Gone are the days of one-size-fits-all recommendations and bland product descriptions. Today’s retail businesses landscape—encompassing both online retailers and brick-and-mortar stores—is undergoing a revolution fueled by artificial intelligence (AI). The new technology is changing the purchase patterns and transforming the way customers shop and interact with products, creating a more personalized, engaging, and efficient shopping experience for both businesses and customers.
With the global AI in retail market size projected to hit a staggering $45.74 billion by 2032, it’s clear that AI and retail industry are evolving together.. But what specific artificial intelligence (AI) solutions are driving this growth, and how can retailers leverage them increase sales, delight customers, and stay ahead of the curve? Let’s dive deeper and explore the exciting possibilities of artificial intelligence for retail businesses.
The role of AI in retail
Even though the adoption of AI in retail stores is still in its early stages, 87% of retailers have already deployed the technology in at least one area of their business. 60% of retail companies are planning to boost their AI investments in the near future, and by 2025, 80% of retail executives expect their organizations to adopt artificial intelligence automation.
As AI’s presence grows, retail companies face a crucial choice: embrace it to unlock AI strategic applications to boost productivity and performance or risk falling behind. It seems that ignoring AI in retail business is no longer an option. Particularly if customers are not only willing to use generative AI tools to enhance their online shopping experiences but they’re also enthusiastic about AI initiatives.
For example, 87% of shoppers who have tried a GenAI tools are excited about the positive impact the technology has on their shopping journeys. 73% of consumers are open to AI-powered chatbots for customer service, and 60% have already used virtual assistants to make purchases through voice commands.
In essence, artificial intelligence (AI) represents a pivotal turning point for the retail industry. Those retailers who use AI and embrace its potential will thrive in the new era of retail, while those who resist risk becoming relics of the past. In fact, it’s been found that 69% of retailers have reported an increase in their annual revenue as a result of adopting artificial intelligence, and 72% of those retailers already using AI say they experienced a decrease in operating costs. What’s more, McKinsey forecasts that through improving digital customer interactions, artificial intelligence could bring in an extra $310 billion for the retail sector. Sounds impressive, doesn’t it?
What are the main reasons behind the increasing use of artificial intelligence in retail industry? These include:
- Supply chain and logistics e.g. to optimize delivery times or multiple sources;
- Improving products;
- Guiding customers in both brick-and-mortar stores and online shops to improve customer satisfaction;
- Analyzing payments and pricing e.g. to detect potential theft or suspicious behavior;
- Optimizing and monitoring inventory levels to prevent out of stock items;
- Customer Relationship Management (CRM).
As AI continues to reshape retail sector, businesses have a unique chance to address key challenges and unlock growth opportunities. At Neontri, our experts focus on delivering AI solutions for retail that directly tackle the biggest pain points—like reducing costs, managing inventory, or delivering the personalized shopping experiences customers expect. See how our GenAI solutions can transform your retail business and keep ahead of the competition.
AI in the retail industry: Use cases
Artificial intelligence brings a wide range of opportunities to the retail industry that extends far beyond improving customer experience and generating content. The technology optimizes retail operations and enables retail stores to maintain a competitive edge. Take a look at some noteworthy AI applications in retail industry below.
Personalized product recommendations
As more consumers expect brands to understand their preferences, AI is becoming a major game-changer. 75% of retail customers are more likely to buy again from brands that personalize their shopping experience. That being said, it shouldn’t come as a surprise why retail companies decide to deploy AI solutions on a larger scale than ever before.
Artificial intelligence in the retail industry allows retail stores to analyze large amounts of customer data, such as browsing and purchase history, items added to a cart, and demographics. This level of advanced analytics and analysis means that brands can offer product recommendations tailored to customer’s tastes and preferences. These tailored recommendations not only simplifies shopping but also makes it more enjoyable, guiding customers toward better purchase decisions. In fact, brands leveraging advanced digital personalization tools see revenue jump by 6% to 10%, significantly improving conversion rates.
AI retail use case: AMAZON (Virtual try-ons)
Amazon stands as one of the best examples of using GenAI to create personalized recommendations. As an omnichannel retailer, it customizes its homepage for each customer using AI advanced analytics to collect transaction and historical sales data, information on their purchasing behavior, preferences, wishlists, and items in their cart.
By analyzing historical and real-time data, Amazon gains valuable insights into its customers’ preferences. This allows the company to analyze transaction patterns and create highly personalized marketing campaigns that enhance the overall customer experience and satisfaction levels. According to McKinsey, personalized recommendations drive 35% of purchases on Amazon.
Virtual try-ons
One of the common challenges customers often face when shopping online for clothes and other wearables is ensuring the perfect fit. Fortunately, gone are the days and traditional methods of relying solely on static images to imagine how a product might look or fit.
Now, with the help of virtual try-ons powered by artificial intelligence and augmented reality (AR) technologies, customers can visualize how clothes, accessories, makeup products, and even furniture items will look or fit them and their spaces. The outcome is the reduced product return rates, increased customer satisfaction and brand loyalty.
AI retail use case: WARBY PARKER
Warby Parker offers a virtual try-on experience for glasses and sunglasses, available both on their website and through the mobile app. Their system combines AI and augmented reality (AR) technologies to analyze customers’ facial features and virtually overlay eyewear frames.
Using the customer’s device camera, the tool creates a 3D map of their face to ensure accurate placement and size comparison. This allows shoppers to try on various styles and colors of frames in real-time, with the system providing instant rendering. As customers tilt, turn, and move their heads, the virtual frames adjust dynamically, mimicking natural movement and light reflection.
Intelligent product search
Why do consumers leave an online store without buying anything? The number one reason is because they can’t find products what they’re looking for. According to Nielsen Norman, between 17-20% of clients give up after just one unsuccessful search attempt. These abandoned shopping trips have a big impact, costing U.S. retailers an estimated $330 billion in 2021 due to search-related problems. With AI, product search becomes different.
AI-powered site search can grasp context and intent, enabling shoppers to input any keywords and get precise, relevant search results. Additionally, as it processes extensive data and learns about each shopper’s preferences, the results become personalized to each individual over time.
Retail AI implementation: ZALANDO
Zalando uses complex AI algorithms to analyze vast amounts of valuable customer data: past purchases, browsing behavior, and saved items. This allows the platform to personalize search results for each customer and display more products that are most likely to interest them based on their unique preferences.
Zalando uses dynamic filters which evolve based on customer behaviors. For example, if a user consistently applies size or color filters, these options may be pre-selected or highlighted in future searches. There’s also a search bar that understands natural language (NL) queries beyond just keywords. Customers can describe desired styles, materials, or even occasions (e.g., “black ankle boots for winter”), and the AI interprets the intent, delivering relevant product suggestions.
Enhanced experience with visual product search
Studies show that 74% of online shoppers in the US and the UK struggle to find the products they want. This highlights the need for better search capabilities, with visual search emerging as a promising solution. It’s estimated that the global visual search market will rise to as much as $33 billion by 2028.
Visual search technology employs image recognition and AI algorithms to enable users to search for products using images instead of text. For those who might not be familiar with specific search terms or type the wrong search terms into the search bar, this makes it easier and faster to find relevant products.
Providing a more intuitive, engaging, and efficient way for discovering and buying products becomes important, especially in a world where 90% of information transmitted to the human brain is visual. And 62% of millennials express a preference for visual search over any other technology.
AI retail use case: ASOS
Asos offers a Style Match feature, which employs visual search technology on its app. With Style Match, customers can snap a photo of an item or upload an image from their library to initiate the search process. Ecommerce image optimization plays a key role here by ensuring that both user-submitted and catalog images are properly formatted and tagged. ASOS’ machine learning (ML) and AI algorithms analyze visual information like color and patterns to find a match and provide personalized recommendations to customers.
Hands-free shopping through voice search
AI in the retail industry brings yet another opportunity to retail stores—voice search, often powered by an AI voice agent, which enables consumers to browse products and make purchases without lifting a finger. They can do it by using voice commands via smart speakers like Google Assistant, Apple’s Siri, Amazon’s Alexa, or other voice-activated platforms. Many retailers are also developing their own voice-enabled shopping experiences directly integrated with their apps or websites.
Recent statistics show that 55% of consumers use voice search to search for products, and 44% have already used it to add items to their shopping lists. In the USA, 33.2 million consumers have harnessed voice search to make purchases. Why? Simply because it proves useful, accessible to individuals with disabilities, and often much faster.
AI retail application: WALMART
Walmart has also tapped into the potential of voice commerce, thereby enhancing the shopping journey for its customers. Through Google Assistant or Siri, they can effortlessly add items to their Walmart online shopping carts, create shopping lists, and even initiate the checkout process using voice commands.
What sets Walmart apart is its focus on user convenience. Shoppers can easily access information about their previous purchases and preferences, which enables quick reorders and reduces the need for repetitive tasks. What’s more, Walmart’s voice commerce platform integrates with its brick-and-mortar stores, offering the option of in-store pickup or delivery.
Advanced description generation
The greater the number of products retail stores have to sell, the longer it might take to write unique descriptions for each one. How about using AI tools for this task? While not being professional copywriters, the technology might quickly generate unique, compelling, and SEO-optimized products descriptions, capturing details important to customers.
Accurate e-commerce descriptions are crucial for setting expectations, building trust, and ensuring customer satisfaction. They provide comprehensive information about product features, specifications, and usage, helping customers make informed decisions and reducing returns and complaints.
AI retail use case: H&M
H&M, a well-known fashion retailer, has implemented an AI software called “Cherry” to create product descriptions for its online store. This system analyzes images of clothing items and uses natural language processing to generate descriptions. These descriptions are then reviewed and edited by human editors. The approach has helped H&M streamline its content creation process and provide consistent and accurate product descriptions for its customers.
Dynamic pricing and targeted promotions
When it comes to retail business, price is a key determinant of purchase decisions, which makes effective pricing decisions essential. Surveys reveal that 90% of shoppers plan to switch brands, look for lower prices, and cut spending when costs are high. More than half are already doing so.
Dynamic pricing and promotions are crucial for attracting customers, maximizing profits, and staying competitive. AI pricing engines continuously optimize prices using sales data, algorithms, and feedback loops, enabling effective pricing strategies. As a result, by using AI retailers are able to adjust prices based on their promotional activities, historical trends, product range, etc. Not just by chain, region, or retail physical stores but by the individual.
AI retail use case: AMAZON (Price Optimizer)
Amazon employs a dynamic pricing tool called Amazon Price Optimizer to enhance price optimization by adjusting product prices several times a day. The technology takes into account factors like customer demand, competitor pricing, sales volume, and product availability. By implementing the solution, Amazon remains competitive while maximizing profits. According to reports, this solution has led to a 5% increase in sales and 2% improvement in profits for Amazon.
Personalized customer experience with AI-powered loyalty programs
Consumers crave connections with brands, and 80% of them are more likely to stick with a retail store that offers a loyalty program. Thus, offering rewards tailored to their individual needs builds trust, strengthens relationships and brand loyalty. And those retailers who deliver tailored loyalty programs that win their clients’ hearts (and wallets).
This approach translates to higher sales, increased customer satisfaction and retention, repeated purchases, and higher lifetime value. Imagine a world where a favorite store remembers their customers about their preferences, suggests items they love, and rewards them for loyalty. That’s the power of personalized reward programs, a key ingredient to improve customer loyalty, and guarantees success in retail businesses.
AI in retail business and STARBUCKS
Starbucks can be a good example of how a customer loyalty program makes a tremendous difference for the business. The brand uses artificial intelligence to study customers’ historical purchases, individual preferences, and even the time of day they visit the place. The technology helps the Starbucks Rewards program offer personalized rewards like discounts on favorite drinks or exclusive deals.
This personal touch makes customers more loyal and encourages them to spend and visit more often. It turns out that Starbucks rewarded members are five times more likely to visit a Starbucks every day. As for the company, the loyalty program brought a 15% year-on-year increase in active membership in the US in 2023, reaching nearly 31 million active members. These loyalty members, on the other hand, account for 41% of Starbucks’ sales in the USA.
Streamlined customer service with AI chatbots
AI chatbots and virtual assistants are changing the way customer service works in retail. These smart conversational agents can answer questions, give information about products, and deliver assistance round the clock. In fact, 64% of consumers prefer interacting with a chatbot rather than waiting for a human agent.
By using chatbots, retail stores can react to messages quickly, improving customer engagement and satisfaction. They also capture real-time customer feedback, which helps retailers refine their offerings and better meet shopper needs. Taking into consideration that 75% of people engage through multiple channels throughout their journey, AI ensures consistent, high-quality service across all platforms.
Retail AI implementation: EBAY
One excellent example of chatbots in online shopping is eBay ShopBot. This virtual assistant quickly responds to shoppers’ questions, provides instant replies, helping save time for everyone. No more tedious scrolling through eBay or ticking boxes; ShopBot offers friendly conversations and direct links to products customers are interested in.
Increased security and fraud detection
As customers shift from physical stores to online purchasing, fraudulent activities in transactions, orders, and deliveries are on the rise. About 34% of American consumers report being potential fraud victims, and e-commerce businesses lose an average of $48 billion annually because of the fraud.
To tackle this issue, retailers are applying AI solutions for fraud detection and prevention. Brands process data to detect suspicious transactions and amoralities’ by spotting suspicious behaviors and inconsistencies. By quickly flagging and blocking such transactions, AI helps retailers prevent fraud and ensures safe shopping experience for everyone involved.
AI retail use case: PAYPAL
PayPal relies on an AI-powered system called Deep Learning Fraud Detection to identify and prevent fraud in financial transactions. The solution studies user behavior, transaction patterns, and other parameters related to identification and credit card information, including address verification.
It also examines patterns to spot individuals with multiple accounts or those trying to exploit proxy servers for purchases. Through machine learning (ML), the solution continuously adapts and improves its fraud detection capabilities. PayPal reports that this solution has helped them reduce losses from fraud by 25%.
Inventory management and future customer demand forecasting
Keeping the right balance of stock to meet customer demand, both in-store and online, is crucial. What retailer would like to overstock or run out of products? Probably none. Brands should have enough items to quickly fulfill orders, but not so many that their storage space gets crowded with products that aren’t selling. That’s when AI technologies comes in.
By analyzing customer purchase history and past sales data, preferences, and market trends, AI helps retailers in smart decision making, improving operational efficiency and lowing costs. In addition, tools and solutions like cameras, digital sensors or smart shelves enable real-time monitoring of inventory levels. This optimizes supply chain management, helps retailers avoid the dreaded “Out of Stock” status, and improves operational efficiency.
AI for retail stores: LOWE’S
Lowe’s, the American home improvement retailer, leverages AI in retail stores to revolutionize inventory management and enhance the shopping experience. The brand uses small cameras strategically positioned on shelves in key areas of the store, like the light bulb section.
This smart shelves solution keeps an eye on stock levels in real-time. When gap on the shelf is detected, it sends a quick alert to the store’s devices, ensuring that staff know when to restock at the right time. By using AI in this way, Lowes ensures that customers always find what they need and makes shopping more efficient and enjoyable.
Artificial intelligence in retail for lead generation
Artificial intelligence helps retailers attract and engage high-potential customers by analyzing online behavior and preferences. The technology identifies visitors who are likely to become clients, so retailers can tailor their outreach and marketing efforts effectively.
AI retail use case: Sephora
Sephora uses AI to analyze customer browsing patterns and preferences on its website and app. Through personalized suggestions and interactive quizzes, Sephora’s AI-driven lead generation tools encourage potential customers to engage, helping the brand gather valuable leads for future marketing and sales efforts.
AI in retail companies: challenges
The future of retail powered by AI solutions is brimming with potential and promise. Still, as many exciting possibilities artificial intelligence brings, it doesn’t go without its own set of challenges:
- Lack of AI skills: The high demand for such skills exceeds the number of available experts which causes a shortage of talent in the retail industry.
- Poor quality or insufficient data: For systems to work efficiently, accessible and high-quality data is needed. Otherwise, the business insights might be flawed and incomplete.
- Data privacy and security concerns: From compliance and data breach risks to the lack of transparency and issues related to privacy and consent—there are quite a lot of them related to the application of AI in retail sector. And if concerns aren’t addressed properly, they might result in legal penalties, damaged brand reputation, and customer and stakeholder distrust.
- AI integration with existing systems: Many retailers might find it challenging to integrate AI systems with the existing infrastructure in their companies.
Nevertheless, despite all the challenges businesses may come across while implementing artificial intelligence in their retail operations, the rewards are considerable. So, if you’re thinking about elevating your business but are unsure what to start with, reach out to us.
Partner with Neontri to transform your retail strategy
At Neontri, we turn innovative ideas into successful digital solutions that exceed expectations. Our team of experts specializes in creating tailored solutions that enhance personalized shopping experiences, optimize inventory management, and improve customer service through cutting-edge AI technologies.
We assisted a global sporting goods market leader in implementing an omnichannel payment solution. This solution integrated seamlessly with the Polish mobile payment service, Blik, and has successfully processed thousands of orders across all retail locations. Let Neontri be your trusted partner in not just meeting, but exceeding customer expectations and driving business growth. Reach out to us and let’s talk.
FAQ
What are the trends of artificial intelligence in the retail industry?
AI is reshaping retail by driving smarter, more connected experiences. Current trends include the rise of generative AI for content creation and marketing automation, greater use of real-time data to personalize customer service, and advanced predictive analytics for demand forecasting. Retailers are also investing in AI-powered visual recognition tools to improve product search, and using this technology to streamline supply chains with faster, more accurate decision-making. As AI matures, its role in dynamic pricing, customer behavior prediction, and immersive shopping (like AR/VR) is expected to grow.
What are the benefits of AI in retail?
Artificial intelligence brings many benefits to the retail sector. It improves shopping satisfaction for customers by offering personalized recommendations and excellent service. AI helps retailers manage stock and drive supply chain optimization, which leads to more sales and reduce waste Moreover, the technology saves money by automating routine tasks and reducing mistakes. With AI and predictive analytics at hand, retail businesses gain valuable customer insights, and as a result make smarter decisions.
Is AI safe for retail businesses?
Yes, Artificial intelligence is safe for retail businesses as long as it’s implemented correctly and with the responsibility. It improves security by detecting fraud and protecting valuable customer data. However, it’s important to regularly check systems to ensure they work accurately. The right management can make the application of AI in retail sector effective and productive.
Who are the major players in AI retail technology?
The major players in AI retail technology include companies like: a) Amazon which uses artificial intelligence for inventory management and personalized recommendations; b) Google that offers AI-driven analytics; c) IBM, known for its AI solutions like Watson for retail insights. Other significant contributors are: a) Microsoft with its cloud services and analytics tools; b) Salesforce, providing AI-enhanced customer relationship management.
How can AI help reduce product loss in retail stores?
Artificial intelligence can instantly identify suspicious activities or possible theft in brick-and-mortar stores by analyzing sensor and video data in real time. The technology also makes it easier to optimize inventory by predicting future customer demand or informing staff about out of stock items.
Resources
https://www.linkedin.com/pulse/ai-powered-visual-search-future-mobile-shopping-mohd-zia/
https://www.luigisbox.com/blog/ecommerce-ai/
https://progressivegrocer.com/consumers-spooked-inflation-will-change-shopping-behaviors
https://www.linkedin.com/pulse/practical-guide-ai-retail-denis-yurchenko/
https://www.ipsos.com/en-us/nearly-1-3-americans-report-being-victim-online-financial-fraud-or-cybercrime
https://www.juniperresearch.com/press/ecommerce-losses-online-payment-fraud-48bn?ch=ecommerce%20fraud
https://www.infosys.com/human-amplification/documents/retail-ai-perspective.pdf
https://www.retailtouchpoints.com/topics/data-analytics/ai-machine-learning/ai-isnt-going-anywhere-how-retailers-plan-to-deploy-the-tech-in-2024
https://www.shopify.com/blog/ai-statistics
https://www.coveo.com/blog/product-search-vs-product-discovery/
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