man stood outside a shop window whilst browsing on smartphone

How AI can enable retail digital transformation

By Jon Taylor on June 12, 2021 - 10 Minute Read

Technology can transform every aspect of a retail business, from interacting with customers to streamlining operations and decision making.

And when we think about retail digital transformation that incorporates artificial intelligence (AI), companies now have a chance to track everything from customer preferences to low stock levels and even digitizing supply chains – automatically.

But a digital transformation doesn’t just help retail businesses streamline their operations. A study by Boston Consulting Group found that retail brands that incorporate AI into their workflows can get an accurate glimpse of their customers’ interests and digital footprints and create experiences they prefer. The study found that brands that do this are seeing revenue increase by 6% to 10% — up to three times faster than those that don’t.

To really learn about how AI can supercharge retail digital transformation, we must get beyond the logistics that make it happen (although that’s important too) and look at how making the jump to AI impacts an essential part of your business: your customers. 

In this piece, we’re going to break down:

  • What is digital transformation in retail?
  • What are the four main areas of digital transformation?
  • What role does AI play in retail digital transformation and why is it important?

Let’s dive in.

What is digital transformation in retail?

Retail digital transformation is when companies incorporate technology into every part of their customer’s journey, from ordering products online to digitizing supply chains and using algorithms to make personalized product recommendations to give them an enhanced shopping experience. 

Transforming a retail space digitally is no small feat. It means rethinking everything we know about traditional retail—i.e., brick and mortar stores—and adding digital touchpoints to improve efficiency and revenue. 

20 years ago, a store assistant would be helping a customer choose a new watch. With digital transformation, retailers can now use AI-powered algorithms to recommend the perfect watch to a customer based on their interests and past behavior.

This top-down retail industry transformation – just one part of the Fourth Industrial Revolution is partly being spurred by customers. One survey found that 45% of consumers want more digital payment options when shopping in stores and 40% prefer mobile-based, touch-free, self-checkouts.

Retail digital transformation also filters back to the operational side of the business. For example, retail businesses with large manufacturing and storage footprints are now using AI to improve efficiency and streamline operations in factories. Studies show that digitally transforming retail manufacturing can reduce costs, shorten product lead times and boost workforce productivity.

a chart showing an example of how AI can transform warehouse operations

(👆 An example of how AI can transform warehouse operations)

 

So, just what areas do you need to think about if you’re considering a retail digital transformation? 🤔

What are the four main areas of digital transformation?

The digital transformation of a retail company can essentially be broken down into making changes in four key areas: products, customers, operations and employees. 

Here’s what that looks like 👇

1. Products

Updating and innovating product ranges is key for retail businesses to stay competitive. 

It is, however, tough for humans to keep tabs on product changes, stock levels, and recommended retail pricing updates without the help of technology. Using the right software and tools allows retail businesses to adapt and plan to changes and updates as well as predict future problems before they impact product lines. 

Fashion retailer Farfetch is now experimenting with linking its brick-and-mortar stores with online operations to merge both experiences for its customers. The brand’s “Store of the Future” uses a technology-powered retail operating system to capture customer data and personalize a customer’s shopping experience when they’re in-store. For example, the store’s technology will allow customers to:

  • Log in to a personalized platform when they enter the store
  • Use an RFID-enabled clothing rack that detects which products the customer is browsing and auto-populates their wishlist
  • Try on clothes using a digital mirror that allows them to view their wishlist and summon items in different colours and sizes
  • A mobile payment system for a smoother checkout

 

an artist's impression of Farfetch's digital mirror

(An artist’s impression of Farfetch’s digital mirror. Source)

Farfetch believes this will allow them to gather customer contact and product preference information like they do online. 

What you can do with that data is offer a super-personalized experience, both online and offline. It also makes your company much more efficient. Take marketing; imagine targeting a customer on Instagram because you know that five hours earlier they’ve been to your shop and they’ve picked up a certain bag. And let’s remember, this is currently where 90% of the action is happening.

José Neves

Founder, Chairman & CEO at Farfetch

2. Customers

Improving the customer experience is at the center of any retail digital transformation. 

Adding tools to make it easier to communicate with customers (like chatbots) and recommending products they may like (using sophisticated machine learning algorithms) are just some examples of how digitizing the product journey can offer huge advantages. 

When clothing giant North Face implemented chatbots and machine learning into its systems thanks to a collaboration with IBM, it was one of the first brands to test the waters and use technology to improve communication and customer experience. 

Customers can now have AI help them pick clothing items that match their needs. For example, if a customer is looking for a new jacket, they’ll see this screen: 

a screenshot of an AI assistant to enable smarter shopping

Then, using a chatbot powered by algorithms, the customer chooses design and color preferences based on ‘if this then that’ logic until the tool has enough information to present them with personalized recommendations. 

The best part is that each time a customer uses the tool, the chatbot acts as a sponge and learns from their behavior, so next time it’s making a recommendation – it’s more accurate.

3. Operations

The next part of retail digital transformation is on the operational side, where companies can make more accurate decisions around logistics and inventories using data. 

For any retailer, the supply chain is the heartbeat of the business. Making sure inventories are accurate and that they have enough stock to sell – while avoiding unnecessary wastage – is the key to getting products out to customers on time. 

Digitizing operations and introducing AI can save time and also minimize human error. Technology can also track orders and provide customers with automatic updates about their products, improving customer experience. 56% of retailers say that order tracking across all touchpoints has resulted in a better experience for their customers, and consumers have also noticed a difference in product personalization and options thanks to digitization. 

graph showing the results of a survey on the impact of digitizing supply chains has had on customer experience

4. Employees

Employees play a vital role in any retail business, and a digital transformation should navigate where they need technology to help—and where it hinders them. 

Investing in tools that make it easier for employees to plan and execute ideas (like giving greater insight into customer behavior) or making it easier to communicate with consumers (like a CRM) can positively transform a business. The more customer information an employee has access to, like order information or previous purchases, allows them to deal with problems quickly and give customers a better buying experience. 

Yet, as some large retail chains have found, completely digitizing retail workflows isn’t always a good idea. Walmart planned to use robots on its shop floors to scan shelves, track stock levels, and ensure every item has the correct price point. 

But it didn’t all go to plan.

a smart robot on the aisle of a grocery store

(One of Walmart’s discontinued aisle robots. Source)

Walmart scrapped using robots because it realized humans working within its aisles could just scan the shelves when collecting deliveries. It also had concerns that customers would be intimidated by six-foot-tall robots roaming its stores!

This is a good example of a brand recognizing the limits of technology and AI when digitally transforming its operations. Let’s dig a little deeper to see what role AI should play in any digital transformation 👇

What role does AI play in retail digital transformation and why is it important?

Brands like The North Face and Farfetch are unique examples of how AI can be revolutionary in terms of how retailers approach customers. 

AI can offer an accurate and personalized shopping experience that’s never been offered to customers before—and do it in real-time. Thanks to data collection and algorithms, AI can learn what a customer likes (and what a customer doesn’t), learn from other shoppers, and feed back its thousands of findings into a brand’s digital retail system to benefit its entire customer base. 

For retailers, AI is a chance to meld traditional brick-and-mortar stores with an online presence while still focusing on creating the best possible experience for their customers. AI can be used to analyze data collections and spot consumer buying behaviors to help brands spot trends and stay competitive. But AI also helps companies predict consumer wants and offer them recommendations and product bundles without getting a human involved. 

AI plays an important part in any retail digital transformation as it can:

😊 Give customers a better experience: Customers now want a shopping experience that’s personalized in real-time with their preferences and past behaviors reflected in recommendations. AI allows retailers to automatically recommend products and bundle items together based on what the customer will like using data and predictive analytics.

📊 Make sense of data sets: Retailers have been collecting data for a long time, but many don’t know how to analyze that data to learn more about its customers. AI can filter data and analyze it to make sense of customer behavior and buying patterns, and then filter this back to operational and supply teams so companies can meet these demands.

🏗️ Build a bridge between online and offline experiences: Brands are now starting to realize the importance of giving customers the same great shopping experience—either digitally or in-person. Getting access to customer data no matter where a consumer decides to shop is the key to making this a reality. Integrating AI into digital systems gives retailers access to customer data, and because it is updated in real-time, it creates seamless shopping experience.

Wait – does this all mean that humans are no longer needed once a retail business digitally transforms? 🤔Absolutely not. And the proof of that is in the examples in this article. Some of the world’s largest retailers have tried (and failed) to replace human hands with digital touchpoints, and brands should be careful to leave crucial decision making down to AI and data alone. 

The most important part of any customer experience is still how well brands manage the touchpoints along the way. Having humans involved is still necessary, and knowing which parts of the retail process to deploy AI is key, which is where Peak and our unique Decision Intelligence offering comes in. 

Here at Peak, we help some of the world’s leading retailers integrate AI workflows into their digital systems to make great commercial decisions at scale and speed – giving their customers unforgettable, personalized experiences. We’ve worked alongside the likes of Nike, ASOS and KFC, enabling these brands to use AI to get the most out of their tech stacks — read more about our customers’ success stories here.

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