, reducing overstock and stockouts. This prevents unnecessary costs associated with excess inventory and lost sales due to items being out of stock.

3. Supply Chain Optimization: AI can streamline supply chain processes, predicting potential disruptions, optimizing routes, and suggesting improvements, thereby reducing costs and ensuring products reach the shelves efficiently.

4. Dynamic Pricing: AI enables dynamic and real-time pricing adjustments based on various factors like demand, competition, and market conditions. This helps retailers remain competitive while maximizing profits.

5. Loss Prevention: AI-powered systems can analyze patterns to detect fraudulent activities, reducing losses from theft or fraudulent transactions.

6. Enhanced Customer Service: AI-powered chatbots and virtual assistants improve customer service, providing instant and accurate responses to queries, reducing operational costs, and improving overall customer satisfaction.

7. Predictive Analytics: AI can forecast trends and customer behaviors, enabling retailers to make informed decisions about product assortments, marketing strategies, and expansion plans.

8. Improved Operational Efficiency: Automation and AI-driven systems can optimize various operational processes, reducing labor costs, improving efficiency, and minimizing errors.

By leveraging AI in these areas, retailers can drive profitability through cost savings, increased sales, improved customer satisfaction, and optimized operations. The key lies in using AI to harness data effectively and derive actionable insights to make informed business decisions.

With each of these avenues to enhance retail sales and processes, it is clear that retail can experience extensive growth through the proper implementation of AI, more so than many other industries who have already started investing and adopting in it.

Early retail usage of AI supports this theory. For example, Morrison’s deploys AI to assess historic sales data of individual stores, alongside local weather reports, to predict future demand — reducing shelf gaps by a substantial 30%.

Another example is PSYKHE AI, a machine learning and psychology-powered recommendation-as-a-service platform that enables retailers to hyper-personalize the customer experience. Its mission is to remove friction for consumers through proprietary, psychographic data that enables personalization across different categories for a consumer. Partners have seen a five-times increase in revenue, a three-times increase in basket value, a 26 percent increase in customer retention rate and a 4 percent decrease in product return rate — underscoring the value that precision personalization can provide for a retailer.[3]

In comparison with other sectors, retail is primed to be a top beneficiary of AI due to several industry-specific characteristics that align perfectly with AI’s capabilities[4]:

1. Data Abundance: Retail generates an immense amount of data through transactions, customer interactions, online behaviors, and inventory management. AI thrives on data analysis, making it an ideal tool for extracting insights and trends from this vast pool of information.

2. Consumer-Centric Focus: Retail is inherently customer-centric. AI’s ability to personalize experiences, offer tailored recommendations, and predict consumer behavior aligns perfectly with the retail industry’s focus on understanding and meeting consumer demands.

3. Omnichannel Presence: The modern retail landscape spans across various channels — physical stores, e-commerce, mobile apps, and social media. AI helps integrate these channels, ensuring a consistent and seamless customer experience across all touchpoints.

4. Dynamic Demand and Inventory Management: Retail faces ever-changing demands and seasonal trends. AI’s predictive analytics help manage inventory levels, reducing costs associated with surplus inventory or stockouts.

5. Competitive Edge: In a highly competitive industry, AI provides a significant advantage. The ability to forecast trends, optimize pricing, and enhance customer service can set retailers apart in the market.

6. Operational Efficiency: AI streamlines various operational tasks, from supply chain management to customer service. Automation reduces costs and improves overall efficiency, crucial in an industry with tight margins.

7. Adaptability to Change: Retail constantly adapts to changing consumer behaviors, market trends, and technology advancements. AI’s adaptability and learning capabilities enable retailers to stay ahead in this ever-evolving landscape.

While other industries also benefit from AI, the combination of these factors in retail makes it particularly well-suited for AI integration, leading to improved customer experiences, optimized operations, and ultimately increased profitability.

Citations

Reference Articles and Generative AI:

[1] https://www.knightfrank.com/research/article/2023-11-10-retail-the-rise-of-ai

[2] “How exactly will AI drive profitability increases for the retail sector” prompt. ChatGPT, OpenAI, 12 Nov. 2023.

[3] https://nrf.com/blog/2-ways-ai-powering-next-generation-retail

[4] “Why is retail set to be among the top industry beneficiaries of AI?” prompt. ChatGPT, OpenAI, 12 Nov. 2023.