Despite all the hype around artificial intelligence (AI) in the retail sector, there’s a clear gap between ambition and action – around 90% of the retailers we engage with say that AI is a strategic priority, but fewer than a fifth have a roadmap. In a market shaped by relentless economic pressure and rising consumer expectations, this is a dangerous combination of high intent and low execution. No doubt, it’s a gap that will define the next wave of winners and losers.
It’s imperative for retailers to understand that AI isn’t an operating model, but it can transform operating models. Needless to say, success with AI in retail depends on using it in the right places, at the right time. Customer experience is central to retail businesses, and in the midst of the AI hype, brands must not forget the importance of human connection – there will always be instances where people want to deal with people. Poorly executed or wrongly placed automation can hinder, rather than help, the customer journey. The focus, therefore, should be on thoughtful, scalable execution that enhances, not replaces, meaningful interaction.
Personalisation is driving tangible growth
Understanding customers better than your competitors do has always been the name of the game in retail. But what’s changed in recent years is how deeply retailers can now get under the skin of customers and understand not just their own preferences, but the factors influencing them every second of the day.
Global retail heavyweights Zara and Sephora have long been ahead of the curve in this space. Sephora uses AI systems like ColoriQ and Skincare iQ, computer vision, and behavioural data to match products to consumers with precision, boosting engagement and conversion.
As more retailers embed AI technology into their operations, the benefits are becoming increasingly apparent. Inditex, Zara’s parent company, has reportedly halved its design-to-shelf cycle using AI-led fashion signal tracking.
Given the evidence of its potential, it makes sense that those who invest in AI are seeing a revenue uplift of 3 to 15%, and a sales ROI uplift of 10 to 20%, according to McKinsey.
New channels are creating new possibilities
AI isn’t just refining existing channels, it’s creating new ones entirely – think chatbots that handle customer queries without escalation, virtual try-ons that reduce returns, conversational commerce and voice-activated ordering. The technology is becoming so commonplace that by 2027, chatbots will become the primary customer service channel for roughly a quarter of organisations, according to Gartner.
Superdrug – the second largest health and beauty retailer in the UK and an early adopter of the technology – has reported that its AI chatbot now resolves 45% of queries without human input, cutting support costs by over £3 million per year.
Another UK retailer cleverly tapping into its potential is Itsu. The fast-food restaurant uses AI to dynamically adapt its digital menu boards in response to local demand patterns and weather conditions – so if it’s pouring out, you might find a warming spicy ramen trying to entice you in.
By integrating data from multiple sources, retailers can create a powerful foundation for hyper-personalisation – one that allows for intuitive rather than intrusive experiences. And let’s be clear – seeing tangible results from AI is not a pipe dream; it’s already happening. According to Accenture, brands are seeing up to 25% higher consumer conversion rates and a 35% rise in customer satisfaction scores through AI-powered personalisation.
Operations are becoming more efficient
The potential of AI doesn’t stop at customer personalisation – it also frees up retailers to grow smarter, move faster, and be leaner, without compromising customer experience.
Home improvement retailer The Home Depot uses machine learning for stock keeping unit (SKU) forecasting across thousands of stores to optimise replenishment and reduce stockouts, whilst Chinese high-tech supermarket Freshippo, also known as Hema, stores feature real-time inventory, cashier-free checkouts, data-driven shelf management, and sub-30-minute delivery zones. These improvements to operational efficiency have led to 45% revenue boosts among partner retailers.
It’ll be no surprise that cost savings feature prominently as a benefit of automation. But what may be a surprise is the potential gains to be made. A survey of automation executives by Bain & Company found that automation leaders – defined as companies investing at least 20% of their IT budget in automation – were able to reduce the cost of processes addressed by automation by 17%. Whereas laggards – companies investing less than 5% of their IT budget in automation – achieved only a 7% reduction in costs.
This gap persists across retail. Those in the industry that invested heavily in automation during the pandemic were able to reduce costs by 22% through automation programs vs. 8% for laggards. As technology matures, this gap between the leaders and laggards will likely grow even wider.
Sustainability is getting smarter
It’s becoming increasingly evident for businesses that prioritising sustainability pays off – not least because sustainability and environmental commitments earn higher trust and loyalty among both B2B and B2C customers.
Automation plays a central role in turning sustainability into a competitive advantage and for those with the vision and expertise, the potential is limitless. Retailers are already using AI models to reduce waste, green supply chains, improve ESG reporting and risk management, and boost sustainable product innovation.
Brands like IKEA are already reaping the rewards of deploying AI across their operations. In 2021, IKEA developed an AI tool to create a more efficient supply chain by significantly improving the accuracy of its demand forecasting. This would, in turn, help reduce carbon dioxide emissions.
Trust is becoming everything
As technology continues to change the business landscape, one thing has remained a constant – trust is critical. Retailers must be transparent about how AI works, how their data is being used, and how decisions are made. At a time when consumer confidence is essential to brand reputation, ensuring that AI systems are explainable and free from hidden bias is critical for retailers.
AI is only set to become more predictive, and consumers – especially across the EU, UK and California – will demand greater control over their data. For retailers, this shifts consent from a legal necessity to a key trust factor. As we move forward, retailers will need to take an approach that enhances personalisation, while still respecting privacy. L’Oréal is a standout example of a brand ensuring innovation doesn’t come at the expense of customer trust. The global beauty brand has embedded AI ethics governance across its operations, aligning with GDPR standards, to support its beauty-personalisation tools whilst critically maintaining trust among customers.
Ethical data models and frameworks like the EU’s AI Act and BCG’s AI Trust Index offer guidance to help businesses innovate responsibly. No business is immune from the risks of AI, and companies that fail to integrate ethical principles into their practices risk not only regulatory backlash, but also reputational damage and customer attrition. On the other hand, those who get it right will benefit from real returns.
The next growth story is being written in code
In all honesty, retailers who still see AI as a cost centre or IT project are already behind. The winners treat AI as a business-critical capability – one that drives personalisation, creates new possibilities, improves operational efficiency, and expands sustainable practices. AI is the new growth lever, and it’s already being pulled by the most progressive players in the market.
The year ahead will be a decisive time for retailers. It’s no exaggeration to say that those who hesitate over AI are sleepwalking toward their own downfall. Those who experiment, adapt, and invest in considered, scalable execution now will define the benchmarks for performance and relevance in the years to come. Everyone else? They’ll be wondering how they missed it.
