Practical AI is driving 2.9x higher margins – here’s how retailers are doing it

• Retailers using ‘practical AI’ are seeing up to 2.9x better margin gains than peers, alongside major cost improvements
• From inventory to workforce planning, AI is helping retailers respond faster to shifting demand and labour pressures
• Embedded, ‘native’ AI in core systems can improve performance without adding IT complexity or bloated tech stacks

Retail is under pressure. As businesses face rising costs, increasing competition and dwindling consumer confidence, investment in technology can fall down the list of priorities.  

The lacklustre growth in UK retail means companies are already facing tight constraints on revenue and margins. Overall sales grew by just 1.2% in December compared with the previous year, in what the BRC branded a “drab Christmas”. 

Yet research suggests scrimping on tech could be a false economy. UK retail growth is facing an “invisible speed limit”, according to a Workday report in conjunction with Aberdeen Research, which found ‘practical AI’ can deliver a near three-fold boost to margins. 

What is ‘practical AI’ – and why does it matter now?

Practical AI – defined as the strategic use of any form of the tech across the business, from machine learning to agentic AI – was found to be a competitive advantage in the report. Retailers who have adopted that principle achieve 2.9x superior operating margin gains compared to their peers, found the ‘Practical AI in Retail’ research. 

They also deliver 2.8x greater operating cost improvements, according to the report, which surveyed 107 IT, finance and HR leaders across retail companies between June and July 2025. 

Successful retailers tackle challenges around high turnover, tight margins and unpredictable consumer demand by using AI to “unify fragmented workforce systems”, it says. This offers a clear competitive advantage over siloed legacy systems, which are imposing an “invisible speed limit” on the growth of the UK retail sector, Workday argues. 

Crucially, digital transformation shouldn’t mean increased IT complexity. By using Native AI – embedded directly within core HR and finance platforms – UK retailers can avoid the cost of expensive, disconnected AI stacks. The tech also be used to achieve specific business priorities. 

How can AI improve inventory management and product reliability?

Aberdeen’s research with Workday asked companies to name the top two areas they would look to address with AI-enabled solutions. Quality and reliability of products emerged as the top answer, cited by 23% of retail leaders, who are struggling to maintain differentiation in an increasingly commoditised marketplace.

In this area, inventory management emerged as a key benefit of AI. Practical AI users are 24% more likely to regularly analyse and fine-tune inventory using financial and operational data, the research found. The tech can pick up the subtle shifts in demand and customer behaviour often missed by manual methods. 

Can AI really boost employee engagement and productivity?

UK retailers are facing persistent labour shortages and high workforce attrition. So, unsurprisingly, employee productivity and engagement were the next highest priority for AI, cited by 22% of retail leaders. 

AI can help improve talent acquisition and management practices, as well as the day-to-day experience for employees. Retailers who use practical AI were found to have 72% higher employee engagement rates by matching staff skills to meaningful work and providing real-time, on-the-job support through internal chatbots.

It can also improve the experience of managing a successful team. The tech reduces the burden of administrative tasks, which can take away focus during critical trading windows.

Companies that use practical AI are 3.2x more likely to implement smart automated scheduling, the research found.

From a longer-term perspective, AI can anticipate demand in a volatile economy. Practical AI users are 2.2x more likely to use financial and operational data to predict future workforce and skill requirements, Aberdeen/Workday found, taking employers out of the reactive, fire-fighting cycle. 

Where does AI add value in financial planning and cash flow?

Financial planning and management emerged as another key area for AI in the research, named as a priority by 21% of retail leaders.

Here, AI can deliver benefits by streamlining back-office processes. Strategic AI users reported a 51% greater year-on-year improvement in cash-to-cash cycle optimisation. The tech works to streamline vendor relationships and inventory turnover, allowing UK finance teams to free up working capital. 

Data quality and operating costs emerged as the next biggest areas of focus for AI in the research, cited by 21% and 18% of respondents respectively. These issues were identified as knock-on effects of operational inefficiencies around workforce management and shopper experience – both of which AI can improve.