Retailers Use AI to Rebuild the Customer Experience

E-commerce sales ignited the retail space in 2020. Now, as we move further into 2021, retailers are looking at how to bring those shoppers back in-store.

More than one in every five dollars spent on retail purchases during the fourth quarter of 2020 came from online orders, according to estimates, with Amazon accounting for more than half of all e-commerce gains. Without being able to compete solely on price, retailers are using artificial intelligence to enhance the customer experience and also run their own back-end operations more efficiently.

“AI is really drilling down on the front-end in terms of creating the digital marketplace and building a better customer experience as customers have shifted online,” says Amitabh Bose, Chief Practice Officer, CPG, Retail and Hospitality at Fractal Analytics. “There is a lot of work being done on how to curate a personalized marketplace by customer need and profiles. This includes developing AI-powered customer-facing apps, chatbots and voice commerce so that store associates can focus more on order fulfillment.”

Fractal is one of a number of firms in the AI space now assisting retailers as they plan and execute strategies for adapting in a post-Covid world. The company works with some of the largest retail brands in the world, including Mars and Mondelez. Bose says that most brands are working overtime right now trying to figure out how they can use AI to adapt to the new normal in which we find ourselves

AI in retail before and after Covid

Even before the pandemic, use of AI within the retail space was growing. Beyond the front-end aspects of using AI for customer engagement and personalization, retailers have also been using the technology to better understand the marketplace and implement business strategies. 

Bose says the key AI technologies that are paying off right now are front-end technologies – including digital marketplaces, dynamic pricing, chatbots, and apps. It’s helped that these front-end technologies are set up in the cloud, so they can scale easily and absorb the surge that’s occurred as a result of Covid-19.

“In our experience, we find that clients are pretty savvy with their understanding of AI and how it can help with transformation and drive efficiency and business decision making,” he says. “Clients are becoming more and more aware of the underlying data assets they need to build to drive their AI engines as well.”

With e-commerce now representing a third of all retail sales, equipping service teams to engage with customers throughout their journey has become essential, says Joseph Ansanelli, CEO of Gladly, a firm that specializes in retail customer service.

“With the massive change in consumer behavior comes a shift in expectations. Consumers are looking for brands that can engage them online the way they once did in-store,” Ansanelli says. “They’re looking for the expertise and personalized experience that we’ve long relied on face to face interactions to deliver. And they expect to receive it whether they’re on chat, messaging, or voice.”

Beyond the customer-facing enhancements that Bose says AI is providing for retailers right now, brands are also looking at how they can use AI behind the scenes, in ways that most customers would never realize. That includes optimizing dynamic inventory management and fulfillment, as well as using AI to build digital assistants for store associates to enable more efficient customer service for BOPIS (buy online, pickup in store) and BOPCS (buy online, pickup curbside) models.

“On the back-end side, although things are still taking shape, retailers are adapting, converting stores to fulfillment centers and adapting to inventory management – so we are beginning to see some significant gains there,” Bose says.

Subscription pivot

Firms like Fractal are charged with thinking beyond the present and envisioning the future of what retail could become. For his part, Bose believes that AI could ultimately play a huge role in reshaping the way people think about online and offline commerce.

For example, he expects to see retail pivot from the models of customer lifetime value towards subscription-based models, closer to what Netflix and Amazon have pioneered. 

“This requires that retailers provide customers a 5x to 10x return on value and experience in return for the ongoing subscription investment,” he says. “We anticipate that AI will be pivotal in measuring this return on subscription value and in making this new subscription model a success.”

Forward momentum

Just as nobody could have predicted the toll that the Covid-19 pandemic would have on human lives and businesses around the globe, it would be a fool’s game to predict what will come next as the retail industry works to recover. 

Bose says the next few months will be telling. He expects to see a quick ramp up as businesses reopen their doors and implement technologies like chatbots and voice commerce in a bid to take back share from e-commerce.

“The pandemic will have a lasting impact on shopping behavior as customers have adapted to online buying and retailers have been able to collapse the physical store into an app on a smartphone,” he says. “We can expect to see virtual and augmented reality going beyond just experimentation and entering the mainstream.”

The demand for commercial real estate may never be as strong as it once was, particularly as customers get even more comfortable with online buying and delivery convenience. Some physical stores are already well on their way to transforming into full-time fulfillment centers. Terms like “dark stores” in retail and “cloud kitchens” in food retail were virtually unheard of before the pandemic, but now they’ve become the norm when describing the changes taking place.

Will more retailers turn existing storefronts into dark stores, where physical locations offer no indoor experiences? Will traditional storefronts eventually become drive-up windows, where shoppers will pull up and have purchases brought directly to their vehicles? 

At the e-commerce solutions firm PFS, Senior Vice President of Global Operations Steve Smith says alternative solutions could very well become the norm as retailers look for better ways to get rid of excess or obsolete inventory. He expects to see accelerated adoption of “true omnichannel solutions” that leverage both online and physical retail spaces as shopping destinations. 

“Retailers will shift from monolithic distribution hubs to a system of more and smaller distribution points, including store fulfillment, micro-fulfillment centers, and pop-up distribution centers,” Smith says. 

Bose believes micro-fulfillment centers could be where retail is headed as well. He says there’s already experimentation underway that involves converting the back end of certain stores into complete fulfillment centers with robotics.

“As retailers have begun to embrace AI more widely, the industry has come to terms with the idea that AI and humans will need to work together to find future success,” Bose says. “This has essentially dispelled the misconception that stores will be 100% operated by machines in the years ahead.”

Stephanie Miles is a senior editor at Street Fight.