AI in Retail: Small Business Guide

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 and technical, AI is more approachable and commonplace 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. A 2020 survey from McKinsey found that about half of businesses already employ AI in some capacity.

Chatbots may be the most common example of artificial intelligence in action online, but AI is just as applicable in physical retail in areas such as predictive merchandising, route optimization for deliveries, automated staff scheduling, and in-store demand forecasting.

Graphic showing the Artificial Intelligence in Retail by the Numbers.

Using AI in Retail: Now & in the Future

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

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%.

Survey of how retailers plan to use AI in percentage.

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. Really, the possibilities are almost endless.

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 every retail business. AI can help.

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 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.

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 equip in mobile tools help to aid customer's shopping journey.

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.

Learn more about managing your retail staffing and scheduling needs:

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 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 Automation

AI, specifically when it comes to automation, is also prevalent in retail marketing. 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.

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)

AI in Retail Software & Tools

It’s actually 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.

Did You Know?: Globally, the AI in retail market was valued at $4.84 billion in 2021, and is projected to hit $31.18 billion in 2028. In fact, an estimated 325,000 retailers will have implemented some form of machine learning by 2023.

Here are some more places to start your research:

As far as dedicated AI tools and platforms go, you can also check out the following:

IBM Watson Studio: Create your own AI models
Infrrd: Automated document processing
Lumiata: AI platform specifically for healthcare businesses
Meya: Customer experience (CX) platform with automated customer service via chatbots
Microsoft Azure: Build your own AI ecosystem
MindMeld: Automated chatbots and customer support
Premonition: Smart data analysis and reporting for legal-based businesses
Rainbird: Automates employee and business decision-making
Receptiviti: Smart language analysis to understand voice of customer
Symphony AyasdiAI: Prevents money laundering, fraud, corruption, and trafficking
Symphony RetailAI: Automation for grocery stores
Vue.ai: Virtual fitting rooms
Wipro Holmes: Automated business and expense optimization
Wit: Create voice search experiences

Bottom Line

AI has been around in retail 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