How AI Is Changing Retail

Artificial intelligence is poised to reshape the retail landscape in ways that are both profound and unexpected. For those anticipating AI to take over in dystopian fashion, the reality promises to be much more beneficial.

"People often have preconceived notions about AI, but it’s going to be far different from what they imagine. AI programs are enhancing lives, not replacing them," says Ananda “Andy” Chakravarty, vice president of research at IDC Retail Insights.

AI’s impact on retail is already becoming evident. Levi Strauss & Co. has announced plans to integrate AI-generated models for customization. American Eagle is leveraging AI for inventory tracking, while Puma is utilizing it for personalized customer styling.

While Chakravarty acknowledges that no one can predict AI’s trajectory over the next two decades, he is clear that, for now, AI isn’t capable of fully autonomous operation. "It’s not ready for independent use yet. Human oversight is still necessary in most AI technologies," he notes.

Nonetheless, AI is already beginning to revolutionize several aspects of retail.

Enhancing Customer Targeting

Levi’s plans to use AI to diversify the body types represented by its models initially drew criticism. In response, the company reiterated its commitment to live photo shoots and working with diverse models, while also exploring how AI-generated models could improve the overall consumer experience.

Currently, Levi’s features just one model for each product on its website and app. As the company points out, it’s impossible to photograph every product in every size at a SKU level. AI could supplement these images, offering more personalized and engaging shopping experiences.

AI also has the potential to impact customer confidence, particularly in sizing and fit, which are common pain points for online apparel shopping. Levi’s highlights that online returns, driven primarily by size and fit issues, often exceed 25%. By improving the digital representation of products, AI could reduce these costly returns.

Streamlining Operations

Deborah von Kutzleben, chief marketing officer at Tropical Smoothie Cafe, echoes the optimism surrounding AI’s potential. "Our team is eager to explore AI’s capabilities, even though there’s still much to learn," she says. The company envisions a future where AI helps optimize operations, from predicting order traffic to improving inventory management and pricing.

Von Kutzleben is particularly interested in how AI might enhance customer interactions in the fast-casual dining sector. AI-driven communication platforms could help resolve customer concerns and bolster reputation management.

Optimizing Pricing and Forecasting

AI’s ability to track inventory, forecast demand, and optimize pricing is another area where it promises significant value. As Chakravarty notes, many retailers still struggle to track products across their supply chains. AI could automate this process, dynamically adjusting prices and restocking based on real-time data.

Dynamic pricing, while currently a niche capability, could see broader adoption as AI becomes more integrated into retail systems. However, practical challenges remain, such as the lack of electronic labeling in stores, which complicates the frequent price changes that dynamic pricing demands.

Marketing is yet another area ripe for AI disruption. Chakravarty envisions a future where AI-driven systems create personalized email campaigns for millions of customers, enhancing the one-to-one relationship between retailers and their shoppers.

The Road Ahead

Despite AI’s transformative potential, companies like Tropical Smoothie Cafe are taking a cautious approach. "We’re waiting for the right opportunity to integrate AI in a way that benefits both our franchisees and our guests," von Kutzleben explains.

The costs associated with AI implementation are significant, and the return on investment is still uncertain for many businesses. As AI technology evolves, companies will need to make measured decisions about when and how to adopt it.

In the meantime, organizations like the National Retail Federation (NRF) are working to prepare the industry for AI’s impact. Christian Beckner, vice president of retail technology and cybersecurity at NRF, emphasizes the importance of developing best practices and guiding policymakers on AI-related issues.

While AI’s role in retail is certain to expand, the pace of adoption may be gradual as businesses navigate the challenges and opportunities it presents. As Beckner notes, "AI will undoubtedly change retail, but the question is how." The NRF is committed to being a voice in this evolving conversation, ensuring AI is used responsibly and effectively within the industry.