[ad_1]
Everywhere you turn, there is talk about artificial intelligence and how it will transform Americans’ lives. It will also revolutionize the companies that take advantage of the technology — and those names go beyond tech giants like Alphabet , Microsoft and Meta . In the retail sector alone, global revenue generated by AI will exceed $38 billion in 2030, up from an estimated $8.5 billion in 2023, according to a January report by Coresight Research . “Retail operations could undergo significant change over the next decade as retailers incorporate AI-powered technologies into storefronts and warehouses to increase efficiency and enhance personalization across various sales and marketing channels,” the report said. That could mean consumers in the not-so-distant future may not be bombarded with mass marketing materials from their favorite retailers — but instead shown products specifically tailored to their personal styles. Coresight estimates that by 2030, AI will enable businesses to identify customers’ needs based on their previous purchases and browsing patterns and create personalized marketing. “Each aspect of the shopping journey could be developed specifically for individual consumers in real time using hundreds of pieces of personalized content that speaks to each person’s unique interests and preferences,” the report said. And that’s just the start. Shoppers may eventually zip in and out of stores without ever having to wait on line and check out. Warehouse operations can be streamlined and merchandise placement in stores can be optimized. E-commerce should also see a boost, with AI driving more retail dollars online. Morgan Stanley estimates that in 2022, only 23% of the $4.3 trillion of U.S adjusted retail spending was online. The Wall Street firm sees an 8% compound annual growth rate for e-commerce’s slice of the spending between 2022 and 2025, analyst Brian Nowak said. Add in AI, which can drive better shopper experiences or better conversion, it could bump to 9% or possibly 10% CAGR, he said. “New AI-driven tools are going to lead to increased online consumer behavior, increased online consumer spend, and ultimately more dollars moving online, both out of consumer wallets, as well as into the online advertising markets,” Morgan Stanley wrote in a March note to clients. The big winner Typically, large companies will benefit from AI since they presumably have the money to invest in it. Walmart , for instance, is deploying AI and machine learning (a branch of AI that gives computers the ability to learn) to improve the customer and employee experience, the retailer’s vice president of tech strategy and commercialization, Anshu Bhardwaj, told CNBC last month . “We want to make the shopping experience for everyday items a no-brainer for our customers,” she said. That includes making sure the items customers want to buy are in stock, and helping to decide where to put them on the shelves. However, the biggest beneficiary of the AI trend is Amazon, several experts said. “Every time you turn around and you look at a segment of Amazon’s business, it is pretty obvious there is a significant opportunity for them to improve their margins through AI,” said tech investor Gene Munster. The Deepwater Asset Management partner said he doesn’t currently own the stock as he has some near-term concerns about the economy and the impact any slowdown would have on retailers. However, he’s bullish on AI and believes “in 10 years the substance will exceed the hype.” The opportunities can be seen in Amazon’s new Bedrock cloud service , which developers can use to enhance their software with AI systems. And also in Amazon’s ability to use data to provide shoppers with a more personalized, curated experience. In fact, AI could potentially add 16% or more to Amazon’s 2025 earnings before interest and taxes and boost shareholder value by 9%, according to Morgan Stanley. “Amazon, given their leading reach of consumers and their purchase activity that they have, they have an incredible amount of data that they can use to … capitalize on these AI-driven opportunities,” analyst Nowak told CNBC. The e-commerce giant has also shown a willingness to invest in AI over the years, he added. “I would only expect that to accelerate going forward as you have a higher focus on AI across the ecosystem,” Nowak said. The ability to do everything differently The impact of artificial intelligence will be seen in everything from personalization and customer service to store operations and logistics. “[AI] actually has the ability to do everything that we do differently,” said Kasey Lobaugh, chief futurist for the consumer industry at Deloitte. “There is real opportunity for dramatic efficiency and effectiveness.” Right now, personalization is a big trend in retail. Amazon can suggest items you may like. You may get messages worded differently than your neighbor from other retailers. That personalized language is something that motivation AI platform Persado has been working on for the last 10 years. Motivation AI is essentially a generative AI capability to generate language that resonates with specific individuals and drives them to act, explained Assaf Baciu, the company’s co-founder and chief operating officer. The firm’s clients include Gap and Tapestry . So one customer may get “your order is ready” as a message when checking out on a retailer’s website, while someone else may get, “great choices,” depending on how you interact with the brand, he explained. It can translates to between 3% and 5% more revenue for an online shopping cart just because the retailer talks to the customers “the way they should be talked to,” Baciu said. The company also uses AI to generate messages via email and text for retailers. In the future, personalization has the ability to become more specific, like personalized product descriptions. Eventually, AI can help retailers pitch tailored products to each potential customer based on their prior history. That not only can help drive sales, it can actually lower costs as well. Improved customization can cut down on waste because shoppers will see items that are a better fit or are closer to what the person was seeking, said Deborah Weinswig, founder and CEO of Coresight Research. “Think about it from a sustainability perspective — if we can solve for fit, if we can solve for helping a customer find what they truly want,” she said, pointing out that returns on apparel, footwear and accessories last holiday season were north of 40%. AI can also help with product design based not only on customer feedback, but by using data on buy and return rates and click-through behavior like dwell times and what people are putting in their carts, Bernstein analyst Aneesha Sherman wrote in a note last month. “AI can help narrow down the viable options on a given product to exclude the ones that are unlikely to resonate, and can pinpoint specific product attributes that should be reviewed or changed,” she said. If you’re 1% better in deploying inventory, it’s worth millions of dollars. Chief futurist at Deloitte Kasey Lobaugh Meanwhile, inside brick-and-mortar stores, retailers may be able to entirely reimagine how they sell merchandise, Coresight’s report said. Machine learning, which analyzes data to draw conclusions and identify patterns, and computer vision, which attempts to imitate how the brain processes information, can identify and track stock-keeping units, or SKUs, and therefore help facilitate automated in-store inventory management and autonomous checkout processes, according to Coresight. “If you’re 1% better in deploying inventory, it’s worth millions of dollars,” said Deloitte’s Lobaugh. AI applications can also help with loss prevention, a big issue facing retailers. A 2022 report from the National Retail Federation and the Loss Prevention Research Council found that “retail shrink” — the term the industry uses for loss of inventory — represents $94.5 billion in losses from total retail sales. Then there is customer service, where AI is in use but is still in its infancy, according to Coresight. “It is likely that adoption will skyrocket over the coming years as more teams start to rely on AI-enabled chatbots, virtual assistants and virtual idols, as well as text, voice and other applications,” the firm’s report stated. Experts also expect AI to become widespread in the supply chain, leading to more efficiency. That will be needed when the industry shifts from mass production to micro, Lobaugh said. “As we head down the path of mass to micro, where assortments are potentially bigger, and they’re much more precise by location, that’s much more complex,” he said. “So we have to begin to think about how do you run the supply chain differently than you would with big macro decisions.” AI can better manage warehouse inventory and AI-enhanced automation systems and robotics may eliminate human error, Coresight said. The technology used in a warehouse may also proactively anticipate the performance of the items in stock, which can help trim turnaround times and identify bottlenecks in the system, the report said. It can also mean changing the way retailers ship items to customers, said Bernstein’s Sherman. Typically, shipping decisions may be based on the customer’s region or the product that was ordered, she said. Instead, some retailers are starting to use matching algorithms that make the fulfillment and shipping decisions in real time. “So when a customer places an order, they decide in real time, where’s the most efficient way to get that order to that customer? Is it from the nearby store, is it from a distribution center, and what’s the cheapest route and the most efficient?” Sherman said. “That is also something that could reduce this last mile distribution costs across the retail sector.” Other potential winners While AI isn’t necessarily new, it’s early innings of its use in the retail space as the technology develops. Yet already some names stand out as potential beneficiaries. After Amazon, the names include Etsy and Farfetch for Morgan Stanley’s Nowak. The companies have significant amounts of niche items that can be better matched to customers using AI, he said. “If you combine that inventory with more data about people searching for potential items, your capability to match these items to those potential buyers should improve, which again, should lead to more conversion and more dollars … flowing toward those platforms,” he said. Morgan Stanley hasn’t necessarily been bullish on Etsy’s current search engine, calling it difficult. However, advancements in large language models and natural language processing could be just what Etsy needs to improve its search, the firm said in its note. An improvement in search is likely to lead to increases in gross merchandise sales per buyer. “Every 1% increase in core Etsy frequency growth should drive ~$350M in incremental 2025 GMS (even assuming no buyer growth.) That translates to a real opportunity for ETSY, especially as it is one of the lower frequency eComm platforms,” Morgan Stanley wrote. ETSY 1Y mountain Etsy’s one-year performance In the fourth quarter 2022 earnings call, Etsy CEO Josh Silverman said he sees a lot of opportunity for generative AI. “One is in search, no doubt. You might see it in the seller experience, making it easier for sellers to make listings. You might see it in the member services experience in having a better opportunity to get customer support,” he said. Etsy has an average rating of overweight from the analysts covering the stock and a $134 price target, according to FactSet. That implies 31% upside from Friday’s close. Online luxury retailer Farfetch, also loved by analysts, has an average rating of overweight and an average $9.60 price target, which suggests the stock can rally nearly 129%. There are also bigger retailers that are starting to use AI to improve inventory and operational efficiency, said Dylan Desai, associate product manager at VanEck. The VanEck Retail ETF ‘s top holdings include Home Depot , Walmart and Costco , all of which are integrating AI into their operations. “The consistency here is with the supply chain. All of them are using AI to help with supply chain efficiency,” Desai said. “Hopefully this will lead to transformational, rather than incremental, improvements in supply chain efficiencies.” Big brands can also get in on the action. Bernstein’s Sherman sees Nike as one of those leading the way. The company is investing in their logistics and fulfillment capabilities and it has a deep base of 160 million active members to mine data from, she said. NKE YTD mountain Nike’s year-to-date performance “Nike can track their purchase history, they have some basic level of demographic and address information and, of course, purchase information. So they can construct a profile,” Sherman said. “Every time you buy something, that profile gets smarter on what size you’re buying, and what your style is, what you looked at, but didn’t buy, etc.” Lululemon is another brand that could benefit thanks to its huge database of loyal users, she said. Build, buy or skip it? As retailers move ahead in their plans to integrate AI into their business, some will build the capabilities. Others, such as mature retailers and brands, may opt to buy the technology — either by acquiring a startup or purchasing the data, said Bernstein’s Sherman in her note. “Both the builders and the buyers can win and differentiate,” she wrote. “The losers will be the retailers/brands that do neither, or alternatively the ones who try to do too much at once and fail to integrate new technology investments into the core operations of the business.” — CNBC’s Michael Bloom contributed reporting.
[ad_2]
