The ghost in the machine of Christmas past

Retailers are well-known as early adopters of technologies that help them streamline operations, outmaneuver the competition and connect with customers on deeper levels. AI has the potential to serve all those goals (and then some), so it makes sense that this fast-evolving technology was on retailers' holiday wish lists.

The holiday season just passed was no exception. Customers are cozying up to AI in all its many forms. They’re clicking with virtual shopping assistants, tapping into interactive dressing rooms, and engaging with targeted marketing campaigns that appeal to their individual interests and purchasing habits. They’re also becoming tech-savvier and drawn to retailers that can offer more streamlined, intuitive and hyper-personalized shopping experiences.

Flashy or subtle, customer-facing or back-office accelerating, AI is finding a welcome home in the retail sector, where it is being used to:

• Streamline and optimize the customer experience, enhancing product recommendations through virtual try-ons in interactive dressing rooms, 3D simulations, augmented employee offerings, and other services that make customer interactions more engaging and efficient.
• Drive innovative shopping experiences through personalized marketing, advanced e-commerce experiences, virtual shopping assistants, and other offerings that engender customer loyalty and growth.
• Augment the workforce by filling labour gaps, supporting the human workforce, and freeing talent to focus on more “human-touch” elements of the business. This is done by automating and/or optimizing critical business functions such as product planning, supplier logistics, inventory management, cybersecurity and customer service. 
• Generate value and growth by informing strategic decision-making as it relates to demand/sales forecasting and planning, store analytics, marketing strategies, etc.

Over our collective years at KPMG, we've seen AI innovate how companies approach all of these objectives. Still, after years of work in the retail sector, we also understand why the AI revolution can be a bit overwhelming. Global multinational retailers may have the resources and budget to explore AI across all the above use cases, but most small-to medium-sized businesses aren't in a position to invest at the same levels. This can cause some to get mired in decision paralysis or dismiss AI altogether.

All told, we can see where resistance to AI can settle in. And while there have been trends that come and go in the retail sector, this is not one of them. AI transformations are happening fast across the sector, and customers and business stakeholders aren’t going to wait around forever for late adopters to catch up.

The good news is that getting started with AI doesn't have to feel like boiling the ocean. It can begin simply by taking a look around the organization and asking where adopting AI would pose the biggest opportunities, whether in terms of value, speed or ease of adaptation. The answer will be different for each retailer. Maybe the first step is to use Machine Learning as a way of creating more personalized and targeted marketing campaigns. Maybe it’s to optimize inventories and store layouts. Just as likely, generative AI could be used in a better customer service chatbot to support your help line. It could also enhance your cyber security strategy, supply chain optimization and other back-office functions.

We could go on, but the point is this: there is no boilerplate roadmap for the AI adoption journey. Rather, there are key questions that can help companies home in on the steps that make sense to them:

• Where could AI bring the greatest gains to your business? What are your pain points? What aspects of the business do you want to improve? In consumer lingo, where can AI make the most bang for your buck?
• What are your priorities? You may find AI makes sense in many areas but the resources aren’t available to tackle everything at once. What, then, are the capabilities that pose the greatest value to your organization now—and which can wait?
• What are your technology options? There are a wealth of AI technologies on the market that can serve your needs—from machine learning and neural networks to large language models (LLMs) and generative AI—and many more on approach. What are your specific needs and which solutions would make the best fit?
• Is your team AI-ready? Despite all the talk about self-learning systems and intelligent machines, AI's primary application today is to support the human workforce, not replace it. To do that effectively, you’ll need to equip your teams with the skills and support systems that faciliate the best use of AI solutions.

No one’s expected to have all these answers at the ready. Part of our work at KPMG involves guiding consumer and retail companies through the various stages of AI transformation. Another part is reminding them that risks are part of any journey worth taking, and this one is no exception. AI is a technology driven by data, which, in the retail sector, can come from any number of sources (consumer, supply chain partners, operations, etc.). So, while the first step may be to understand where AI "fits" within your organization, the next is determining which frameworks, processes and governance structures are needed to ensure that data-driven AI solutions are being used responsibly, ethically and in line with regulations.

If it isn’t already clear, we’re more than a little excited by the potential for AI to transform the retail world. Can you blame us? Increasingly, and in particular during peak periods, AI is helping retailers to tackle their biggest challenges and take the customer experience to new and innovative places. With countless more shopping occasions to come, we’re looking forward to joining our clients in embracing what they do next.