Artificial intelligence - how is this impacting the retail sector?

What is Artificial Intelligence (AI)?

A recent survey by analytics company, SAS UK (SAS), found that only 44% of people felt that they would be able to explain AI to a friend or colleague. Yet AI is already being successfully implemented into the retail sector for a variety of purposes. 

"The theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages"
Oxford Dictionary

AI can be described as the use of machines to imitate human interactions and reactions. The technology has wide ranging applications from voice-activated personal assistants to "deep learning", the ability of a machine to interpret data in a way that simulates the human brain.  

How is AI being used?

One such application of AI technology in the retail sector is the emerging use of robots to provide customer service. An established example is 'Pepper Robot', created by Japanese telecom operator, SoftBank, of which there are over 10,000 models in use around the world. Described by the company as a "human-shaped robot", Pepper has been employed as a customer service greeter in 140 stores. According to pilots run in retail stores, Pepper's "kindly, endearing and surprising" nature has dramatically increased footfall (in some cases by up to 70%), in turn resulting in higher revenue. When Pepper was deployed in 'The Ave' apparel store on the University of Southern California campus, sales revenue increased by 300%. These effects may be short-term and exaggerated by the novelty factor for shoppers of interacting with a robot in store, but the statistics indicate an underlying consumer interest and openness for dealing with robots in a retail environment.

Another retail area in which AI thrives is in payment services. For example, PayPal, which uses a complex algorithm based on customer purchase history and its own database of patterns of likely fraud, is able to predict fraudulent transactions with an incredibly high success rate. PayPal has reduced fraud to just 0.32% of revenue, which is 1% less than the rate of fraud experienced by comparable eCommerce businesses. This application of the technology has the potential to benefit retailers greatly, affording customers greater protection and instilling in them trust in the payment process.

AI also impacts on the availability of customers' buying data and may have a huge impact on marketing in the sector. Home assistants such as Amazon Echo and Google Home are becoming increasingly popular. These devices collect copious amounts of data from communications with the user which tech companies are able to analyse through the use of AI. The information obtained from this analysis can be used to improve the relevancy of subsequent marketing to the user and can accurately predict retail activity, allowing products to be offered to the consumer before they ask for them.  According to Witlingo, Amazon's analytics partner, and somewhat surprisingly, sales of voice devices have been dominated by those individuals born between 1946 and 1981, with younger consumers appearing more cautious about adopting the assistants into their homes.

What is AI's potential?

One aspect of the retail sector poised for AI takeover is physical delivery. Increasingly, retailers are finding that their consumers' top priority is convenience and that speed of delivery may affect how likely a customer is to buy a product. Amazon is looking to revolutionise product delivery with its automated delivery service, 'Prime Air', with backing from the UK Government. If the service takes off, drones are set to deliver packages up to five pounds in weight in 30 minutes or less.

The customer demand for immediacy has particularly shaped the food market. Dominos, along with other pizza outlets, have announced plans to automate their deliveries, creating driverless vehicles which are even able to control the temperature of the pizza inside.

It is also worth noting that AI's potential transformation of the retail sector may have a positive environmental impact. Using customer patterns of behaviour and purchase information to accurately predict stock requirements can significantly reduce wastage, particularly in the fresh foods industry. Automated delivery could also reduce pollution, traffic and fuel consumption.

Limitations of AI

Through surveys, SAS found that the main consumer concern about AI is data protection. Just 35% of shoppers surveyed felt confident that their personal data would be kept securely and only 47% felt comfortable with companies using AI in business interactions. This percentage is even lower when concerning financial information; only 36% of shoppers would be happy for their payment information to be accessed from their smartphones at 'cashier-free stores'.

Retailers may be able to overcome these challenges by investing in data protection and keeping up to date with the latest and most secure ways to store their customers' data.  Further, customer concerns regarding AI may be alleviated over time by gradually increasing customers' exposure to the technology. In any case, it is likely that the youngest generation will interact with AI from a young age and will be the demanding AI consumers of the future.

For more information please contact Francesca Hubbard, Associate in the Retail team at francesca.hubbard@michelmores.com or on 01392 687569.