Wal-Mart's artificial intelligence-powered 'store of the future' might sound like hype, but AI has big potential for retailers big and small

Samantha Lee/Business Insider

• Walmart's "the store of the future" generates hype, but the retailers are focusing on achieveable outcomes for applying AI, including customer experience, production, and supply-chain logistics
• NextOrbit provides AI serivces to smaller retailers who want to access the business benefits of AI, without the hype.
• This article includes an overview of AI in media, plus the top three trends to watch, and an example of how AI helps even smaller retailers break through.
• Read how AI is transforming health, transportation, investing, and more in other articles from our special report, How AI is Changing Everything.

There's a lot of talk out there about how AI can help retailers boost profits and delight consumers, like with Walmart's AI-powered "store of the future" and Sephora's shade-picking technology. But insiders say that this technology is nowhere near fully or uniformly integrated into the industry. And a lot of the action is going on behind the scenes.

Luq Niazi, IBM's global managing director for consumer industries, said that retailers are increasingly doubling down on adopting the technology in three key categories: shopper experience, production, and supply-chain logistics.

"You're seeing organizations dig deep into those major categories, depending on where they are as a company," he said. "And then once people are there, they realized that there's additional benefits to be gained if they can link those different areas, whether that's in their own organization or across organizations."

Global consulting firm Oxford Economics surveyed 324 executives about their thoughts on AI in retail in 2018.

Ed Cone, the technology practice lead at the global consulting firm, said that the executives with more exposure to AI technology offered a particularly telling insight.

"We found that the more you're using AI, the less likely you are to say today's products live up to the hype," Cone told Business Insider. Only 13% of respondents agreed or strongly agreed that current AI applications "live up to the hype."

But that's not to say these retail executives were jaded. To the contrary, Cone said that respondents largely took a "mature" view of AI integration: that it's both important and still developing.

"Everybody believes in it," Cone said. "They're just realistic."

Still, Niazi said that, while there's plenty of room for growth, AI integration into retail is far from nascent. "The reality is that AI is being applied quite significantly across the board in many enterprises," he told Business Insider. "It's gone well beyond a period of discovery."

So, what are the downsides? For retailers, Niazi said that one of the biggest pitfalls linked to AI is the same issue affecting all other business sectors: the issue of bias.

"Machine-learning models do have biases," Niazi said.

There's also the problem of retailers being reluctant to go all-in on AI. The challenge lies in transitioning AI integration from a trendy new project to an integral part of the business. Niazi said that retailers must instead consider "engineering" AI "into the DNA" of their organizations.

And many global retailers have done just that. The Oxford Economics team and Niazi singled out Walmart, Amazon, and Best Buy as retailers that have utilized AI in a standout fashion. But there's one significant chunk of retailers that may be holding themselves back: smaller retail operations.

In the Oxford Economics survey, AI-powered chatbots were viewed as an accessible baseline to indicate a modicum of AI integration.

"We've found that for small businesses, which we qualify as businesses that have less than $10 million in annual revenue, only 15% say that they have implemented AI-powered chatbots," Oxford Economics assistant editor Matthew Reynolds told Business Insider.

The percentage jumps up to 39% for businesses with over $10 million in annual revenue and 67% for companies worth $1 billion.

"There is a sense that this is a game for the big boys, and that mom-and-pop retailers are being left behind," Cone said. "But if you're behind, you're not necessarily out of the game."

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Top 3 opportunities for AI in retail

Proper demand forecast: Nascent

At the end of the day, retail is all about having stuff that people want to buy. But it's not possible to actually read customers' minds. That's where AI comes in. "With AI, retailers can achieve a better understanding of what consumers are shopping for during different times of the year, which will help forecast demand and automate merchandise allocation," Mitchell-Keller said.

Analyzing consumer sentiment: Growing

Mitchell-Keller cited SAP's "Best Run Beauty" showcase at the National Retail Federation's Big Show this year, where the company used "machine learning technology to garner consumer insights about products across social media platforms." "With this level of insight, retailers can achieve stronger understanding of shopper inventory sentiment, helping them strengthen their offerings and competitive differentiation," she said.

Accurate inventory management: Growing

"While empty shelves give the appearance that products are selling, it's also a sign that inventory management isn't properly managed, which can lead to missed opportunities and frustrated consumers," Mitchell-Keller said. She added that AI could help retailers be more strategic about their inventory to better manage losses. "Retailers can access and review real-time data for in-stock products, ensuring they are fulfilling customer orders accurately and efficiently," she said.

Bringing the power of AI to the little guys

NextOrbit founder and CEO Kishore Rajgopal says his mission is to bring all of those capabilities - analyzing sentiment, forecasting demand, and managing inventory - to small and medium-sized retailers.

NextOrbit is an AI services provider with clients like India-based online jeweler CaratLane, US grocery services firm Grocer Exchange, and Percentil, a used fashion retailer based in Spain.

Rajgopal said he's particularly passionate about offering AI tools to retailers for a reasonable price, so that the technology isn't exclusively in the hands of giants like Walmart and Amazon and other contenders that can foot the bill for "huge armies of data scientists."

But, mostly he's convinced that AI integration in retail is just good business. And the existence of a company like NextOrbit further indicates the technology's increased importance. It's a sign of the early trend of increasingly accessible AI solutions for retail.

"We're not doing AI because it's cool or because it's a trend or sexy," he told Business Insider. "We're doing AI because there are business benefits. Your profits go up. The outcomes are very measurable. That's the whole point of using AI."

He spoke about how AI can prevent retailers from ordering too much - or too little - of a certain product by learning about consumer preferences and taking into account local events that might bolster or dampen demand.

According to Rajgopal, the same thing goes for pricing. Striking a balance between charging too much or too little is a classic business conundrum. But, AI applications can help a retailer settle on the perfect price point.

Cone told Business Insider that the mega-retailers of the world will likely continue to use AI to power their massive logistical operations, complex demand calculations, and "fleets of robots." But that doesn't mean that companies like NextOrbit's clients have nothing to gain.

Cone reiterated the example of a mom-and-pop shop using a chatbot to provide customer service on its website 24/7.

"I do think smaller retailers think, 'Oh that's not for us,'" Cone said. "And they're wrong. As a matter of fact, AI could be a competitive advantage." Rajgopal said that he's seen retailers run into two major hurdles. One is centered on plugging sub-par data into the applications. The other simply revolves around second-guessing the AI-produced solutions and their own ability to put those solutions to good use.

"What you find is that actually the first challenge is, 'how do I integrate this with my existing processes and systems at scale?'" Niazi said. "You've got to have an integrated approach to driving AI across that value chain."

But for Rajgopal, the benefits of AI outweigh those challenges tenfold, especially when it comes to the smaller players in the retail space.

"I feel the time has come for AI to be mainstream," he said.

The Takeaway

SAP

"To me, the most compelling opportunity for AI in retail today is transforming consumer experiences from start to finish."

-Lori Mitchell-Keller, co-president, SAP Industries