Risks and Rewards of Adopting AI in Retail

Retailers are optimistic about the growing success of artificial intelligence in transforming marketing and customer service, although this enthusiasm may border on overly optimistic.

Retailers don’t waste any time pushing the generative AI agenda. However, they may be in too much of a hurry, overlooking some well-founded concerns about upcoming unrecognized risks.

Only 12% of retailers consider AI to be one of the main risks, according to the website ecommercetimes.com. Meanwhile, almost half (45%) of modern retailers are already using AI to optimize pricing strategies. As retailers are forced to raise prices, using AI to determine the timing of discounts and promotions will be crucial to ensure sales.

Kirstie Tiernan, national data and AI practice leader at BDO, thinks this is happening with generative AI for two main reasons: first, AI provides simple use cases that are driving demand, and second, employees have a growing appetite to use and experiment with generative AI.

Tiernan considers both goals to be key, but at the same time emphasizes that creating more value and differentiation in a competitive market are the main driving forces of marketing strategies. The emergence of creative capabilities of generative AI opens up limitless opportunities for retailers, although this happens without a comprehensive assessment of the risks associated with it.

Retailers face constant pressure to innovate, adapt, and personalize their offerings to meet changing customer preferences and expectations. Tiernan explained that generative AI can enable retailers to create new and novel products, services, and experiences that appeal to customers and increase loyalty.

According to a survey of financial directors conducted by BDO, retailers have been caught up in a price “game of hide-and-seek” that is almost certain to continue. Retail finance directors plan to keep raising prices while consumers seek great deals and discounts.

By the end of last year, it became clear that consumers were winning the game due to the fact that many retailers were offering higher discounts ahead of the holiday season than before. Retailers are now trying to abandon these discounts, feeling that they are being consumed by ongoing price uncertainty.

BDO notes that there is a lack of operational data in supply chains. The main problem here is insufficient forecasting analytics. Retailers cannot process data fast enough, which limits their ability to make decisions confidently in real time, let alone predict.

To solve this supply chain dilemma, retail finance directors are turning to advanced technologies such as scenario modeling and predictive AI. For this purpose, 59% of companies plan to use customer data analytics to better predict, align and manage demand, and make informed inventory decisions.

The way retailers adopt AI is critical. Thy should be careful and think strategically.

The approach involves training, identifying potential AI applications and prioritizing them, then creating a solid foundation for data management, security and privacy, and after that change management. The final stage includes constant revision, refinement and repetition of artificial intelligence implementations.

To overcome today’s supply chain hurdles, the BDO report recommends that retailers consider four essential tactics:

• Leverage scenario modeling software
• Reassess the necessary skillsets for supply chain roles
• Prioritize ESG (environmental, social, and governance) reporting compliance
• Proactively manage disruption when switching suppliers

To overcome today’s supply chain difficulties, the BDO report recommends that retailers consider four main tactics: a) use software to simulate scenarios; b) review the set of necessary skills to perform functions in the supply chain; c) prioritize compliance with ESG (environmental, social and management reporting) requirements; d) proactively manage interruptions in work when changing suppliers.