The power of AI is impacting retail for both ecommerce and brick-and-mortar stores. AI-driven tools are improving the ecommerce customer experience through a growing number of applications.

The numbers back up this phenomenon: the global AI-in-retail market is projected to top $24 billion by 2028 and over $45 billion by 2032.

Multidimensional benefits of AI

When it comes to retail, AI essentially means machine learning and predictive analytics. AI technology can gather and process data, denote patterns, and make sense of huge amounts of information.

From there, AI can help retailers make data-backed decisions by supplying accurate forecasts and predictions. Retailers can leverage AI algorithms based on customer data such as details collected when a shopper uses the store’s app.

Utilizing this trove of information can lead to better ecommerce experiences for customers, lower expenses, and, of course, higher profits.

Some of the ways AI can positively impact retail operations include:

• Facilitate shopper engagement, both in person and online
• Offer information-seeking shoppers instant help through chatbots and in-store kiosks
• Streamline inventory management
• Inform marketing campaigns
• Use generative AI to create product descriptions and marketing content
• Target marketing based on people’s purchase history and other factors
• Target promotions to prospects with the help of computer vision
• Facilitate price optimization
• Make in-store item displays more attractive and potentially lucrative by analyzing sales data
• Aid with loss prevention
• Make omnichannel, end-to-end consumer activity consistent

Let’s dig deeper into how AI transforms retail operations and improves customer engagement, allowing companies to make smart, data-driven operating decisions and provide modern shopping features that delight their prospective buyers.

AI applications for improving retail operations

Retailers can apply AI processing to their overall operations picture and clearly see all the data they need about their customers, products, ecommerce experience, and stores. That means they can enjoy such business benefits as:

More-accurate demand forecasting

First there were paper spreadsheets, then the online equivalent. Now that AI has entered the picture, both of those methods of forecasting customer demand are fairly antiquated. With AI-aided analytics, the accuracy of demand forecasting has reached new highs. AI also helps retailers confidently make pricing decisions, order the right stock (thanks to predictive analytics), and optimize product placement. As a result, shoppers can locate the items they want quickly when needed and in the right locations.

Supply-chain optimization

According to McKinsey, “applying AI-driven forecasting to supply chain management…can reduce errors by between 20 and 50 percent—and translate into a reduction in lost sales and product unavailability of up to 65 percent.” This can then, in turn, cut warehousing costs 5–10% and administration costs 25–40%.

How does this optimizing activity look in practice?

• AI can do things like identify the fastest item-retrieval route on a warehouse floor
• Smart automation can hasten and simplify the price-markdown process to reduce excess stock levels
• When it comes to maintaining inventory levels, camera vision technology and sensors can show managers exactly what needs to be restocked
• Managers can see which products have been purchased, which returned, and where shoppers venture after leaving an item location
• Alerts can be provided when product levels are running out

The possible result of implementing these types of retail advancements? You could, of course, be looking at significantly better margins.

Catching shoplifters

Retail loss of inventory (“shrink”) from shoplifting, criminal flash-mob theft, and other nefarious activities has recently been in the news. According to the National Retail Federation, the average shrink rate in FY 2022 increased to 1.6% from 1.4% in 2021 and represented more than $112 billion in losses, so it’s not a minor issue for many retailers.

AI tools can help combat this existential threat in physical stores. One tactic, which can be employed during self-checkout, is using computer vision along with features such as digital sensors, object detection, and motion analytics to help prevent loss (in near real time). In other words, shoplifters could be snared as they’re using a secure type of scanning.

AI applications for winning customers

The other half of the retail-impact picture is AI’s capacity for making shopping more enjoyable.

Letting shoppers remotely try on items

From the shopper’s perspective, augmented reality (AR) technology is one truly cool application. Instead of taking a wild guess about whether something like a pair of jeans would fit using only one’s measurements, shoppers can see how they’d look. A few leading examples:

• Levi Strauss & Co as of spring 2023 was working on using AI to allow shoppers to see items on people’s differently sized models (who are also more diverse). Added bonus with augmented reality: fewer returns, which can certainly cut into retailers’ profits. “Online apparel returns by some estimates exceed 25%, with size and fit being the number one reason,” according to the jeans retailer.
• Walmart lets shoppers send in selfies of their figures and then try clothes on virtually to get an accurate idea of what items would look like.
• Amazon Fashion uses AR to let Snapchat users virtually try on glasses.

Letting shoppers skip the line

With consumers becoming increasingly technology literate, retailers must ensure that every element of their shopping experiences works well—almost magically—to keep up with the status quo, both now and with the next generation of AI software.

AI solutions are helping significantly in that regard. Certain transactional processes can be automated in physical stores, freeing human associates to do higher-value activities. Even eliminating a checkout counter can enhance shoppers’ enjoyment of the process as they look at products and talk with associates, who can then seamlessly check them out when they’re ready.

Some companies have taken the store-streamlining experience even further. For example, the futuristic Amazon Go lets shoppers come into a store through a gate with a scanner that identifies their account through a smartphone app. They can browse and put items in their baskets like in a traditional store. The difference: computer vision records all the items they’ve “bought”. Then, they skip the line and simply walk out, and their account is debited.

Amazon is (not surprisingly) first in this arena, however. It’s possible that other brick-and-mortar retailers will adopt this innovative technology, too, making this type of shopping experience more commonplace.

Personalizing for (shopper) fun and (seller) profit

With AI, the potential to make customers happy and engaged, lower operational costs, and increase revenue has grown significantly.

For example, a personalization engine can help you more accurately determine customer intent and tailor the shopper’s experience to align with that interest. If you’ve been collecting data as individual shoppers browse and buy on your site, you know pretty definitively what they want.

Analyzing this data allows you to accurately segment and provide personalized ecommerce experiences aligned with shopping patterns and customer preferences. For example, you can convert this customer-behavior information into merchandising guidance that your managers can use to inform successful product promotions.

AI recommendation engines can help power personalized product recommendations based on someone’s recent browsing and the items they put in their virtual cart.

The more personalized your recommendations and the better your connection with your shoppers, the better positioned you are to achieve some or all of the many benefits of ecommerce personalization, like higher engagement, increased loyalty, and increased conversions.

Providing unparalleled customer service

With AI, the customer satisfaction bar has been raised as well.

Remember the days of boutiques and department stores alike being closed after 5 pm and on Sundays? Do you recall the sight of people standing in long lines (even snaking through a store during a sale) to check out?

Contrast that with 24×7 shopping availability and being assisted by a friendly bot who knows what you want and is happy to chat at 3 in the morning or whenever you feel like browsing the virtual aisles of your favorite retailer. And then, when you’ve filled your cart with a bunch of good stuff, you can instantly check out and crawl into bed.

How can AI benefit your retail business?

Now you know how AI offers potentially lucrative ways to streamline retail operations, keep up with the competition, and delight customers through personalized ecommerce experiences. AI can benefit pretty much any retail business. How about yours? It’s just a question of which AI applications would provide the best bang for your buck and how much your revenue could increase.

Seeking the right technology partner for your retail AI implementation? We at Algolia would love to help you leverage some of the latest AI innovations with our proven AI-driven site search and more. Get ready to release the potential of your brick-and-mortar store, ecommerce website, or entire omnichannel ecosystem and reach out to us today!