For most retailers, holiday — also known as the golden quarter — is the make-or-break season. Retailers have been preparing for the upcoming holiday season for months, and for good reason. The period between Black Friday and Christmas can represent a significant chunk of sales revenue for a retailer. In 2018, consumers spent nearly $1 trillion, and this figure is expected to increase in 2019.
Mobile devices have created a generation of consumers who are empowered and have increased expectations on accessing the products they want, when they want to. This makes it even more important for retailers to have the right mix of inventory and ensure goods are delivered when and where consumers expect them to be.
As retailers think about ways to improve their holiday strategies, it’s important they have all of the tools and resources at their disposal to drive operations in a smart, cost-effective manner while leveraging data from previous seasons to generate more revenue in the coming months.
Enter artificial intelligence (AI). By leveraging AI, retailers can gain a competitive advantage and ensure they're getting a slice of that $1 trillion-plus dollar pie.
AI in Retail Today
When used correctly, AI allows retailers to compete and thrive year-round. Retailers can use AI to better understand data trends related to consumers’ evolving shopping habits. This will inform how their businesses should adapt, which will help maintain and drive new sales and answer key questions, including the following: What products do I need? Which colors/sizes should I buy? When do we have to order it so that it arrives at the right locations and at the right times? What are the right replenishing strategies that maximize the customer experience?
There are many ways AI can help retailers year-round, including solving some of the most common challenges:
- Predicting fulfillment staffing levels: Retailers can use AI to predict how many employees it will need to fulfill orders and ship goods during highly volatile seasonal moments.
- Price optimization: AI can identify optimal price points, influenced by multiple factors including item, brand, category and location.
- Return forecasting: Retailers can leverage AI to predict the probability of return for each item purchased through every channel.
Using AI to Predict Holiday Success
When optimizing for the holiday season in particular, retailers should look at demand forecasting and time series forecasting as key parts of their strategy.
AI-powered demand forecasting allows retailers to understand what goods are needed at what time, creating optimized inventory levels across the entire supply chain and decreasing out-of-stock situations that, as noted earlier, consumers no longer tolerate. While basic demand forecasting analyzes data based on a static set of rules to generate a result, AI-driven demand forecasting automatically detects complex interactions and patterns in the data that would be impossible — or take too long — for humans to recognize.
Automated AI solutions can help retailers address one of the most complex tasks: time series forecasting. Time series is comprised of a set of data points indexed, listed or graphed in time order. Time series forecasting is the use of models to predict future values based on historical data. Because time series forecasting uses trends over time with known future events, like the upcoming holidays, to predict future behavior, it can be very powerful. AI reduces the time and resources needed to build these predictions, which helps retailers increase productivity and drive a higher return on investment. Having a strategy in place that leverages demand forecasting and automated time series helps retailers provide a better customer experience.
To stay ahead this holiday season, retailers must focus on delivering exceptional customer experiences while maintaining operational efficiency. By leveraging the power of demand forecasting and time series, retailers can more accurately predict what customers will want, when they want it, and ensure they have enough inventory on hand to meet the demand, leading to a happy holiday season for all.
Paul Winsor is general manager of retail at DataRobot, an enterprise AI company.