Artificial intelligence in the retail industry – enormous and still underutilized potential

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Artificial intelligence in the retail industry – enormous and still underutilized potential

In the coming years, artificial intelligence (AI) is expected to significantly transform the retail industry, affecting the value chain of businesses. In 2022, the value of AI in the retail market was nearly USD 8.5 billion. It is forecast to more than quintuple by 2032, reaching nearly USD 46 billion. Retailers who have not yet done so should include AI-based solutions in their business plans. Many market-leading companies are already using them successfully.

Artificial intelligence applications in enterprises in past years

According to McKinsey’s global study on AI, the implementation of AI-based solutions in companies more than doubled between 2017 and 2022, from 20 to 50 percent. The number of AI solutions used by companies also doubled during the mentioned period. Topping the list are robotic process automation and computer vision (which allows computers to identify and process images in the same way as humans). Natural-language text understanding, on the other hand, ranks third, having been in in the middle of the pile as recently as 2018.

And when it comes to the most important area of using artificial intelligence in companies, for the past four years, the first place is invariably occupied by service operations optimization.

As AI becomes more extensively implemented in businesses, the level of investment in AI-related technologies is also increasing. In 2017, 40% of respondents from companies using artificial intelligence in their business operations declared that more than 5% of their digital budgets are allocated to AI. By contrast, in 2022, this level of investment was already declared by more than half of respondents. What’s more, 63% of respondents said they expect investment in this area to increase in their organizations over the next three years.

AI is changing retail

The value of AI in the retail market, which reached $8.41 billion last year, will more than quintuple to USD 45.74 billion by 2032, according to the research firm Precedence Research in its report “Artificial Intelligence (AI) in Retail Market.” So you can see how much potential artificial intelligence has in retail.

Retailers who want to remain competitive should include AI in their company strategy. PwC, in its 2022 report on AI, states that 76 percent of business leaders have implemented (to a greater or lesser extent) the use of artificial intelligence in company operations, and based on market estimates, this number seems to be growing all the time.

Artificial intelligence, thanks to IoT, Big Data analytics and e-commerce marketing, among others, has great potential to significantly change the retail industry. Its development creates opportunities for retail in many areas, such as customer experience, demand forecasting and stock management.

The use of Artificial Intelligence in retail will also increasingly focus on product planning and recommendations. Retail companies are using machine learning and deep learning technologies to provide end consumers with more personalized experiences and engaging environments. Retailers need to use AI to improve the customer shopping experience and gain a competitive advantage to stay in business.

Established retail companies are investing in cutting-edge technology to improve customer engagement. Walmart has allowed artificial intelligence to manage its websites and store operations (we provide more interesting examples of how AI is being used in retail later in the article). AI makes a great tandem with e-commerce, but can be extremely useful for the traditional sales channel as well. The use of computer vision or machine learning for inventory management is becoming increasingly popular in traditional stores.

According to the McKinsey study mentioned in the introduction, a large number of employees believe that productivity increases as a result of greater use of AI in their work. The great advantage of AI is that it can help with both highly complex processes and tedious, repetitive tasks. And this is true for both consumers and employees of retail chains.

Some companies have been discouraged from implementing AI because they thought it would go quickly and smoothly. In contrast, those companies that have taken a longer view in this regard have laid a good foundation for enjoying the benefits of artificial intelligence. These companies are gradually integrating AI into more areas of their business. They are investing more, but also more wisely, and are beginning to benefit as a result.

Noteworthy examples of AI use in the retail industry

Artificial intelligence is transforming the retail industry through shopping recommendations, voice-enabled shopping assistants, personalized shopping experiences, automated warehouses, payment methods with facial recognition, anti-counterfeiting tools and much more. Here are 5 interesting examples of AI usage in retail.

Luxury department store chain Macy’s has developed an AI-based application so that customers, while in the store, can talk to a bot to get directions to a specific item or, for example, to check if something is in stock. This bot can even detect if a customer is frustrated and alert an employee to come over and help them.

Supermarket chain Walmart plans to use robots to help check product availability on store shelves. The robots will scan store shelves to alert staff when missing items need to be replenished or price labels need to be changed. The use of robots is expected to allow employees to spend more time with customers.

Online retailer ThredUp recently created Goody Boxes – boxes of clothing tailored to the style of its customers. Customers can buy only the items from the box that they like and return the others. An AI algorithm remembers each person’s preferences so that subsequent boxes should better match their style.

Grocery chain Kroger is testing smart shelves in its outlets. When a customer moves through the store and has the Kroger app open, sensors identify him or her and highlight products he or she may be interested in, such as gluten-free products. The app can also give individual prices and notify the customer if a product on their shopping list is on sale.

Fashion brand Uniqlo is a pioneer in using science and AI to create unique in-store experiences. The chain’s selected stores feature innovative UMood kiosks that show customers various products and measure their reaction to them (such as color) through neuroscience. Based on these reactions, the kiosk then recommends specific clothes. Customers don’t even have to press anything, the signals from their brain are enough for the system to know how they feel about each product.

Be sure to also check key trends in retail in 2023.

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