Artificial intelligence (AI) is the term for technology that employs machine learning and automation to make decisions and solve problems like a human would. Though it might sound futuristic, it is more common than you might think—in fact, the use of AI in retail already exists (online chatbots, for example), even if retailers don’t realize it. Other retail applications of AI include predictive merchandising, route optimization for deliveries, automated staff scheduling, and in-store demand forecasting.
Did You Know?: Some 80% of retail executives anticipate that AI automation will be used by their companies by 2027—and the AI in retail market is expected to hit $85 billion by 2033.
Ways to Use AI in Retail
You may be asking if you should use AI in your retail business. Generally, the answer is yes, you should use AI. Retail businesses of all sizes can leverage the power of AI and machine learning in day-to-day operations—and, as mentioned above, many already do. If you use automated reordering or even Facebook dynamic ads, for example, you already use AI in your business.
We’ll cover some of the software and tools you can use to integrate AI into your operations later in this article—although, for independent store owners, this starts with using a POS system to track your sales, customers, and products.
Let’s explore some of the many different ways artificial intelligence can help your business.
Supply Chain Management
According to an IBM executive report, as many as 85% of retail companies plan to use AI for supply chain planning. McKinsey & Company found that companies that use AI in supply chain management have improved logistics costs by 15%, inventory levels by 35%, and service levels by 65%.
Because supply chain management touches so many areas of the business, there are many ways you can use AI. You might rely on ordering and routing automations, or use AI in analytics reporting to see which suppliers are high performers and which ones could use improvement.
Store Layout & Merchandising Optimization
Planning your store layout and then optimizing it for the best customer experience and most sales is an important task for everyone starting a retail business. AI can help in that aspect.
Rather than simply relying on intuition or your own strategies, you can take a data-informed approach to your retail store design and setup. Foot traffic counters and analytics platforms monitor not only how many people enter your shop but also where and how they move around within it. Placer.ai, which we include in our guide to determining foot traffic, is one example of such a tool, but there are many out there that also use predictive analytics to help you plan your layout and identify upselling opportunities.
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Personalized Product Recommendations
Some 90% of retailers believe AI should be a priority because it can help “update, manage, and enrich customer databases.” This is true—AI can take the data inputs about what your customers buy, how much they spend, and related information, and then predict future behavior.
AI will identify patterns and automatically adapt to those patterns to provide personalized and data-driven product recommendations for cross-selling and upselling—two techniques to help increase your average transaction amount.
AI can help you send hyper-personalized messages or offers based on your customer data. (Source: Symphony RetailAI)
This is also helpful in a retail environment because you can equip your associates with mobile tools to help them aid customers in their shopping journey. Plus, your staff can make smart product recommendations at checkout in an attempt to upsell at the last minute.
To learn more about how automation can enhance customer profiles and customer relationship management (CRM), visit our guide to CRM automation.
Staffing & Scheduling
Setting an effective staff schedule is important. You want to ensure you always have enough personnel to maintain the store and help customers, but you don’t want to overstaff to the point where employees have nothing to do or, worse, you’re losing money.
Predictive analytics and AI can help optimize employee scheduling and take some of the tedious manual processes out of it. When you look for powerful retail scheduling software, identify options that leverage AI technology.
Humanity, for example, has two AI features: Auto-Fill Schedule and Location-Based Break Rules. The former allows retailers to quickly assign shifts and fill empty slots using custom-built rules to avoid scheduling conflicts. The latter automatically adds breaks to shifts while maintaining compliance with state-mandated labor regulations. Find out more about the platform and its offerings in our in-depth Humanity review.
Inventory Management
Inventory management is another area of retail business in which AI has come into play. There are many use cases for AI when it comes to inventory management, ranging from integrations with other platforms to robots that stock shelves—and everything in between. Some of the best inventory management software also have AI features for automated reordering, low stock alerts, and pricing discrepancies.
Forecasting & Purchasing
On the note of inventory management, AI is also helpful for improving the accuracy of a retailer’s forecasting and purchasing. Annual spend on AI software for demand forecasting is expected to increase significantly, from $760 million in 2019 to $3 billion by 2023.
More accurate demand forecasting leads to improved purchasing, so you can maintain optimal inventory levels.
Self-checkout & Loss Prevention
Retailers are constantly improving the checkout experience both for the customer and for loss prevention. AI in self-checkout monitors shopper activity and alerts staff to cases of suspected theft. The value of transactions processed by smart checkout technologies will increase from just $2 billion in 2020 to $387 billion in 2025, Juniper Research estimates.
Marketing
AI is also prevalent in retail marketing, especially as it relates to automation. In fact, AI technologies for marketing campaign personalization grew 114.5% in one year—the fastest-growing use case. Marketing automation includes email sequences, social media advertising optimization, customer segmentation, and even personalized promotions and campaigns, among many other things.
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You can also use AI tools like ChatGPT to help you write copy. This is especially helpful if you don’t consider yourself a writer or marketer. You can prompt the AI writing tool to write social media captions, headlines, email subject lines, product descriptions, and more. Some editing is almost always required, but it’s a great way to get started with a blank page.
Small business platforms like Shopify, Wix, and Squarespace already have native tools for AI-generated copy, blog posts, product descriptions, and even site design.
Virtual Fitting Rooms
Virtual fitting rooms are creating a footprint in the retail landscape as more and more businesses adopt the technology. Many of these platforms include some sort of AI technology. This technology tracks user behavior, notes which products customers like, and makes predictions and recommendations based on those data inputs.
Virtual fitting room technology gives you insight into your customers, including what products are being “tried on,” how they are styling the products, which models are being selected, and more. (Source: Vue.ai)
Real-life Examples of AI in Retail Stores
You don’t need to be a massive retail chain to implement AI for your business. Check out the following examples of artificial intelligence in retail to get inspiration for your own business.
Fashion brand 1822 Denim wasn’t afraid to embrace virtual fitting room technology. “Technology is the future of fashion—and the future of fashion is not only easier for customers, but more sustainable and more size-inclusive as well,” the company wrote in a blog post. “When we embrace technology that makes our lives simpler, we embrace a better future for everyone.”
Its virtual fitting rooms were more than just buzzworthy. They also drove sales. In fact, the retailer both increased conversions and reduced returns as a result.
La Isla is a unique space in San Juan, Puerto Rico: a hybrid of a quick-serve restaurant, retail store, and co-working space. While the no-waste retail shop has a traditional checkout counter, its restaurant caters to self-serve.
Guests enter the space, choose a table, and scan a QR code to see the menu. They then place an order all on their phone—no need for human interaction. While some guests say the experience feels a bit impersonal, it’s also extremely efficient.
Swimwear brand Abysse has a live chat tool on its website which uses AI technology. You can see the option to ask common questions, to which the technology will automatically respond with the appropriate answer. The technology can also curate and summarize interactions into usable data and analytics reports so Abysse can continue to improve its customer experience.
Abysse’s AI-powered chat tool provides customers with answers to common questions while also collecting data the retailer can use for customer engagement and marketing efforts.
(Source: Abysse)
Benefits of AI for Retail
AI has many potential benefits for retail businesses, including but not limited to:
Sustainability
AI technology can help businesses operate more sustainably in a number of ways, including:
- Monitoring, controlling, and optimizing energy consumption levels
- Accurately forecast demand for products to eliminate expired inventory and waste
- Reduce emissions through automated supply chain optimization
Cost Efficiency
Optimized inventory levels reduce carrying costs. AI reduces the need for costly human labor and allows people to focus on more impactful tasks. On top of that, automation improves accuracy while mitigating costly errors.
It also provides a rich amount of data that businesses can use to make better, more informed decisions—with less financial risk. These are just a few of the ways AI helps retail businesses become more cost-efficient in their operations.
Customer Satisfaction
AI also automates and impacts a lot of customer-facing interactions. Marketing campaigns, automated email sequences, personalized ads, customer service—these all stand to benefit from AI, and when the customer wins, so does your business.
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AI can also provide solutions quicker, especially during times a human isn’t available. It can personalize communications and offers automatically, so your customers feel like you’ve taken time to get to know them and share relevant promotions. You can speed up the checkout process, reducing friction and frustration.
AI in Retail Software & Tools
It’s easier and more affordable to get started with AI than you might think. If you want to use AI in your retail business, simply adopt some tools and technologies that incorporate AI into their platforms.
Customer service software Zendesk and accounting tool Botkeeper are two examples of great retail platforms that take advantage of the benefits of AI. Learn more about them in our Zendesk review and Botkeeper review.
Here are some more places to start your research:
- Best Sales Automation Software
- How Artificial Intelligence Improves Customer Service
- Best AI Content Writers for Small Businesses
- 12 Ways to Use AI in Small Business Marketing
Bottom Line
Artificial intelligence in retail has been around a lot longer than you might realize. In fact, many small retail business owners may be using AI already without even realizing it. Implementing AI into your retail business isn’t as complicated as it sounds. With so many business tools utilizing the technology, it’s accessible to merchants of all sizes and stages of business
