Artificial Intelligence: changing the face of retail

The Covid-19 pandemic presented both a crisis and an opportunity for retailers. Evolving changes in the sector have been accelerated by the pandemic, as lockdown forced physical shops to shut their doors, consumers’ attention quickly turned online.
 
Non-essential stores[1] in the UK lost £22 billion-worth of sales last year and experienced a 40% reduction in footfall. In comparison, online retail sales rose by 36% over 2020, according to IMRG Capgemini[2], as consumers’ shopping habits underwent a fundamental shift.
 
As stocks of staple items – from flour to toilet rolls – dried up and imports of key manufacturing components were disrupted, the pandemic highlighted the importance of a resilient and diversified supply chain. Against a rapidly changing backdrop, retailers were forced to assess their approach to stock management, logistics, and customer care. Although Covid-19 accelerated the evolution in consumers’ approach to shopping, artificial intelligence (AI) is driving the long-term revolution in how those shops are run.
 

The power of artificial intelligence

An increasing proportion of retailers are harnessing the power of AI to strengthen their long-term business model, from forecasting customer demand and managing stock to automating deliveries and returns, and maximising co-operation between different business channels. Not everyone will be able to keep up, however; it takes time and money to develop and implement AI solutions, and this will be beyond the reach of some businesses.
 
Some of the larger, well-resourced retailers are already partnering with specialist companies to develop customised tools that are designed to meet their specific requirements. M&S Food[3] partnered with RELEX Solutions in implementing AI tools across 1,050 of its food stores and 13 distribution centres in the UK and Ireland in a bid to enhance forecasting and improve efficiency in its supply chain and delivery flow whilst also cutting waste.


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Data: knowledge is power

Ultimately, AI is all about data. AI-enabled tools allow retailers to accumulate, process, and analyse data on customer behaviour. Retailers can use AI to adjust prices dynamically in response to factors like supply and demand, customer behaviour, and prices charged by competitors. AI can also factor in festivals such as Christmas or Eid, major sporting events, and even variables such as the weather. This enables companies to forecast with greater precision, matching supply and demand more accurately, managing stock more effectively, and reducing waste. In turn, more accurate predictions help to improve customers’ experience by anticipating their demands – and these datasets continue to expand and refine.
 
Amazon[4] uses its proprietary “anticipatory shipping” process which speeds up the delivery process by anticipating when a customer is likely to order a particular item and then shifting the product to a warehouse to be ready for shipping.
 

Return to sender

Online retailers are already positioned to collect and interpret a mass of information on all their customers. In comparison, multichannel retailers – who have both a physical and an online presence – have to address the challenge of managing their stock when their sales take place both in-store and online. Having the right products at the right time not only improves profitability, but also reduces waste.
 
Returns are a major headache for retailers who sell online. Around 25% of online fashion purchases[5] in 2019 were returned, according to a study by IMRG Capgemini, which found that as much as 10% of resaleable stock is caught up in the returns process and therefore temporarily unavailable for onward marketing.
 
AI can help to guide the customer to the products that are right for them, reducing the probability of a return: a smoother online shopping experience is also likely to increase customer satisfaction and encourage the customer to come back again. Moreover, cutting the proportion of returned items will reduce costs and waste and will also lessen the impact on the environment.
 

Enhancing the customer experience

Increasingly, online retailers are seeking to boost customer satisfaction levels by using AI to bring elements of the physical shopping experience to the online shopping experience. AI and augmented reality (AR) can be used to create an interactive, personalised experience in which clothing, eyewear, or cosmetics can be “tried on” virtually. IKEA Place[6] allows IKEA’s customers to use AR to see how furnishings would look in their room.
 
Customers can be targeted with customised marketing campaigns and tailored recommendations; a more personalised experience can help to build and strengthen brand loyalty. Elsewhere, AI-enabled chatbots can provide customer service around the clock. Online retailer Very’s[7] machine-learning chatbot has become its most-used customer service channel, answering more than 268,000 customer queries every month and cutting inbound customer service queries by 23%.
 

The pace of change

According to KPMG’s 2020 study “Thriving in an AI World”[8], 81% of respondents from the retail sector said that AI was at least “moderately functional” in their organisation – an increase of 29 percentage points over the previous year.
 
69% of retail respondents said that they believed AI could deliver “significantly or somewhat more value” to their organisation. 26% said AI would deliver the “expected level of value”, and only 5% thought that it would deliver less value. 
 
There is some concern over the pace of change, however, with some business leaders warning that the rapid adoption of AI could generate future problems around ethics, governance, and regulation. 49% of retail respondents said AI adoption was moving faster than it should, 44% said it was moving at an appropriate speed, and 7% said it was moving more slowly than it should.
 

A compelling investment story

AI is here to stay. According to a survey of top UK fund selectors undertaken by Last Word Research and Portfolio Adviser[9], 31% of respondents regard AI and robotics as a “vital” investment theme, with a further 48% regarding it as “important”, 13% as “interesting”, and only 8% as “not relevant”.
 
The managers of Sanlam Artificial Intelligence Fund have long recognised the breadth and depth of the opportunities created by AI’s evolution. Companies across every industry sector – from retail to health care and financial services – are engaging with AI to refine their business models, strengthen their competitive advantage, and boost their long-term profitability. In turn, this is creating an ever-expanding universe of compelling, high-quality investment opportunities.
 

“We're only at the beginning of the adoption of AI; almost all of this opportunity still stands ahead of us”
Chris Ford, co-manager of Sanlam Artificial Intelligence Fund

The Sanlam Artificial Intelligence Fund is designed to provide long-term capital growth through exposure to one of the global economy’s most important investment themes.
Find out more


[1] BRC, 11 Feb 2021
£22bn cost of lockdown to retailers (brc.org.uk)

[2] IMRG Capgemini, 12 Jan 2021
Strong December Caps Standout 2020 As Online Sales Growth Hits 13-Year High - IMRG

[3] Relex Solutions, 21 Apr 2021
M&S Food Selects RELEX Solutions to Provide Forecasting, Ordering, and Allocation Management | RELEX Solutions

[4] BRC, 12 Apr 2021
A Year in Pandemic - How Technology Is Driving Retail Transformation (brc.org.uk)

[5] IMRG Capgemini
aee8f77eb4d47ccae59293c2518ea67641e5a89d.pdf (imrg.org)

[6] IKEA, 14 Sept 2017
Ikea App Page - IKEA

[7] Very.co.uk, 1 June 2021
AI chatbot becomes Very’s largest customer service channel - (theverygroup.com)

[8] KPMG, 9 Mar 2021
AI Industries Survey - KPMG United States (home.kpmg)
Thriving in an AI world (kpmg.us)

[9] Portfolio Adviser, 2 July 2020
UK investors return en masse to AI and robotic funds amid virus crisis | Portfolio Adviser (portfolio-adviser.com)

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