AI in retail has grown beyond a mysterious buzzword to a tool for revolution in retail –  but adoption rates are lagging other industries. 

Retail organisations that have adopted AI (artificial intelligence) are already seeing improvements of between 16 to 19 per cent in customer engagement, business intelligence, profit margins, competitiveness and innovation, according to a study by Microsoft Asia and IDC Asia/Pacific released this week at the NRF show in New York. 

In Singapore, Inside Retail Asia was invited to Microsoft’s experience centre at its new downtown headquarters, where AI-driven technology is driving in-store technology driven by Microsoft-accredited partners Hong Kong-based Tofugear and Singaporean startup Trakomatic.

According to the research, Future Ready Business: Assessing Asia-Pacific’s Retail Sector with AI, retail organisations across Asia stand to see a further improvement of between 37 to 44 per cent in those key business matrixes by the end of next year.

But despite those positive figures, there remains a major challenge for technology companies like Microsoft: many retail executives – 29 per cent according to the study – don’t believe AI is important, many of them describing it as “largely hype”.

Furthermore, 67 per cent of Asian retailers in the survey have not started implementing any AI solutions or are waiting for the technology “to mature” before incorporating it into their business strategy. 

Raj Raguneethan, regional business lead, retail and consumer goods at Microsoft Asia, told Inside Retail Asia that many retailers are simply unaware of the power of AI technology to help raise their competitiveness and deliver service consumers are looking for, yet find missing. The biggest barrier to more rapid adoption of AI in retail, be believes, is a lack of understanding of the maturity of the technology today.

Some of the born-in-the cloud, newer retailers are leveraging AI in retail to make such business decisions on pricing strategies and range assortments, along with understanding sales patterns across different markets. 

“[They] are leveraging technologies like AI and advanced analytics to understand and make predictions. The retailers who are not using AI today, are missing out significantly on this differentiation or competitive advantage,” he said.

He agreed there is a misconception among brick-and-mortar retailers that they don’t need this technology if they are not focusing on selling online. 

“Even I won’t generalise ‘all brick and mortar’ as you can see there are two divides: there are retailers who definitely see the disruption happening in the industry and the expectation of consumers and the competition from online retailers … and how they are starting to leverage, versus the ones who are not really understanding this and are unable to leverage this.”

The research from IDC, which has newly benchmarked retailers’ responses against those of 1500 executives from a wide range of industries interviewed at the end of 2018, show 71 per cent of retailers believe AI in retail is instrumental to their organisation’s competitiveness, but just 33 per cent have adopted AI as a core part of their business strategy or started to experiment with the technology.

“Upended by a US$1.5 trillion e-commerce market, retailers in the region must quickly adapt to savvy, connected consumers that generate a trail of digital and omnichannel footprints that can be analysed,” explained Raguneethan. “These footprints are generated from consumers combining channels like mobile, app, in-store and desktop throughout the purchasing process.”

IT as an ‘overhead’

Raguneethan says one of the stumbling blocks to more widespread adoption of AI in retail is the traditional mindset in business that technology and IT is an overhead rather than a tool to really reduce costs, differentiate – “and, to be honest, be in the business”.

“This is no longer a topic or initiative that sits under CFO or IT leader, it sits at the board level. And the CEO and the board and the senior leadership should have [an AI] strategy defined as part of their company’s overall business strategy.”

He described the contrast between the frequent stories about retailers closing down or reducing store networks, and the others about retailers who are making a lot of money and growing fast. He believes using technology and focusing on how to meet customers expectations today is the difference between the groups.

“To stay competitive, a shift to intelligent retail is required to add ease, convenience, customisation and automation – across business processes and operations, customer experiences, and the very products and services offered,” he said. “This can be done by turning to cloud and AI tools as the underlying, connective tissue for digitisation and business transformation.”

The 29 per cent of retailers not taking AI seriously face a bleak future, he said. 

“I think they will struggle to compete with the retailers who are transforming themselves or the new retailers coming into the industry with much better services or offers. And they will struggle … to keep their costs down and to be profitable.”

Democratisation

Another key point is that tools which use AI to improve retailers’ performance are not restricted to multinationals with many branches and high turnover. 

“We want to democratise AI and technology. Absolutely, that is our mission. And we have many customers not just in Microsoft Enterprise, but also small- and medium-sized businesses. And we have a massive partner ecosystem servicing all segments of customers. They have access to the technologies and tools they need at different levels.”

Larger, Enterprise customers face challenges somewhat different to small- and medium-sized retailers but there are consultancies geared towards all levels of business. “

So where do retailers – large or small – begin an AI journey?

“The first thing we would look for and is their business strategy as a retailer: who they want to be and what market they’re serving, how they want to serve their customers, and what’s their mission? Once they have the business strategy in place, then they need to decide, to meet this customer expectation and serve this market, what do we really need? How do we leverage technology to be able to serve and meet that expectation? How do I transform my supply chain?

“Then they need to look at themselves internally and ask, Where am I [compared] to some of the best in class? And who can partner with me in this transformation.”

Raguneethan says successful new-generation retailers who were born in the cloud, have IT technologies at their core – they don’t buy and deploy a solution. 

“You need to be able to innovate, reinvent, try, and if it doesn’t work, go back and create another use case. So for that you need a partner who works with you to help you in the transformation and helps you grow the skills and the team in your company to sustain and develop your own tech intensity.

“Every … business should become a technology company to really compete in the modern world.”