Keys to introducing AI in retail environments

From improved supply chain management to more advanced analytics and customer experience, AI is impacting all areas of the retail business. It can improve both the online and in-store experience for customers and employees alike.

Retailers are embracing AI technologies because they can produce tangible results. In fact, executives believe that AI’s contribution to retail revenue growth will increase by 133% from 2023 to 2027, according to an IBM Institute for Business Value study¹.

Many retail business executives understand the importance of AI, since almost 9 in 10 executives claim to have clear organizational structures, policies and processes for AI governance. But fewer than a quarter of organizations fully implement and continuously review tools on AI governance, putting brand trust at risk.

In addition, organizations may not be prepared in other ways. For example, the Institute for Business Value projects that only 31% of their workforce need to reskill or develop new skills in that same time frame, underestimating the support required in the process.

Many organizations are beginning their AI journeys by focusing on integrating within a few functions. Executives are aligned on how AI revolutionizes their work in several areas. For example, executives in the IBM Institute for Business Value study for AI said that they identified three areas where they were already making strides by using AI: demand forecasting (88%), HR help desks (87%), IT support and issue remediation (84%). 

For example, Germany-based retailer Edeka worked with IBM by using the IBM Watson® Discovery and IBM watsonx.ai™ platforms to process manual and technical documents to create a knowledge base that the IT team can use to streamline issue remediation. Focusing on individual improvements is a good start but more advanced retailers must move quickly to establish a comprehensive AI strategy. Taking quick action creates a better opportunity to make smarter decisions on where to invest and how to take full advantage of AI’s benefits.

Organizations can maximize the value of their AI investments only if they scale beyond quick wins and pilots to a holistic infusion of the technology through various areas in the business. 

Executives project that the AI portion of their IT budget expenditure will increase by 19% over the next year, which means IT spending on AI will be 1.04%.

Interestingly, spending on AI outside of the IT budget is expected to surge 52% (2.28% as a % of revenue). Taken together, 3.32% of revenue might be dedicated to AI spending next year. For a $1 billion company, that equates to $33.2 million for total AI expenditure. Organizations must consider whether they are investing enough into AI and make appropriate budgeting decisions.

The IBM Institute for Business Value study found that the three main areas of planned investment were marketing and customer experience, IT Security and finance. The areas that are least targeted for investment were stores, product development,production and manufacturing.

Neglecting the ability to use AI to improve the in-store experience might be a significant miss for retailers. AI can personalize shopping experiences such as dynamic pricing and custom recommendations. It can also help retailers better map out how they use their real estate. About 60% of customers want to use AI technologies when they shop, in researching products (86%), shopping for deals (79%) and getting their issues resolved (82%).

For example, Kroger introduced AI-enabled dynamic batching to its store pickup process. The solution sorts through 200,000 totes per second to build the most efficient pickup trolley and identify the most efficient route through the store. This approach resulted in a 10% reduction in steps and reduced pickup lead time in its highest volume stores.

The use of AI created an Agentic Era, where employees and consumers alike begin using AI agents to navigate the world. Some employees undoubtedly are worried about how AI might impact their jobs. But most accept that AI plays a fundamental role in their ongoing careers. 

Ninety-six percent of executives say that their employees use AI and gen AI to a moderate or significant extent at work. This will increase as they use AI agents to ask questions, recall information and request the agent to perform tasks. 

Likewise, employees expect their employers to train them to better use AI. In fact, a separate IBM Institute for Business Value survey of workers found that more than two thirds of employees will join another company if that employer provides technological training.

However, most companies believe that AI augments the work that they do and does not just automate tasks previously handled by employees. As the author of the “Embedding AI in your brand’s DNA” report stated, “Industry leaders know that many brand-defining areas demand human intuition, creativity, emotional intelligence and expertise that can be complemented by AI.”

Brands attempting to incorporate AI on their own may miss best practices or fail to incorporate the latest and greatest technology into their systems. IBM Institute for Business Value research identified that 65% of organizations partner² with or plan to partner with strategic organizations to build a large language model for generative AI initiatives. This helps ensure that companies have access to the latest model development, platforms and tools to truly embed AI throughout the organization. Partners like IBM can provide AI and hybrid cloud technologies and solutions that help retailers enhance operations, promote sustainability and deliver a seamless customer experience across the omnichannel environment.  

Retailers are responsible for many different types of data from payment information to purchase histories and sensitive customer data. 

For all the value that AI can produce, it can also create great unease in employees and customers if deployed incorrectly or unevenly. Retailers need well-established governance policies to determine how they handle, store and access that data. That governance must also include advanced security measures to protect that data by guarding against security breaches and resolving any successful attacks quickly. 

Executives are likewise worried about AI’s potential to create misleading information, violate privacy, worsen fairness and increase bias. In fact, more than two thirds of consumers admit they avoid AI-fueled recommendations because they are biased or stereotypical. Companies must be transparent with all stakeholders on how they are using AI and in which scenarios. They also need to explain how they remove or mitigate bias. Finally, they must communicate to consumers how the AI they are using benefits them through either quality of service or reduced costs. 

Retailers must embrace AI to streamline their operations and to bring more value to their stakeholders, including partners, employees and customers. But it requires the right levels of investment and strategic vision to get the most out of the emerging technology. Learn more by reviewing the IBM Institute for Business Value report and reach out to learn more about how IBM can help you use AI to improve efficiency and drive more revenue.