AI in Retail: Sizzle or Steak?

With all the buzz about artificial intelligence (AI) these days, retailers are naturally asking, “Is AI for real, or is it just a passing fad?” Nearly every retail technology company is now slapping the “AI” moniker on their marketing materials, but which AI applications are really moving the needle for retailers?

A Gartner report released in April indicated that retailers view AI as a strategic game changer, however, AI isn't yet in the top three priorities for technology funding. According to an August 2018 survey of 400 retail executives worldwide by Capgemini, AI could save retailers as much as $340 billion annually by 2022, with 80 percent of the savings coming from AI-enabled efficiencies in supply chains and returns processes.

At three separate conferences in April, I heard retailers, brands and analysts speak publicly about practical experiences in using AI to drive measurable results. A number of these presentations are worth sharing, as they help remove the “artificial” from the “intelligence.”

At the 2019 Unified Retailing Conference in New York, sponsored by Columbus Consulting, the theme was “The Road to Profitability Starts and Ends With the Customer.” Dr. Mark Chrystal, chief analytics officer for fast-fashion retailer rue21, spoke about how the company has moved from bankruptcy to profitability. Over the past few years, rue21 lost touch with its core customers and what was important to them. By applying a new AI application to customer feedback data, rue21 quickly learned that product assortment was a top issue for the company’s targeted customer segments.

With this insight, rue21 implemented an AI-driven digital product testing solution to enable merchants to quickly determine which products would appeal to these targeted customers and at which price points. By knowing what prices customers were willing to pay, rue21 was also able to negotiate better pricing with its vendors. Equally important, rue21 was able to use AI to understand why certain products didn't resonate with customers, allowing design changes to be made before launch.

The results have been dramatic. rue21 has shortened its supply chain from 270-300 days to 90–120 days, and has seen margin improvements of up to 600 basis points on the products processed through the AI platform. Chrystal concluded by saying, “I attribute the turnaround to leveraging analytics.”

At the Cowen and Company “Future of the Consumer” conference in New York, the theme was “Customer Centricity for the Next Generation.” The day was packed with retail CEOs and CFOs sharing how they plan to maintain and grow their brand relevancy, using data and analytics as part of their strategy. Oliver Chen, Cowen’s retail and luxury analyst, spoke about the “Three C’s of Retail,” which are “connected, context and community.” Chen noted how Walmart is using AI-driven robots in its stores to track and manage inventory, unload inventory from trucks, and pick and pack orders. The robots have enabled Walmart to improve its inventory accuracy and ensure the right products are in the right place at the right time. “The connected store is a huge theme for us and will be for the next three [years] to five years,” said Chen.

At the FDRA 2019 Footwear Executive Summit in Washington, D.C., attendees heard from Wolverine Worldwide, parent company of footwear brands Merrell, Hush Puppies, Stride Rite, Keds and others. Greg Tunney, president of Hush Puppies, spoke about how the brand is using AI and consumer analytics to understand what customers want in markets across the globe. Hush Puppies has a complicated business, as it needs to align assortments across 86 different countries. The company uses First Insight’s customer-centric merchandising solution to speak to customers in each of these regions, and then aggregates the data to make assortment decisions. Tunney spoke about Hush Puppies recent sell-in results, which included an 88 percent increase in style adoption and a 39 percent increase in pairs of shoes ordered.

Based on these examples, my takeaway is that AI in retail is real, and that we're in early innings in terms of seeing the benefits. This industry will always require a balance of art and science, but retailers that are sitting on the sidelines waiting to see if AI is just a fad will be quickly left behind.

Jim Shea is chief commercial officer for First Insight, the leading customer-centric merchandising platform used by retailers and brands worldwide.