How is Artificial Intelligence (AI) Changing Retail?

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The Rise of AI [And What it Means for Retailers]

Artificial Intelligence (AI) is defined as human-generated computational devices and/or systems that are designed to exhibit “intelligent” abilities and behavior.

While this quickly evolving technology is already altering and disrupting a variety of industries, it has uncovered a wide range of new possibilities in the retail sector.

In fact, a report from CB Insights stated that from 2013 to 2018, AI retail startups raised a total of $1.8 billion over 374 deals.

The rise of AI and the ascent of e-commerce is affecting retailers in a wide variety of ways. Therefore, retailers must be cognizant of how rapidly this channel will engulf a bulk of their sales.

With the potential to create more jobs with brand-new skill sets, generate more personalized customer experiences, optimize inventory management, and streamline logistics and delivery, AI stands poised to lead the way in retail.

AI Usage by Format

The chart below clearly indicates that online retailers are ahead of the curve in adding AI capabilities. This makes sense given that the bulk of online retailers are fundamentally more data-driven companies than the rest.

Omnichannel retailers – who mostly started off as brick-and-mortar stores and later integrated digital functions and capabilities – are working to make up ground by developing a holistic, multi-channel strategy.

AI Usage by Subsector

The chart below shows how Apparel and Footwear – a popular category in e-commerce – is leading AI penetration among all single-category retailers. In  2017, online channels were responsible for 27.4% of total apparel sales.

Still at the top of the list is the multi-category sector, which includes the online mega-retailers like Amazon.

When asked about how much AI’s role in the company’s earnings, Tom Pinckney, VP of Applied Research at eBay, stated: “It is indeed north of $1 billion per quarter. AI and ML are driving incremental sales that wouldn’t otherwise have happened.”

Ways Retailers are Adopting AI

As a result of pressure from larger e-commerce giants and greater consumer demand, retailers from around the world are investing in AI to  increase operational efficiency and productivity.

According to a recent study by Capgemini Research, more than a quarter of the top 250 global retailers are incorporating AI into their organizations, and the global annual amount spent on AI by retailers is anticipated to eclipse $7.3 billion by 2022.

As a whole, retailers are substantially increasing AI development and deployment. Capgemini’s study found that 28% of the Top 250 retailers (and 41% of the Top 100) were implementing AI in 2018 – compared to 17% in 2017 and just 4% in 2016.

This is a clear indication that retailers are committed to investing in ways they can use AI to their benefit.


Chatbots are the most common AI applications in retail today, and \\ allow businesses to accommodate their customers with 24-hour customer service.

Luxury retailer Louis Vuitton has incorporated chatbots into Facebook messenger in order to create a more personalized, conversational, and efficient shopping experience for their customers.

Equipped with Natural Language Processing (NLP), offer suggestions by asking pointed questions. This helps display the brand’s full product line while offering suggestions on particular items.

“We see messaging platforms as future key drivers of conversations with our clients, and potential for the integration of artificial intelligence and chatbot technologies to further enhance service to clients across these new channels,” said Michael Burke, Louis Vuitton CEO. – which has also teamed up with Levi’s to implement AI, visual search, and machine learning technology – helped Louis Vuitton develop the technology.

We are still in the very early stages of AI technology adoption in the retail industry,” said CEO Eitan Sharon. “The dominance of e-commerce isn’t just a trend, but an ever-growing arena, giving luxury brands like Louis Vuitton the opportunity to reach and sell to their customers in new and exciting ways.

As shoppers continue to move online, the most forward-thinking companies will turn to AI chatbot technology to meet these shifting client demands,” added Sharon.


Humanoid robots help customers by giving instructions and answering relevant questions, therefore enhancing foot traffic within the store.

By placing robots and touch panels, stores can help customers locate an item, get answers to their queries and find out how a product can make their life easier.

Walmart’s Robotics Research and Development

While the ROI of retail and delivery robots are still uncertain, Walmart’s patents displayprogressive plans, from voice-controlled unmanned aerial vehicles (UAVs) to synchronized drone delivery.

Walmart applied for at least 37 patents related to drones and ground robots since January 2017, compared to just 8 in 2016.

The chart below shows Walmart’s patent applications in comparison to Amazon – which is widely known for its ardent robotics patent development:

This data suggests that Walmart could be prepping for a disruption in the logistics field – particularly in the last mile – which is a major area of focus for their chief rival.

Additionally, customers in over 50 of Walmart’s stores will find more than just introductory robots. As part of an ongoing experimental exercise, they will also encounter robots with the ability to scan shelves for inventory assessment and modeling.

Virtual Mirrors

The new wave of fashion is closely linked to both personalization and predictive analytics/modeling. Equipped with loads of actionable data, algorithms will be used to predict (or even initiate) new trends and styles.

Last March, L\’Oréal made waves by purchasing the augmented reality startup Modiface, which helped the company launch its “Style My Hair” mobile app that allows consumers to virtually “try on” various hairstyles.

Later that August, they teamed with Facebook to give customers the ability to project their styles on the network itself before clicking into the website and actually buying the product.

Competitive brands like Sephora and Estée Lauder also use AR apps that allow customers try on different virtual make-up looks. Retailers can then analyze the data collected on face shape, wrinkles, and skin tone to better predict inventory needs.

These virtual features help both fashion and beauty retailers in two distinct ways – they offer cutting edge ways for consumers to interact with their brand while simultaneously ingesting data on their tastes and inclinations.

Evolving Customer Preferences and Expectations

It’s undeniable that retailers across the board are fundamentally feeling the disruptive effects induced by the rise of e-commerce giants like Amazon on a visceral level. In order to remain afloat and competitive, retailers are under immense pressure to retool both their physical store and e-commerce strategies.

The scope of Amazon’s recommendation engine includes analysis of users’ past purchases, items currently in their cart, and past products they have rated in order to determine the most relevant items to serve shoppers. Reports indicate that Amazon drives approximately 35% of its sales through its product recommendations engine.

Technology Setting New Consumer Standards

The following statistics are from Salesforce’s latest State of the Connected Customer report

  • 14% of customers said AI has already transformed their expectations of companies.
  • 37% mentioned AI is already transforming their expectations and 36% said it will transform them within 5 years.

Therefore, over the next 5 years, 87% of customers expect more business growth through AI.

In addition, the survey found that a majority of customers have not only grown accustomed to – but are actually are fond of – AI-induced experiences.

For example, 56% of customers either like or love receiving personalized recommendations. On top of increasing site dwell time, these also help improve customer retention.

As technology evolves at such a frantic pace and AI continues to seep into consumers’ daily lives, they are becoming more comfortable and intrigued by the concept.

As a result, the study, determined that customers are 9.7% more likely to view AI as revolutionary instead of significant.

The main takeaway for retailers is the importance of understanding consumer tendencies/inclinations and properly implementing personalized content recommendations to improve consumer experiences.

Personalized Customer Experiences

As more and more businesses adapt to AI and its increasing scope of capabilities, the bar continues to heighten.

Customers have come to expect increasingly modern and seamless shopping experiences. As more people become used to shopping online rather than venturing to a physical store, they now anticipate similar levels of personalization – albeit via an automated, digitized source.

Retailers possess a tremendous amount of data on customers’ shopping experiences – both in-store and offline. If this data is cleaned up and organized properly, they can feed machine learning algorithms with user preferences and purchase history to suggest products and lead customers to websites or storefronts.

Equipped with the right tools, AI, predictive analytics, and marketing automation can be used to fuel the administration of customized products and deliver targeted, relevant product recommendations to the right person, at the right place, at the right time. This is something that Amazon does considerably well, and smaller retailers should follow suit.

After all, this is what consumers have come to expect. The coming years will bring about further advancements in the ways retailers approach and interact with customers.

Conclusion [The Future of AI in Retail]

The retail industry is at a critical inflection point. The biggest brick and mortar stores are facing significant external pressures, and today’s customers have come to expect a seamless omnichannel shopping experience, every time.

Retail is an industry that is consistently drowning in oceans customer data and in dire need of actionable ways to utilize it. AI has opened a world of possibilities for physical retail, and is revolutionizing the industry by making it affordable to offer a holistically personalized and engaging customer experience on a wide scale.

The failure to initiate direct, personal customer relationships is not an option in this new landscape. Overall, the biggest advantage retailers can gain from AI is accurate, efficient analysis and proper utilization of all of the customer data at their disposal.

AI has – and will – continue to alter the retail industry. The next few years will see continued enhancements to both customer experience and operations. However, retailers aiming to fully take advantage of these technologies in order to keep pace with giants like Amazon and Walmart still have their work cut out for them.

While many preliminary formulations – like chatbots – have been widely incorporated, there is much room for more extensive and impactful uses. In order to maximize AI’s true utility in this field, retailers need to invest time and resources necessary to achieve a full understanding of where it is today and the potential it holds for the future.[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]