Evolution of Stores: Rise of Artificial Intelligence


It has become increasingly apparent that brick and mortar retailers need to break away from their traditional practices to survive and thrive in the evolving retail environment. One of the many challenges is to capture and maintain the attention of customers who have various digital tools at their disposal to look for the best prices and most convenient delivery options available. To survive during this challenging time, several big box retailers like Walmart & Target have already started incorporating artificial intelligence (AI) into their operations and strategies.

So how does AI enable us to achieve what we can’t do through already implemented technological solutions? AI not only enables us to crunch massive amounts of data from various sources and identify patterns, it also helps identify new opportunities and solutions. The use of AI in retail can be implemented across multiple business functions, such as supply chain optimization, increasing conversion, or customizing shopping experiences. Let’s look at a few areas where AI can make a significant impact for brick and mortar retailers.

Streamline Inventory Management: Managing inventory can be a tedious task which can cause inaccuracies, missed sales opportunities, or a bad customer experience, which in turn can cause irreparable damage to a retailer’s brand value. For example, Target had to exit the Canadian market because it failed to quickly analyze and understand its stock-out problem.

This is where AI can act as an advisor by combing through data analyzing by historic sales, location, weather, promotion as well as other parameters to identify future purchase patterns, and thereby identifying products prone to be over or under stocked. Morrisons, a supermarket chain based in the UK, has already seen success by using AI to reduce shelf gaps by 30%..

Bad customer service: Multichannel retailers are beginning to realizethatconsumers have more purchasing options and expect the best possible deals without having to stand in long checkout lines. However, A.T. Kearney’s 2018 Holiday Shopping Survey revealed that 84% of customers reported long lines and 57% blamed poor service as the main reason for unsatisfactory in-store experience.

Some retailers have already started using AI to solve this problem. For instance, Lowe’s introduced a bot which helps customers find products, while Amazon and Alibaba have used artificial intelligence to enable checkout-free stores. Beauty retailers such as MAC have deployed smart mirrors with augmented reality and AI in their stores, which allow customers to try beauty products without waiting on store associates.

Sub Optimal Pricing: Online retailers, such as Amazon, have successfully responded to changes in consumer demand and competitors’ pricing by analyzing pricing data in cutting-edge applications. However, in most cases, big box retailers haven’t explored this opportunity to its fullest yet. AI can help brick and mortar retailers by creating different pricing models and predicting its impact on sales. It uses data on price and promotions along with external factors such as location, weather, and more to derive an optimum pricing model. Increasingly, retailers have realized the importance of a dynamic pricing strategy backed by AI and how it can be a competitive advantage.

Inventory Shrinkage: According to an NRF study, retailers lose close to $50 billion annually to shrinkage (theft, breakage, and accounting errors), which has the potential to continue to decline with a growing number of retailers opting for self-checkout. Machine learning systems can help reduce shrinkage by scanning through huge data of images/videos to figure out the discrepancies in what was ringed through the point of sale (POS) system and what was sold (able to distinguish an apple from a tomato). It can also be applied to other situations such as a customer failing to take a product out of basket, directly putting the item in a bag, tampering bar codes and store associates giving away items free of charge to a customer.

Inconsistent Online/Offline Experience:Someconsumers expect the same simple, personalized experience they have online as that they do offline in the store. For example, if they see a promotion online, they may expect the same deals or opportunities in the store. Sometimes, these inconsistences in expectations can lead to frustration with the brand. AI can play a key role by streamlining customer experiences across channels and becoming a digital spokesperson for the brand. Macy’s is currently testing an AI driven service that allows customers to use their mobile app in store to answer questions about product info, stock, promotions etc. and receive personalized responses.

AI enabled experience, in its most sophisticated form, makes technology invisible to the end customer. More than 3 millionpeople chat with Amazon Alexa without realizing the complex technology that makes this interaction possible.The idea is to become a participant rather than a provider and make each interaction personal instead of transactional.

As AI starts to become a major asset in retail stores, the lines between digital and physical will start to blur. Some traditional brick and mortar retailers have undergone major transitions but by continuing to embrace change, they will evolve rather than go extinct.

-Faraz Ghani, a principal consultant with Wipro Domain Consulting Group