Retailers need to put AI on their wish lists in 2023
The pandemic was a turning point for retail, it drove a marked shift in consumer behaviours that aren’t going away anytime soon – by 2023, online is expected to make up 22% of all global retail sales. We’re already seeing evidence of this trend as online channels are given similar consideration to offline.
But there’s something else brewing. Because as well as changing consumer behaviours, retailers now have a cost of living crisis to deal with. The response from many in the UK has been to roll out seasonal sales earlier in an attempt to target cash-conscious shoppers. In a climate where 48% of consumers suggest they’ll be cutting back their festive spending this year, retailers are looking to persuade shoppers to spread their spending over a longer period.
These cutbacks, driven by economic factors such as a double digit inflation, rising energy costs and skyrocketing interest rates, have contributed to the Bank of England’s prediction that the UK is facing its longest recession since records began. So how do retailers plan for – and survive – a looming recession? Get smarter with how they utilise their data.
Unlike those further up the supply chain, retailers hold a much prized key – consumer data. And, as online sales grow into next year, retailers are going to find they have an increasing amount of it. Yet, despite the accessibility of this data, new research from Peak found that, while 80% of UK retailers currently have a formalised data storage system, only 23% of those store all or most of their data in it. Centralising data storage and linking supply and demand data represents a competitive advantage most are missing out on.
Connecting this data allows retailers to feed in information from a variety of sources to more accurately predict demand and optimise the end-to-end value chain, making decisions to meet consumer expectations through personalised targeting and product ranging. It also gives the visibility to promote in-stock products, increasing customer experience and avoiding a situation where demand goes unfulfilled.
In comparison to the stockouts of 2021, the environment we currently find ourselves in – where demand for seasonal goods is likely to be well below forecast – retailers need to conserve as much margin as possible while reducing the risk of unsold stock.
Adding an artificial intelligence (AI) layer opens up opportunities for more nuanced and sophisticated forecasting and targeting. Predictive analytics allows retailers to identify and target highly specific segments – such as in-market customers or those at risk of churn – pitching products that individual consumers are interested in to the channels they are most likely to convert through. This typically boosts sales conversions and helps to avoid outdated tactics like generic blanket markdowns.
Yet, just 43% of UK retailers currently use AI. And of those that are using it, most have implemented it in only one or two use cases. While that’s not too surprising – this is still a nascent technology – there is evidence that retailers are falling behind on AI compared to others in the supply chain; already 59% of UK consumer goods companies state they’re using AI.
There’s a significant competitive advantage to be gained for retailers from AI, and this holiday season is where we’ll really start to see the divide opening up between those that are accelerating their data maturity and leveraging this technology and those that aren’t. When the results roll in in January, the proof will be in the pudding. The retailers that have got it right will be those who have ensured operational efficiency and stock availability. That means data savvy businesses employing AI to move away from a reliance on historical data and instead base decisions on more complex models of ‘what if’ scenarios. These will be the retailers that are agile and can react quickly to the market, increasingly important against today’s volatile backdrop.
Tom Summerfield, Retail Director at Manchester-based scale up Peak, has helped a diverse range of retailers across the sector, including B&M, Nike and ASOS, adopt artificial intelligence to increase revenues, drive efficiency and grow profits.
