It took a pandemic to jolt the retail industry into seriously investing in and developing more on e-commerce and omni-channel strategies. Now, just as companies are starting to see a return on some of those major investments, along comes another techno-shock, artificial intelligence (AI).
Retail industry leaders know that AI is the very near future, but it is a challenge for senior retail executives of apparel and footwear companies to fully agree on how to harness and exploit it.
That is one of the key takeaways from a recent survey by First Insight, which found that only 29% of retail executives are “very familiar” with AI, while 40% reported being no better than “slightly familiar,” and 31% “somewhat familiar.”
The survey of more than 160 executives also exposed a mismatch between CEOs and their teams when it comes to AI expectations.
The primary focus of more than half the CEOs is on the technology’s potential for cost savings and improving the customer experience, what you might call the balance sheet point of view.
Cut costs and build customer loyalty.
Only a third said they are likely to prioritize AI’s use for forecasting demand and inventory management, functions that have enormous potential for an industry that operates on thin margins with stubbornly high return rates. For example, AI technology makes it possible to test demand for new products before committing to manufacturing and risking a dud.
Members of management teams, on the other hand, were twice as likely as their leaders to prioritize such “enhanced predictive analytics”–forecasting demand and managing inventory.
This mismatch is a red flag that conjures up the mistake many companies made by not taking Amazon.com seriously, then being late or clumsy in developing their own e-commerce platforms. It’s worth remembering that when Amazon began selling books online, Borders Books & Music was ringing up annual sales of $1.6 billion. Borders went bankrupt in 2011. Retailers like Tower Records, Circuit City, and Radio Shack met similar fates.
The decline of the department store business is in part thanks to Amazon having blazed a path for brands to market directly to customers online and through company-owned stores. Many department store chains blundered by investing in store expansion at the expense of merchandise differentiation and e-commerce development. To most retail CEOs, AI is a complex new technology that needs to be managed. AI investments need to be accounted for at a time when they already have a lot on their plates. The strategic disconnect between top execs and their teams exposes the sort of knowledge gap that can undermine growth and profitability. This gap can be addressed by trial and error and agile learning environment.
CEOs and their teams will need to transform their organizations into more testing and learning, data-driven businesses by leveraging AI’s vast potential not simply to cut costs, but also to win at innovation.
Subscription Required
