AI is transforming the retail industry, redefining every aspect of the business from demand forecasting and supply chain management to the forward-facing aspects of retail, such as product display optimization and personalization in the shopping experience. Read on to find out how it is transforming the shopping experience.

AI is getting much attention because it delivers results, including boosted productivity, improved customer satisfaction, and optimized product decisions. Walmart has, for example, used conversational AI to reduce the time care agents need to spend with customers, while Amazon’s AI initiatives are partly responsible for an 8.5% revenue growth.

“Digital transformation in retail is about more than connecting things. It’s about converting data into insights, which inform actions that drive better business outcomes. AI in retail—including machine learning and deep learning—are key to generating these insights.” – Intel.

What is AI?

Artificial intelligence (AI) is a machine’s ability to perform cognitive tasks typically assigned to human intelligence, such as learning, perceiving, or problem-solving. These so-called “smart machines” have become smarter and more complex, able to perform complex calculations quickly, interact with their given environment, and ultimately assist humans in some way.

How is AI Used in the Retail Industry?

To answer how AI is used in retail, we need to understand that AI impacts all aspects of the business, from planning and forecasting to inventory management, sales, and fulfillment.

Responsive R&D: Analyze trends (competitive, celebrity, market, etc.), customer sales, and feedback history to identify innovations.

Demand Forecasting: In optimizing inventory, use historical and predictive analytics to anticipate demand for the entire brand and by store location (if relevant).

Supply Chain Optimization: Use data analytics to know how much product to order, where to ship it, and when to optimize driving routes, avoid over or under-purchasing inventory, and reduce duplicative, unnecessary shipments.

Inventory Management: With demand forecasting, avoid under and overstocking and reduce carrying costs. The use of robotics can also spot product loss.

Operational Optimization: Identify process improvements (people and machines), identify bottlenecks, and replace manual or time-consuming tasks with automation. Further, analysis of customer service interactions can positively improve performance.

Fraud Detention and Security: Analyze purchase patterns and unusual purchases or returns to spot for fraud. Leverage AI in cybersecurity efforts to reduce the risk of breach or fraud.

Pricing Optimization: Know what the market and competitors are doing to set and change pricing, including real-time adjustments.

Visual Merchandising: In-store or online, visual merchandising optimizes how products are displayed to gain attention. In-store decisions include lighting, space, sounds, smells, interactive displays, and even how different colors boost aesthetics. Trends can influence what is displayed, how, where, with what lighting, and any other seasonal display or product information is added. Online ads and product groupings can adjust in real time to customer behavior.

Virtual Try-On and Augmented Reality (AR): Help visualize purchases to close sales.

Customized Selections and Personalized Marketing: Use browsing behavior, preferences, and past purchases to display personalized information or use personalized marketing techniques (email, text, in-app, on social, etc.).

Customer Sentiment Analysis: Analyze chat data, emails, and social media to gauge customer satisfaction.

Seamless Customer Service & Engagement: Leverage chatbots and virtual assistants to provide real-time interaction, recap conversations for live agents, spin out new help articles, or adjust product recommendations.

Interactive Chat: When designed with the right strategy and tactics, Chatbots hold the potential to understand and respond to user questions naturally and do a great job of handling simple customer queries or pre-screening queries to speed up human response. Chatbots rely on conversational AI, such as ChatGPT.
Voice Commerce and Virtual Assistants: Support voice commands to assist in retail, a growing trend not just for accessibility but as a preference for users who prefer to ditch keyboards and screens.

Cashierless Technology: Use cameras and sensors to support checkout and billing without needing retail staff or cashier processes.