Retail AI Investments Yield 3.5X Returns on Average: Study

As retailers look to integrate artificial intelligence (AI) tools into their client-facing operations, experts note that the technology will also help them streamline supply chains, logistics, and bottom lines, as for every US$1 invested in AI, companies are realizing an average return of US$3.5X (MX$59.84). 

Retailers are recognizing the importance of leveraging data not only to optimize customer experiences but also to streamline supply chain operations. The disruption caused by the pandemic highlighted the critical need for flexible supply chains capable of responding swiftly to dynamic market conditions, according to Microsoft Azure and Retail Gazette’s “Unlocking AI’s ROI in Retail” report. 

With more companies integrating new technologies to streamline their operations and personalize customer experiences, many are aiming for "intelligent retail." This approach seeks to seamlessly integrate AI and machine learning into tailored applications for both employees and consumers, breaking down silos along the way. Currently, most companies are in the "connected retail" or "analytics-driven retail" stage of digital maturity, where the migration or modernization of technology facilitates advanced innovations and improved data insights. 

As inflation rates decline and the post-pandemic scenario becomes more discernible, retailers that have demonstrated resilience during the recent turbulent times are now crafting forward-looking strategies. There is a tangible sense of optimism as we head into 2024, with businesses aiming to capitalize on the improving economic landscape and chart a course for future growth and success, according to the report. 

“Tailwinds include consumers’ increasing interest in physical retailing again as they seek compelling experiences with brands beyond the transactional. Retailers are also showing a growing understanding of what constitutes the right blend of online and in-person shopping, and many have moved HQ and right-sized office space to support new hybrid work patterns that appeal to a new generation of staff,” say Microsoft and Retail Gazette. 

The majority of businesses, more than 70%, are already using AI, with 92% of AI deployments taking less than a year and organizations seeing returns on their AI investments within 14 months, according to a Microsoft report, in collaboration with IDC in November 2023. For every US$1 invested in AI, companies are realizing an average return of US$3.5X, although 52% cite a shortage of skilled workers as the primary obstacle to implementing and scaling AI.

ASOS, a prominent player in the UK retail industry, is one of the companies that transformed its supply chain by leveraging data, reducing stock levels by approximately 30%, and implementing faster stock models to prevent excess inventory buildup. Data science and machine learning capabilities are being deployed to enhance decision-making processes and drive operational efficiencies, particularly in areas such as returns management, according to José Antonio Ramos Calamonte, CEO, ASOS. 

The integration of data-driven insights enables retailers to identify high-returning products, brands, or materials, facilitating proactive measures to address issues related to product quality and sizing accuracy. By embracing AI forecasting and leveraging returns data, retailers aim to eliminate "bad returns" and optimize operational processes to deliver superior customer experiences, notes the report. 

However, there is a need for a strong cybersecurity strategy as businesses use more data to improve their operations. Ricardo Barriga, DCAI Sales Specialist for Canada & Latam, Intel Mexico, emphasizes the essential need for establishing a digital safeguard to ensure data center security, which serves as the core of modern innovation. According to Barriga's article for MBN, the World Economic Forum's 2023 cybersecurity report exposed widespread skepticism regarding organizations' ability to withstand cyber threats.