‘AI scare stories abound but retailers need to get in on the act now’

The world and his wife have experimented with ChatGPT, frequently frivolously, but this week one of the biggest names in the field – Geoffrey Hinton, who has resigned from Google – warned about the “quite scary” implications of AI.

He was the latest to sound the alarm following a call from Elon Musk for a pause in AI development, even though he is involved in it, and its capacity for “civilisation destruction”. 

Such existential questions seem a long way from the world of retail and retailers can’t answer them.

“AI is being used to address top retailer concerns of the moment such as the rising cost of goods, declining consumer spend and supply chain volatility”

What they must do, while scare stories abound, is work out how AI can best work for them. Wherever AI ultimately leads, the genie is out of the bottle so the priority is to harness it for good and prepare to take advantage of its capabilities in a trading environment that remains tough and businesses, like their customers, increasingly adopt a digital-first approach.

So far, much of the focus has been on what might be called glorified bots that, through their ability to deal with customers in a personalised way, can open the door to deeper customer relationships through greater relevance.

Zalando has launched a ‘fashion assistant’ powered by ChatGPT, which it says will “unlock the potential of generative AI to enhance the experience of discovering and shopping for fashion online”. The etailer gave the example of a customer who might ask “what should I wear for a wedding in Santorini in July?”, and said that the assistant “is able to understand that this is a formal event, what the weather is in Santorini in July and, therefore, provide a written explanation with recommendations for clothing based on that input”.

While such initiatives may help retailers chase the grail of ever-greater personalisation and stimulate spending, AI has much wider applications – particularly behind the scenes. Walmart, for instance, has added a chatbot to its buying department that automates negotiations with some suppliers of goods not for resale, reportedly generating better terms and concluding deals more quickly. Apparently, many suppliers prefer it to dealing with Walmart’s humans.

AI has the potential to bring transformational benefits that run right through a business – a theme explored in a Boston Consulting Group (BCG) report for last week’s World Retail Congress. According to BCG, AI is being used to address top retailer concerns of the moment such as the rising cost of goods, declining consumer spend and supply chain volatility.

“One lesson that retailers have learned from their digital transformation programmes is that few have the capabilities to do it themselves”

On costs, where typical retailer responses might be to raise prices or renegotiate with suppliers, AI is offering new approaches. The example was given of a North American convenience retailer: “AI enabled this retailer to take a holistic approach to pricing by considering a wide range of real-time variables, from hyperlocal competitor data to ‘magic price points’ that influence consumer behaviour. The retailer could then optimise its prices to the specific product and store level, all while understanding the product interdependencies (such as cannibalisation) at play. It would be impossible to match the scale and speed of this approach using traditional methods.”

The initiative was implemented across the organisation so it was “not just a pilot programme stuck among the data scientists”. It increased gross profit while improving customer perceptions of value.

The mind-blowing possibilities of AI, as well as the likely direction of regulation and moral considerations, mean the adoption and implementation of the technology will tax the understanding of many retailers. Perhaps the biggest mistake would be to try to steer a path through an unknown landscape on their own.

One lesson that retailers have learned from their digital transformation programmes is that few have the capabilities to do it themselves – this is where partnerships can come into their own, as they have in other technological fields.

There was common sense on tech and omnichannel from JD Sports chief executive Regis Schultz at WRC. “Don’t do code. We do stores and customer experience. Let the tech companies do the code,” he said. 

Wise words. Retailers need to approach AI from a customer and business perspective, enhancing retail experience and performance.

The time to invest in AI is now in order to secure future benefits and it will require serious thought and expertise. It also needs to deliver a return on investment. Maybe AI can help devise a strategy on that front?