AI in retail and the rise of the purpose-driven consumer

By | 5 minute read | February 21, 2022

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That retail has experienced extreme disruption in recent years is beyond questioning. Even before Covid turned the world on its head, headlines about the so-called “retail apocalypse” were near-ubiquitous in the media.

Since then, we’ve seen lockdowns, fluctuating openings and closings, some firms going out of business altogether, celebrations of essential retail workers and a surge in online shopping that brought record profits while yielding more ambiguous results for others. And now, with ongoing supply chain disruption, inflation and a tight labor market, it’s clear that the retail sector still faces substantial challenges.

But these challenges also represent opportunity, and harnessing the power of digital transformation will remain central to every business leader serious about thriving in the post-Covid world. Retail isn’t just big, it’s huge — the National Retail Federation expects sales to grow by as much as 13.5% to an estimated total of $4.56 trillion in the US in 2021.

And while we may not yet be living in the post-Covid era, the outline of what that “next normal” might look like is emerging. New research from NielssenIQ suggests that the widespread availability of vaccines is fueling a “cautious confidence renewal” among shoppers, even while priorities and shopping habits continue to be impacted by the pandemic.

But amidst all this uncertainty just what trends should business leaders be focused on?

The rise of hybrid shopping experiences

Each year analysts pay close attention to retail spending around the holidays, and this year the news was upbeat. Although in December sales dropped by 1.9%, this was offset by overall robust Q4 growth of 17.9% over the same period a year earlier.

As IBM CEO Arvind Krishna suggested in a recent keynote talk at the National Retail Federation (RTF), people appear to have moved from a “just in time” approach to shopping to a “just in case” model — though whether this trend will continue long-term remains to be seen.

If consumer spending patterns are evolving, so too is their relationship to the retail experience. And while the shift to online shopping has been substantial, digital transformation does not signal the end of physical shopping. New research from IBM’s Institute for Business Value (IBV) and the RTF indicates that consumers want a range of experiences beyond simply opening the door and picking up a parcel.

In fact, nearly three in four consumers (72%) report that they still rely on stores as part of their primary buying method. Meanwhile, hybrid retail — including experiences such as curbside shopping, or ordering online and picking up instore — is now the primary buying method for 27%  of consumers.

Strikingly, 36% of Gen Z consumers — so-called “digital natives” — prefer this hybrid model of shopping: the largest share of any age cohort.

Future proofing retail through AI

But while trends show us where we are now and were we might be headed, what can retailers do to future proof their digital transformation strategies?

Here AI represents a powerful opportunity to increase profits and deliver new and improved experiences, with IBM’s Krishna telling the audience at the RTF that we have so far only unlocked 10 percent of the technology’s potential.

We already know that AI can be used to power virtual assistants and automate checkouts. AI-powered logistics management can predict product demand by analyzing historical and location information, and it can get the right products in front of consumers at the right time.

But it’s also important to consider the wider impact of AI. More efficient, automated processes don’t just lead to increased profitability — they also have a human impact. The more that we can get machines to shoulder repetitive time-consuming work, lead to less stressed, more engaged employees and satisfied customers.

The importance of the purpose-driven consumer

Another increasingly important factor for business leaders to consider when pursuing their digital transformation strategies is: what are the broader environmental and social impacts of our actions?

This is not just a matter of satisfying the increasing number of regulatory obligations. Research from the IBV shows that 62% of consumers say they’re willing to change their purchasing habits to reduce environmental impact. Meanwhile “purpose-driven consumers” who seek products and brands that align with their values are on the rise and are now the largest segment of the buying population, representing close to half (44%) of the total. Digital transformation has a central role to play here also: for instance, Heineken recntly teamed with IBM to modernize its integration capabilities in a way that also supports the firm’s environmental and social responsibility initiatives.

The good news is that purpose need not be in conflict with profit. In fact, a recent analysis of business sustainability strategies by the IBV found that between 2018 and the first half of 2021 a select group of “transformational trailblazers” saw an estimated cumulative revenue growth of 51% — a difference of nine percentage points over their next best performing peers.

Meanwhile, according to Gallup, Gen Z and Millennials now make up nearly half (46%) of the full-time workforce in the U.S., and these age groups want to work for companies with ethical leadership. Successfully implementing sustainability strategies may therefore also make firms more attractive to job seekers, and help them overcome the challenges of a tight labor market. Indeed, according to research from PwC, 65% of people worldwide want to work for a company with a social conscience.

Conclusion

A successful digital transformation strategy is not just about buying tools or responding to trends. Thinking deeply and holistically about how to apply new technologies such as intelligent automation will help retail businesses not only drive profit, but improve the experiences of customers and employees alike, leading to superior experiences for all.

In this radically changed business landscape, IBM is partnering with organizations to deliver five levers of digital advantage that are designed to predict and shape data-driven outcomes, automate at scale for productivity and efficiency, secure all touchpoints all the time, modernize infrastructures and transform with new technology-driven digital business models.

Want to learn more? Read the IBM Institute for Business Value full report: Consumers want it all: Hybrid shopping, sustainability, and purpose-driven brands.

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