AI on Aisle 5: Transforming Retail Operations and Experiences With Smart Technology

The retail industry has embarked on a transformative shift driven by the rise of generative artificial intelligence. While still in its early stages, this disruptive technology promises to revolutionize how retailers operate, from enhancing data quality and decision making to delivering highly personalized shopping experiences at an unprecedented scale.

The recent efforts from Microsoft to Google and beyond, which bring AI products to retailers, are just the tip of the iceberg for the industry and a broader evolution in consumer expectations and retail strategies that will meet them. Retail is poised for a transformative shift towards more intelligent and personalized customer experiences, and real-time, predictive data is now the currency of innovation.

Ensuring Data Quality and Driving Informed Decisions

Generative AI's impact on retail lies in its ability to process and derive valuable insights from vast amounts of data. By leveraging AI-assisted merchandising, retailers can significantly improve product data and metadata, a critical foundation for seamless customer experiences. The challenge, however, lies in the scale of data integration across multiple sources — a brand like Nike, for example, might find it more manageable than a brand like Nordstrom selling 300-plus brands of shoes.

Beyond data quality, generative AI holds immense potential for informed decision making across supply chain and inventory optimization, fulfillment management, category planning, and forecasting. Companies are also going to leverage AI to do much better financial planning and distribution management. In fact, our team has seen firsthand how AI can significantly enhance data quality for major retailers. One global apparel brand leveraged AI models to automatically enrich product metadata, reducing manual tagging efforts by 75 percent and enabling more precise product recommendations.

By integrating and harmonizing data from various sources and also recognizing intricate patterns, AI can empower retailers with strategic insights, following the footsteps of early adopters like Amazon.com, Walmart, and Alibaba.

Elevating Customer Experiences Through Personalization

Perhaps the most visible impact of generative AI in retail will be the transformation of customer experiences. AI-powered product recommendations and virtual assistants will usher in a new era of personalized shopping at scale. An AI assistant should be able to give you the top three to five most recommended products for a highly unique scenario. By contextual understanding of customer preferences and scenarios, retailers can deliver tailored experiences that were previously unattainable.

Furthermore, generative AI promises to bridge the divide between online and offline shopping, aligning digital and in-store experiences into what’s been a long anticipated cohesive omnichannel journey. Those retailers that don't have omnichannel capabilities are quickly falling behind, as customers expect the ability to shop online, pick up or return in-store, and move seamlessly between channels without repeating themselves. Empowering sales associates with AI-driven insights and training will be crucial in delivering real-time, accurate, and responsive customer interactions.

Emerging Challenges and the Path Forward

While the potential is evident, the adoption of generative AI in retail is still in its infancy. However, most retailers are already experimenting with one form or another by prototyping. Cost and technological barriers remain, but the democratization of AI through open-source models and services is rapidly lowering the barriers to entry.

Looking ahead, experts project substantial adoption within the next two years to three years, with predictions that adoption will increase significantly in this timeframe. In fact, the global AI-in-retail market size is anticipated to reach $24.1 billion by 2028. It’s important to keep in mind, however, rather than full-scale transformations, a more likely scenario is segmented implementation, with retailers targeting specific use cases to test the waters. For retailers that haven’t invested heavily in technology in recent years, the use of AI should be surgical to address the most urgent pain points, otherwise they risk falling further behind if attempting to “boil the ocean” with long, complex implementations that may not yield the right results.

As generative AI continues to evolve, concerns around data privacy and security will become paramount. Trust is going to become a big factor — if AI is used in a way that can be interpreted as mistrustful, it could lead to the loss of that customer forever. However, emerging regulations, such as the AI Act in the EU and upcoming U.S. laws, should shape the responsible and ethical implementation of this technology, and could actually increase customer loyalty when done right.

The retail industry stands at an inflection point, with generative AI poised to disrupt every aspect of operations, from data management to customer engagement. While challenges remain, the transformative potential is undeniable. For retailers seeking to thrive in the AI-driven future, the time to explore and embrace these capabilities is now.

Areos Ledesma is a partner and senior vice president at Nortal, a strategic digital transformation partner for leading companies and governments around the world.