Artificial Intelligence offers $340 billion opportunity to retail sector

16 January 2019 Consultancy.uk

The use of Artificial Intelligence could offer as much as $340 billion in cost-saving opportunities for retail companies able to scale and expand the scope of their existing deployments, according to a new global study. The news comes as retailers in the UK and across the world battle against falling sales figures and a crunch in costs related to running stores, while ecommerce continues to eat into the market share of bricks-and-mortar entities.

While global retailers face headwinds from increasing import costs, trade wars and the threat of ecommerce to traditional models, the UK high-street is enduring an even more torrid time. In Britain, debt-burdened consumer companies have been repeatedly hit by a difficult trading environment. A potent blend of spiralling debts, climbing business rates, and crippling costs related to a weakened pound triggered by Brexit have seen multiple casualties in the British leisure and retail scene throughout the year, with no end in sight. In this context, many retailers are desperate to find savings to keep their companies profitable, moving forward.

One major way in which stores can find savings is to apply Artificial Intelligence (AI) to their organisations. A new report has seen Capgemini Research Institute look at 400 global retailers – representing 23% of the global retail market by revenue – which are implementing AI use cases at different stages of maturity. On top of this, the study further included an extensive analysis of public data from the world's largest 250 retailers, by revenue.

AI Penetration-By Subsector

The researchers found first and foremost that, unsurprisingly amid the clamour for digital technology to deliver improved business performance, the share of retailers deploying AI has risen drastically in the past three years. In 2016, the portion of retailers leveraging the new technology rested at just 4%. By the end of 2018, that stood at 28%, and is likely to rise further within the coming years. Thanks to the previously mentioned British retail slump, this is even higher in the UK, where AI penetration has reached 39%, two points ahead of nearest equivalent France, and a whole 10 points ahead of the global average.

Of the subsectors to have deployed AI, multi-category retailers are far and away the most common users of AI – perhaps as their diverse stock range would most clearly benefit from the qualities AI offers, including faster and more accurate stock management and pricing metrics. Apparel and footwear followed, at 33%, while food and grocery sellers were just behind at 29%. Automotive retailers were the least likely specified group to use AI, at just 19%. With car sales stalling across Western Europe, however, this is likely to change quickly, as such organisations look to turn around their troubled operations.

Proportion of benefits expected by retailers

While AI use is being used more heavily by the retail sector, though, it is not being used to its full potential by the majority of those engaging it. According to multiple reports, focusing automated technologies and AI on back office practices can yield huge savings, with one study from McKinsey & Company finding that for one example, banks that effectively utilise such potential will spend, on average, 41% less on day-to-day IT operations than banks that are experiencing deficiencies in these fields.

Despite this, the vast majority of retailers using AI are aiming it at customer-facing improvements. 9.4% of respondents told Capgemini that they had used AI to enhance customer satisfaction, while a further 8.4% had leveraged it to improve promotion efficiency.

Most retailers focus on customer-facing AI initiatives

While in a crowded and competitive market, demonstrating top-level customer service and experience is a major boon to stores, pricing pressures and an up-spike in tax and import costs mean that operations-focused AI use is essential in the future. Indeed, according to Capgemini, AI in operations is a $340 billion prize that cannot be ignored.

The paper cited Walmart as one key example of this. Walmart has used AI-driven image optimisation to realise savings of $86 million, with estimated savings of over $2 billion over the next five years. In the UK, meanwhile, Morrisons – which is coming under pressure from new competitors Lidl and Aldi – used AI for stock replenishment to reduce the company’s shelf gap by 30% during trial sessions, demonstrating the potential for major savings in the future. To that end, the 26% currently using AI for these purposes will almost certainly grow rapidly in the coming years.

In a release accompanying the report, Capgemini said, “Many retailers are going after complex use cases and overlooking a $340 billion prize offered by use cases in operations. AI is an opportunity every retailer will soon be taking advantage of, but it will be the organizations with a dual customer and operations approach to AI implementation that will be the ones staying ahead of the game.” 

News