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As the holiday season reaches its peak, retail technology – including retail AI – faces an uphill battle amid a looming recession and poor Q3 results. It was the worst quarter in the finance industry in five years, CB Insights reported – and between rate hikes by the Fed and widespread layoffs across the tech industry, the fourth quarter could follow.
Despite this, the retail industry has been moving toward widespread adoption and use of artificial intelligence (AI) technologies, including chatbots, supply chain solutions, and e-commerce tools. Some say the increased focus on AI in the current economic climate suggests companies are looking for a solution that can lower operational costs while the goal is to increase sales as budgets continue to tighten.
Does the slowdown in retail technology funding mean AI innovation in the space is at risk?
“The retail technology market has become saturated with one-point solutions, which has created extremely complicated tech stacks for retailers,” said Marcel Hollerbach, co-founder and chief innovation officer at Productsup, a trading software company. “We are at a critical time in the industry where companies are looking to reduce the number of systems they use. This doesn’t mean that retail technology is struggling, but rather that investors are looking at a smaller list to put their money in.”
Where retail AI is still growing
At the moment, brick-and-mortar stores are still leading retail sales with retail management software company Aptos reporting that 85% of retail sales still take place in real life without screens. But even with a bad third quarter in financing, e-commerce still on the top of the list of most retail tech deals during the period.
“E-commerce gets most of that focus and investment because that’s where we see the fastest innovation and most entrepreneurial spirit,” Hollerbach said. “There are a number of AI technologies and startups that aim to make e-commerce more efficient and scalable while reducing operational costs, so I expect this to continue to be an area of investment.”
For now, this leaves plenty of room for retailers to scrutinize their adoption of AI-powered tools and devise strategies for integrating solutions for both e-commerce and physical retail.
It is in problem areas such as returns, supply chain management, customer experience and workflow optimization where AI solutions will continue to benefit retailers the most, industry experts say.
“In addition to the exorbitant cost of reverse logistics, returns increase congestion in already overcrowded warehouses and increase the likelihood of dead stock and waste,” said Karin Cabili, founder and CEO of the retail optimization platform, Let drop, VentureBeat told me. “With a majority of consumers shopping this way, retailers with a smart AI strategy could put a dent in the profit-margin-eating return machine. AI can be used to identify bracketing practices and calculate the probability of return. … The best defense is a good offense, and retailers can find that in the strategic use of AI.”
Cabili and her colleague, Dropit’s chief operating officer, Stuart Ford, also recommend that retailers consider whether they are investing time or money in the right tools to achieve what they need to meet sales targets.
“The cost of returns and restocking exceeds the retail price and it is also extremely wasteful to operate this way,” Ford said. “This is where AI can play a great game and start predicting things like that for them to optimize processes.”
Retail AI in 2023 and beyond
AI’s takeover of retail business processes will continue to increase, experts say. As a market sector, AI is expected to reach retail $24.1 billion globally by 2028, with a compound annual growth rate of 24.4%.
As part of that growth, some say chatbot adoption will not only surge, but become vital to the long-term success of retailers.
“If you don’t embrace the bots, you won’t survive,” said Muddu Sudhakar, founder and CEO of AI-powered customer service and IT solutions platform, Aysera. “It makes economic sense to do rather than have a human answer the most mundane of tasks.”
In addition to improved customer service and work processes, AI-driven supply chain solutions will also grow in the coming year, said Mark Collin, general manager of experience and product for digital transformation consultancy, Kin and CartaEurope.
“If you can optimize your overall inventory efficiency, you’ll be well placed,” Collin said. In 2023, he explained, there will be more just-in-time inventory models, using smart algorithms to keep inventory in the right place. “What cannot be denied is that supply chain flexibility and efficiency is a critical underlying capability that needs to be improved,” he said.
Whether physical retail will phase out and be completely replaced by e-commerce, it’s not likely to happen – at least not anytime soon.
“AI will never pit physical retail against online retail at any point,” Hollerbach said. “The technology can improve the in-store shopping experience through things like inventory management and customer service, while improving e-commerce at the same time.”
Still, AI has more potential to innovate in the latter, Collin added.
“There is less room for AI to help the experience in-store than online and also in the supply chain,” he said. “AI is definitely suitable for working on complex problems like inventory modeling and movements. The ability to use AI to “unify inventory” is a bigger multiplier than thinking about using it alone to solve the challenge of declining physical store attendance.
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