By T. Leigh Buehler | 03/04/2024
Many consumers are aware of the profound transformation the retail industry is undergoing. By simply walking through your favorite stores, you can see that artificial intelligence (AI) technology in almost every area of retail. From enhancing the customer experience to optimizing operational processes and inventory management, AI has become a powerful tool for retailers looking to stay competitive in the dynamic retail landscape.
Better Customer Insights by Using AI in Retail
Companies are putting a heavy focus on using AI to help with the customer experience. According to Retail Dive, Tractor Supply® CEO Hal Lawton stated that his company has “leveraged AI within its supply chain, human resources, and sales and marketing activities.” This company has a primary focus on customer service, so AI has aided Tractor Supply in improving their customer service.
Tractor Supply uses an AI-powered tech assistant known as “Gura,” which stands for great, uncover, recommend, and ask. Any store associate can use this tool to bring high-quality service to customers.
For example, imagine that a customer wants to find a type of dog food that helps with sensitive skin. A store associate can then use Gura to determine which foods would be the best fit for the customer, as well as find the inventory levels and price for a type of food in real time.
Personalized Shopping Experiences
One of the key advantages of integrating AI in retail management is its ability to offer personalized shopping experiences. AI algorithms analyze vast amounts of valuable customer data – including purchase history, browsing behavior, and preferences – to create individualized recommendations.
Amazon® excels in the use of AI technologies to create personalized customer recommendations. Its AI software uses machine learning to suggest products based on a customer's past purchases and the behavior of similar users. This software not only enhances customer satisfaction, but it also drives sales by presenting relevant items to shoppers based on business intelligence information.
Amazon’s new notice of “high return rate” also helps customers redirect their search to the customer reviews section of a product page to help customers determine if an item is worth purchasing or if they might end up returning it. This use of AI also helps to control Amazon’s reverse logistics and inventory systems.
Predictive Analytics for Demand Forecasting
Businesses can optimize their inventory management systems by using artificial intelligence for demand forecasting. AI analyzes historical sales data, market trends, and external factors. Then, it predicts future customer demand for products with a higher accuracy rate than traditional methods of forecasting.
A great example of this data analysis is the use of AI by Walmart® to predict which products will be in demand during specific seasons. This type of high-quality analysis allows for better stock planning and reducing instances of overstock or stockouts.
According to Chief Information Officer Dive, AI enhances Walmart’s daily supply chain workflows and anticipates cycles in demand, especially during peak events or unexpected events in customer traffic.
However, it’s important to note that Walmart needed a multiyear approach to collect enough data and develop the software to create flexible algorithms for its AI tool. Using AI was a large investment of time, money, and resources, but its use has paid off for Walmart by creating a more seamless shopping experience for customers.
AI-Driven Operational Efficiency
Artificial intelligence technologies can streamline various operational processes within an organization, which is particularly useful for leading retailers. The goal is to achieve better resource utilization, reduce costs, minimize errors, and increase productivity.
Supply Chain Optimization
Using AI for supply chain management provides real-time visibility and predictive capabilities. Retail businesses can use AI in their automated inventory management to track shipments, monitor inventory levels, and identify potential bottlenecks in the supply chain. As a result, operational efficiency improves and costs are reduced.
According to Thomasnet, Swedish fashion retailer H&M® leverages AI to optimize its supply chains, analyze trends, and forecast demand, enabling the company to quickly respond to changing market demands and minimize lead times. The company’s AI tool is perfect for fast fashion; its software captures data from search engines and blogs so that AI algorithms can predict and analyze trends.
The data aids H&M’s leaders in making retail operations decisions on how much to buy, when to buy it, and where to place it in the stores. The AI data also helps to indicate when H&M should restock a popular item and determine the number of customers that would likely suit that item. By using AI for supply chain optimization, H&M can reduce its waste and make more sustainable decisions.
Automated Customer Service to Improve the Customer Experience
Automating customer service through AI and machine learning technology in the retail sector helps to increase customer satisfaction and improve customer relations. Chatbots or virtual assistants can handle routine customer queries, provide product information, and even assist in the purchase process.
While not all retailers have perfected the art of the chatbot – as many customers will attest – the use of artificial intelligence still helps to streamline customer service interactions. Chatbots can interact with customers using natural language processing to determine the problem with an item and initiate an exchange or return. Afterward, artificial intelligence and machine learning can analyze any customer feedback to eventually collect more data to better assist shoppers in the future.
AI tools can also store the browsing and purchase history for customers. This information is useful for both the retailer and the consumer.
Another way artificial intelligence can help consumers is by interacting with them directly while they shop. For instance, some stores use smart shelves, where customers simply scan barcodes to get suggested products or to learn more about an item.
Virtual Artist is an excellent example of how Sephora® uses an artificial intelligence tool to improve customer satisfaction. Customers use this tool to try different makeup products virtually. This tool enhances the online shopping experience, reduces the need for in-person trials, and cuts down on product returns, satisfying both Sephora and the customer.
AI-Enhanced Fraud Detection and Security
The retail industry also uses artificial intelligence to enhance the capabilities of systems designed to detect and prevent fraud. AI can be especially useful in cybersecurity and financial transactions.
Fraud Prevention through AI-Powered Solutions
Online and in-store fraudulent transactions are on the rise. Retailers, both big and small, must do what they can to ensure that all purchases are authentic. Artificial intelligence algorithms can analyze transaction patterns and identify potentially fraudulent transactions in real time, which helps to protect both the retailer and the customer.
Fraudulent transactions cost the retail industry over $ 100 billion in 2023, according to FOX Business. Many customers do not realize that the rise in the cost of items is a direct reflection of retailers losing money due to fraud.
Alibaba®, the Chinese e-commerce giant, uses AI to analyze user behavior and identify potential fraudulent transactions. Its AI tool safeguards the interests of both the company and its customers.
In-Store Surveillance
Security for brick-and-mortar stories has received a major boost from the use of AI-powered surveillance systems. These systems analyze video feeds in real time, flagging suspicious activities or behaviors.
In fact, facial recognition technology can identify known shoplifters, alert security teams, and enhance overall store security. According to Convenience Store News, the National Retail Federation (NRF) recently reported that internal theft costs retailers $110 billion a year, so this technology can reduce expenses for retailers.
Retailers like Walmart and Target® have invested in AI-based surveillance to minimize losses due to theft and to enhance the safety of their stores. Business Insider notes that AI-powered cameras at self-checkouts can monitor human behavior; these systems alert nearby employees of accidentally (or intentionally skipped) merchandise scans.
Business Insider also observes that Craig Szklany, head of loss prevention at Sensormatic, says there’s a balance to be struck when retailers use AI. According to Szklany, “You’re trying to make it super convenient, making sure people aren’t waiting in lines…at the same time, you’re leaving yourself exposed to the fact that some people might not do as well and ultimately walk out having only paid half for everything.”
The Rise of AI-Powered Retail Analytics
Modern-day retail is all about analytics. Data analysis can deliver valuable insights to enable business executives to make data-driven decisions, optimize retail operations, and improve customer retention.
Data-Driven Decision Making Through Harvesting Valuable Customer Data
AI-driven analytics provide retailers with valuable insights into customer behavior by allowing for data-driven decision-making and the analysis of customer interactions. Retailers can then optimize pricing strategies, marketing campaigns, and product placements for their customers, based on this data.
For instance, IT Supply Chain observes that British retailer Tesco® uses AI to analyze customer data and personalize promotions, resulting in increased customer engagement and loyalty. The company argues that AI is key to maintaining their growth.
Dynamic Pricing
The ability to adjust prices in real time – based on consumer demand, competitor pricing, or even inventory levels – is a competitive advantage for many retailers. Applying AI allows retailers to use dynamic pricing to remain competitive and maximize their profits.
Delta Air Lines® and Amazon are great examples of the use of AI for dynamic pricing, according to Forbes. Both use AI algorithms to adjust their prices, ensuring they capture the maximum value from transactions and produce the desired outcomes for the business.
Ethical Considerations and How the Retail Industry Should Use AI
Artificial intelligence in retail is flashy and fun. It is all over the news and crawling across every LinkedIn article page. But many companies need to understand that AI, while revolutionary and mimicking human intelligence, comes with its own challenges and ethical considerations.
Maximizing profits is the ultimate goal for retailers and their brands, but human concerns need to be a top priority as well. Privacy concerns, algorithmic biases, and the potential for job displacement are issues that need careful consideration. Striking the right balance between leveraging AI for efficiency and ensuring its ethical use is crucial for the sustainable growth of AI in the retail sector.
Online retail businesses often collect vast amounts of customer data for personalization, targeted advertising, and business insights. The ethical issue at stake here is how that data is collected, how it is used, and if customers have given consent.
Consumers need to be aware of what data retailers collect. Many people believe that they should be allowed to give or deny consent to the collection of their personal data by businesses.
Also, the use of AI automation for repetitive tasks and smart systems could lead to job displacement for certain employee roles. The ethical challenge is to ensure that the implementation of AI technologies is accompanied by efforts to reskill and upskill affected workers, creating a transition to the future of work.
However, there would need to be a decision on who is responsible for retraining employees. Should that responsibility fall on the retailer or should employees seek knowledge from other sources?
A Strategic Use of AI Is Needed
As technology continues to evolve, retailers should embrace AI strategically and address any ethical considerations along the way. The future belongs to those retailers who can harness the power of AI to meet customer expectations and drive operational excellence.
The Retail Management Program at American Public University
For students interested in retail management, American Public University offers an online bachelor of arts in retail management. The courses for this program are taught by experienced faculty members with a deep knowledge of the ever-evolving business world. There are also several courses that address the link between AI and retail management, including:
- RTMG301: Retail Innovations
- RTMG304: Digital Retail Inventory Management
- RTMG310: Digital Retail
- RTMG311: Digital Retail Technologies
- RTMG313: Digital Retail Strategies
In addition, many of our business programs, including the B.A. in retail management, are accredited by the Accreditation Council for Business Schools and Programs (ACBSP®). This specialty accreditation ensures that programs have been carefully evaluated by industry experts to ensure academic rigor and professional standards.
Tractor Supply is a registered trademark of Tractor Supply Co. of Texas, LP.
Amazon is a registered trademark of Amazon.com, Inc.
Walmart is a registered trademark of Walmart Apollo, LLC.
H&M is a registered trademark of Hennes & Mauritz AB.
Sephora is a registered trademark of Sephora.
Alibaba is a registered trademark of Alibaba Holding Group, Ltd.
Delta Air Lines is a registered trademark of Delta Air Lines, Inc.
ACBSP is a registered trademark of the Accreditation Council for Business Schools and Programs.
