2025: The Year the AI Hype Drives Measurable, High Returns in Retail

2024 was the ultimate retail rollercoaster — and not the fun kind you find at a theme park. With rising and falling inflation, jobless claims and consumer sentiment, retailers had a lot to toss and turn about last year. As we venture further into 2025, all eyes are on retailers. Will they adapt to shifting economic and consumer demands or call it quits? The answer: the savviest retailers aren’t backing down; they’re stepping up, arming themselves with sophisticated artificial intelligence tactics, and doubling down on what truly drives return on investment.

Tactics topping the list for the best and brightest in retail this year? Hyperpersonalization and AI-powered decision-making for both back-end and consumer-facing applications. However, navigating the fine line between cutting-edge personalization and AI tools that deliver real value and chasing the latest shiny trend is no easy feat. Let’s break down what that balance should look like at a time when consumers are keeping a close eye on their wallets and personal data.

AI Personalization as the Ultimate Personal Shopper

As humans, we crave to be known, and retailers that understand this will keep customers coming back. Luckily, most retailers now know that personalization is an expectation, not a perk. In fact, 70 percent of B2C retailers say personalization is essential to their e-commerce strategy. In the era of hyperpersonalization, retailers deploy AI-driven insights across every step of the shopper journey (and the back-end logistics) and ensure the data behind the technology is detailed and easily accessible for the tools. The AI powering these personalization tools can quickly identify user preferences and behaviors at a granular level, then leverage these meaningful insights to offer tailored content, custom recommendations, and personalized results. These capabilities are rewarding for all, driving increased conversions and customer loyalty for retailers and immersive shopping experiences for consumers.

Related story: How Retailers Personalize Shopping Experiences to Be Helpful, Not Creepy

The AI That’s Winning Over Both Retailers and Shoppers

Consumers have high hopes for AI-driven tactics, too. The hard numbers on how eager consumers are to welcome AI into their day-to-day shopping? According to a recent consumer survey by Algolia, well over half of consumers (59 percent) think the wider adoption of AI by online retailers will create better shopping experiences. American consumers and retailers also bet on the same kind of AI to supercharge shopping. You're right on the money if you guessed generative AI (GenAI). Yet, retailers must take a pragmatic approach when adding GenAI to their tech stacks.

So, how do forward-thinking retailers approach GenAI? Many are leveraging it to create dynamic, real-time shopping guides that offer curated product collections based on consumer tastes and preferences. Consumers are thrilled about GenAI solutions, too, with 40 percent saying they're interested in using GenAI-powered reviews that summarize products' pros and cons. How could they not welcome this breakthrough advancement? For shoppers, AI-powered product reviews mean that the days of endless scrolling are over. Instead, they have an intelligent personal shopper to guide them to the right product when they need it most.

AI Trust Tops the CX Agenda This Year

Retailers grapple with a massive AI and personalization challenge: these solutions will fall flat without trust. And consumer trust in businesses is anything but steady. Consumers aren’t naive; they're aware that, at times, organizations don’t treat their data with the meticulous care they should. Most consumers can point to a time a targeted ad popped up and they said, “Hey, how did they know I was talking about needing this incredibly specific product?” That’s probably why 58 percent of consumers told Algolia they had found a retailer’s personalized recommendation creepy at least once. Because of data privacy jitters, big AI providers increasingly prioritize data protection, making it easier to use the platforms without concern. Beyond data safety, AI has graduated to delivering significantly more accurate results this year, meaning retailers no longer have to always fact-check the work extensively.

However, consumers don’t automatically know all the behind-the-scenes steps retailers and tech vendors have taken to ensure consumer data is safe and that AI-driven results are accurate and personalized. Yet, shoppers will play the AI personalization game if retailers show all their cards. An Algolia survey finds that 58 percent of consumers would share their data and browsing activity with a retailer if they could certify the business will leverage their information to tailor and improve their shopping experiences.

There's an easy way for retailers to be completely transparent when using AI-driven personalization: zero-party data. This emerging solution empowers users to opt in or out of personalized results, choose what preferences they would like to disclose, and share feedback in real time on the relevance of products offered to them. Translation? Zero-party data ensures a transparent experience where consumers have more control over their shopping experiences, ensuring their needs are met and their privacy isn’t compromised.

The AI-Driven Road Ahead

Last year, retailers experimented with AI, exploring its potential like a shiny new gadget. It’s now time to move beyond testing and apply what works to drive measurable ROI. Success will come from investing in AI partners and strategies that take customer trust and experience to the next level.

Piyush Patel is chief ecosystem officer at Algolia, a leader in globally scalable, secure, digital search and discovery experiences that are ultrafast and reliable.