Beyond automation: Unlock gen AI’s potential in retail

Generative Artificial Intelligence (gen AI) is revolutionizing the consumer and retail industry by offering unmatched opportunities for companies to enhance their operations, supply chains, improve customer experience, and achieve better business results.

 86% of Canadian retail executives agree AI is revolutionizing the industry

81% say they must shift to a gen AI operating model within 12 months

Among the various types of AI, gen AI stands out for its transformative potential. Gen AI is more than just a tool - it’s a game-changer for Canada’s economy, with the ability to boost productivity, spur innovation, and create new sources of value.

In retail, gen AI is a natural fit. It can add value across organizations, for example through personalizing the customer experience, enabling more accurate forecasting, and improving supply chain efficiency. The evolution of consumer expectations is closely tied to technological advancements, and the rise of gen AI is no exception. This is especially true for a generation for whom AI is a standard part of their lives. As customers' expectations for retailers rise, Canadian retailers must prepare for this latest advancement or risk falling behind their competitors. As companies explore how gen AI will integrate into their organizations, it brings many opportunities but also some complex challenges.

As it gets harder to capture consumer attention, the integration of gen AI into the retail industry will offer transformative opportunities to enhance customer experiences by personalizing marketing efforts. Instead of random product suggestions, retailers can utilize gen AI to analyze customer preferences and shopping behaviors to anticipate customer product restock needs and make more accurate product suggestions. Additionally, gen AI can help create tailored pricing, promotions, and bespoke marketing content, including imagery and copy, making every interaction more relevant and engaging for individual consumers. This level of personalization not only boosts the effectiveness of marketing strategies but also builds stronger connections with shoppers.

The integration of gen AI into retail presents an outstanding opportunity for enhancing operational efficiency, particularly within supply chain management. Every time retailers purchase inventory, and it sits in storage, it gets more costly. Gen AI can significantly boost supply chain performance by accurately predicting inventory lead time, customer demand, and providing inventory tracking. By optimizing inventory management and improving the logistical coordination of retail operations, retailers can obtain a more agile and efficient supply chain, ultimately driving profitability and customer satisfaction.

One of the common use cases of gen AI is in customer service. Retailers are increasingly adopting chatbots and integrating gen AI into call centers to deliver timely, efficient, and accurate customer support. As global commerce continues to expand, gen AI enables retailers to provide 24/7 multilingual, multichannel support, fostering accessibility and inclusivity. Advanced chatbots can enhance customer interactions by offering hyper-personalized experiences. They can achieve this by analyzing large datasets on customer behavior, learning from previous interactions to manage open-ended queries, guiding users through complex processes, and escalating cases when necessary.

Moreover, in call centers, gen AI can empower agents by providing real-time coaching, response suggestions, and efficient information retrieval during calls. This will allow agents to resolve customer questions and concerns more quickly and accurately while reducing repetitive tasks, ultimately boosting both employee morale and overall productivity.

Canadian CEOs identify increased profitability as gen AI's primary advantage, with 42% of retail executives projecting sales ROI improvements of 10-20% and 41% expecting gains of 6-10%.¹ This is due to gen AI fostering innovation through the development of new products and business models, creating additional avenues for market differentiation, while reducing costs and improving efficiency within every business level. Moreover, the adoption of gen AI has consistently translated into tangible financial benefits for the sector. According to the KPMG global tech report: Consumer and retail insights, 73% of consumer and retail companies have already secured value from active AI use cases. Retailers not adopting gen AI risk falling behind, as early adopters continue to uncover new, transformative use cases that solidify their competitive advantage and position gen AI as a necessary driver of sustainable growth.

Globally, the consumer and retail industry anticipate a massive impact from gen AI in the future, though they are not there yet. Today, they are slightly less likely than other industries to agree that their organizations are empowered to strategically innovate and leverage gen AI to capitalize on market trends. This hesitation could stem from the investments required to integrate gen AI; however, gen AI adoption does not need to be an all-or-nothing approach. Instead, retailers can focus on one key area - such as customer service or supply chain management - to implement gen AI on a smaller scale. This strategy can alleviate the pressure retailers may feel when investing in a tool that’s still relatively new to the market.

Effective data hygiene and robust management practices, including quality control, integrating fragmented data sources, and maintaining consistent protocols, are essential for successful gen AI implementation in retail. Gen AI relies heavily on well-maintained, high-quality data. Poorly managed data can lead to inaccurate insights and flawed predictions, ultimately leading to subpar customer experiences. One of the primary challenges businesses faces is from the lack of standardization and the absence of designated expertise to manage the vast volume of data from multiple channels. To address this, retailers must take internal ownership of gen AI initiatives, ensuring they are not siloed within IT departments without cross-functional involvement.

Without careful governance, gen AI tools may introduce algorithmic bias, damaging customer trust and brand integrity. As such, it's important to create an internal AI ethics board that ensures employees, customers, and regulators are kept front and centre, especially as laws evolve. Additionally, AI adoption must respect evolving consumer expectations and comply with regulatory frameworks (e.g., PIPEDA and the upcoming Artificial Intelligence and Data Act (AIDA)). Retailers who embrace responsible AI will ultimately win customer trust and stay ahead of expanding AI legislation.

Innovation must be championed by senior leadership to set the vision and foster a culture of creativity, experimentation, and calculated risk-taking. By emphasizing innovation at the executive level, retailers can motivate their teams to think creatively and drive meaningful change. According to KPMG in Canada’s latest CEO outlook, one of the top operational priorities for Canadian CEOs to achieve three-year growth objectives is understanding and implementing gen AI across the business, including upskilling the workforce and streamlining processes. Leadership must promote innovation, driving both the vision and a culture that embraces new technologies and continuous improvement.

Gen AI has proven its potential to deliver measurable impact and value to retailers. Successful gen AI investments, however, hinge on thoughtful and strategic implementations.

Here are four steps to elevate your gen AI integration:

1. Find your purpose: As per KPMG’s Trusted AI methodology, AI should serve the brand’s mission and values, not just automate tasks. Define a clear vision for how AI will drive business value (e.g., customer experience, operational efficiency, or personalization) and align AI initiatives with strategic goals.
2. Build AI readiness throughout your company: Assess your data and technologies to ensure they’re ready for gen AI implementation and can scale accordingly. Upskill staff and integrate AI literacy throughout all business functions. Building readiness also means designing systems with explainability, fairness, and accountability in mind.
3. Launch pilot projects with measurable ROI: Pilot, prove, pivot, and scale. Use short, iterative cycles to build credibility and value. Focus on high impact use cases like smart inventory, personalized marketing, or chatbot customer service. Define success metrics (e.g., conversion rates, NPS, efficiency gains) before launching.
4. Prioritize responsible AI and compliance: Stay ahead of Canadian regulations like the Artificial Intelligence and Data Act (AIDA). Implement governance frameworks for ethical AI usage. Establish clear communication with customers about how their data is used and how personalization is delivered, building trust through transparency.

KPMG recently launched Intelligent Retail, a blueprint for creating value through AI-driven transformation. In this report, you can learn more about the transformative impact of AI on the retail sector and how it can unlock significant value. The findings offer a strategic framework for organizations to effectively leverage AI solutions for retail and enhance customer experience.

KPMG in Canada is leading the way in helping Canadian retailers unlock the full potential of gen AI. From strategy to execution, our Trusted AI framework is designed to build and enhance our clients' AI readiness from the ground up and unlock gen AI's full potential safely and strategically across their operations. Our professionals provide guidance and training on navigating ethical and legal considerations while our tools support enterprises in collecting, managing, and capitalizing the data to help optimize your AI adoption and scalability. Backed by deep sector insight and alliance networks, KPMG in Canada equips retailers to adopt AI with confidence and generate measurable impact across the value chain.