AI: Evolve or become extinct

History repeats itself: those who don’t evolve, die. Let’s remember dinosaurs, the mighty, but slow-moving creatures that became extinct in their prime. There simply was no one to warn them that winter was coming and teach them how to adapt to it.

Don’t you think that something similar is happening in retail? The industry has always been conservative and somewhat tech-resistant. With the exception of several major market players like Walmart and Amazon, so far big and mid-size retailers have been slow in their catching up with the tech-infused reality. According to a recent industry study, the majority of retailers are unlikely to invest in emerging technology in the next 12 months.

And yet, retail companies are in a favourable position. Media and industry experts are warning them about the upcoming danger. There exist numerous materials and studies covering the store closures of such retailers like Mothercare, Marks & Spencer and Debenhams, to name a few, as many as 12,000 stores are projected to close in the UK alone in 2019.

But the market also offers tools to transform the deadly winter into a life-giving spring. Artificial intelligence is one of these tools. Big names recognise its importance. For example, Walmart has recently launched its Intelligent Retail Lab, while 35% of Amazon’s revenue is generated through AI-based price suggestions.

Pricing and promotion, demand forecasting, as well as store operations are among six business areas which intelligent automation is poised to revolutionise retail, states IBM’s recent research. In this article, I’d like to outline how exactly AI can do it and how retailers can use its potential to remain competitive.

Pricing and promotion

Price management remains a challenge for most retailers. Do I need to react to my competitors’ price changes? Should I sell these items at a discount to make customers choose me over Walmart or Amazon? What products can I offer at a higher price? And the ultimate question: what are my optimal prices? Most retailers are still seeking answers to these and dozens of similar questions.

Price optimisation models use the power of self-learning algorithms to analyse myriads of data points, browse through endless pricing scenarios and suggest the most optimal one at any given moment. They go way beyond the analytical capabilities of humans and take into account thousands of hidden relationships between the items in the portfolio to recommend individual prices that maximise revenue and sales of the whole product portfolio. The best part is that such algorithms get better with time – the more data they have, the more precise predictions they make.

From my experience, AI-led price optimisation can increase revenue and sales by up to 9% and 24.7% respectively.

Demand forecasting

Rewarding customer experience is at the top of the retailer’s hierarchy of needs and desires. Meanwhile, 40% of shoppers have recently experienced stores with empty shelves and disorganised inventory and left quite likely to never come back. Therefore, product availability is a crucial element of ensuring that shoppers are satisfied. In this situation, the ultimate questions retailers need to be answered are: when and how much I should order.

The first demand forecasting providers like consultancies emerged over 30 years ago, and still are up and running. In fact, retailers are faced with a variety of companies to choose from: every one of them offers different approaches to demand forecasting, which are usually equally effective and precise. However, AI-powered demand prediction solutions have an advantage: they are far quicker, as well as better at minimising human involvement. As a result, such automation reduces the risk of human error, accelerates the process, and lets managers focus on more strategic tasks.

Store operations

Most customers (86%) still shop in physical stores. The trend shows no signs of slowing down, as 82% of millennials and Gen Z shoppers state they prefer offline to online. What customers expect is a “big day out,” which makes retailers do everything in their power, including the use of relevant technology, to transform their shops from shopping into entertainment destinations offering seamless shopping experience.

7Eleven’s VP of digital customer and store experience, Tarang Sethia, said at Shoptalk 2019: “We think AI should be like electricity, it powers everything so we can serve the customers in a way they’d like to be served and to take the friction away.”

AI fuels dozens of store-related operations: from AI-enabled cameras to monitor inventory levels to interactive displays, to self-checkouts. And it’s here to stay.

AI matters. It all comes down to this: you either play along and use it to level the field or join sixty-eight retailers that have filed for bankruptcy since 2015.