The State of Retail 2024: AI Everywhere – in the store, online and in the supply chain

2023 has been a tough year for European retailers, as slow economic growth, geopolitical issues, and inflationary pressures created a challenging macroeconomic climate. The cost-of-living crisis saw consumers become very selective about their disposable income, and many lower-income earners had to choose between heating and eating. The UK, for example, saw a 2.7% year-on-year fall in retail sales that hit clothing and household goods stores the hardest.[i] Headline inflation for the Eurozone region peaked at 10.6% in October 2022, resulting in central banks increasing interest rates, which further suppressed consumer spending and disincentivized investment in retail real estate. As a result, retailers have been forced to look to cost-cutting initiatives to improve profitability.

So, what does 2024 hold for the European retail market, and how will retailers react?

The Rebirth of Physical Stores

The economic picture looks brighter beyond 2024, as GDP across Europe is forecast to grow by 0.9% in 2024 and 1.9% in 2025. Inflation in the eurozone is predicted to drop to 2% by the end of 2024, leading to a growth in retail sales volumes of 0.7% before accelerating to 2.0% in 2025, surpassing pre-pandemic levels. As economic confidence builds, the retail real estate market will start to warm up, creating rental growth for prime retail space across Europe as secure, well-capitalized retailers implement store expansion plans and open new stores across Europe’s largest cities. As the competition for quality space heightens, the geographic focus of retail real estate investors is expected to broaden, and new areas of prime rental growth are expected to emerge. Retailers will also implement better store layouts, downsize stores, and reduce store portfolios to improve margins.

Retailers are also increasingly looking at new technologies to aid their search for increased profitability in these challenging market conditions. AI is at the heart of this digital investment boom, being used to enhance the consumer omnichannel experience, engage and connect with consumers across multiple platforms, and drive supply chain efficiencies.

AI in the Stores

The days of shopping being neatly divided into online or offline experiences have now gone. A 2022 IBM Institute for Business Value (IBV)[ii] study states that “today’s consumers no longer see online and offline shopping as distinct experiences. They expect everything to be connected all the time.” The evolution of omnichannel is driven by the increasing complexity of the customer journey, blending online and offline experiences across multiple platforms and devices. Advanced algorithms are getting better at converting shopping and browsing data into a more personalized and seamless consumer omnichannel experience. Dynamic pricing and sophisticated subscription models, powered by real-time data analytics, also promise to revolutionize how retailers set and adjust prices and discounts, helping to secure long-term loyalty through more personal engagement.

Most omnichannel retailers also now offer a free ‘click-and-collect’ service, where goods purchased online can be collected in-store. This converts the retail storeroom into a logistics location, holding stock for the store, online orders, and returns. These in-store logistics units will become increasingly automated, using a mini version of the ASRS robotics systems used in the main fulfilment centres. Bringing online consumers into the store also enables the retailer to entice these shoppers with physical product displays and promotions.

Physical stores will continue to become automated, embedded with sensors, cameras, and biometric access and payment systems. European retailers such as Albert Heijn are increasingly looking at automated stores to save labour costs, increase opening hours, and minimize shoplifting. The latter point is particularly valuable, as the level of theft from stores and distribution centres has exploded due in part to the cost-of-living crisis and to the reluctance of police to investigate low-level crime. In the US, $112.1 billion was lost to retail theft in 2022, predicted to rise to over US$140 billion by 2025.[iii]

Over in the UK, the cost of retail theft is set to reach £7.9 billion in 2023, with ‘shoppers’ accounting for 60% of the theft (£4.7bn), while employees working in DCs, distribution, and stores are accountable for the rest (£3.2bn).[iv]  Self-service checkouts have made theft easier, with 66 per cent of retailers stating that losses in self-checkout are a growing problem,[v]  reporting that 20 per cent of shoppers have stolen something while using self-checkout.[vi]

Automated ‘just-walk-out’ stores could be a solution. These cashier-free stores are attractive not just because of their labour savings and ability to operate 24/7 but because they require personal identification via payment card or biometric scans to enter and pay. This frictionless shopping and payment system will also likely be embraced by the consumer as it speeds up access and payment, creating a more satisfying shopping experience. One that frees staff to focus on replenishing items and providing an enhanced level of customer service.

AI Online

Social channels and independent voices are increasingly influencing consumers’ buying patterns. This change in customer behaviour has prompted retailers to reassess their communication and marketing strategies. Retailers can no longer assume loyalty is a given and are seeking innovative ways to connect with an audience that is becoming increasingly selective. Gen Z consumers are especially discerning, expecting brands to demonstrate a social conscience, align with their political views and reflect their perspectives. Any misstep may result in your brand ‘going viral’, resulting in a mass boycott and a plummeting share price.

Despite the risks, retailers have found social media to be an effective way to reach both the Gen-Z and greying consumer base by focusing content on the things that are culturally relevant to them.  While Gen-X and baby boomers can be found on Facebook, the newly emerged Gen-Z consumers spend their time on platforms such as TikTok and Instagram. Retailers are using algorithms to merge social media activity with their online retail presence, enabling them to track a consumer’s social media activity so they can offer pertinent, inspiring product suggestions. This ranges from delivering brand and sales messages at the right moment to offering personalized discounts and syndicated user content. Retailers are also using social media to identify potential brand influencer collaborations and partnerships that can be used to reach their subscriber base. Social shopping, the merging of social media and e-commerce, is therefore set to become a critical retail battleground in 2024. This will ramp up in 2024 when Twitter fully transforms into ‘X - The Everything app’, becoming a retail channel and payment platform not dissimilar to WeChat, the Chinese platform.

AI and the Supply Chain

Regardless of whether the consumer is in-store or online, they expect goods to be in stock and reach them on time, every time. From quick checkout to expedited delivery, speed is equally vital to convenience. This sky-high delivery expectation is placing enormous pressure on retail supply chains, and once again, they are looking for technology to provide a solution. In the search for more predictive responses, retailers hope that AI-powered planning, scheduling, and decision intelligence tools will help them improve forecasts, reduce operational costs, and develop a more agile and flexible supply chain. While there has been significant investment in business intelligence and data analytics, retail executives acknowledge that it has failed to translate data into actionable forward insights. This is changing. AI-powered decision Intelligence tools such as Upp and Peak.AI and consumer behaviour engines such as Predyktable claim to provide advanced data analytics capabilities that remove guesswork bias and uncertainty from future retail decision-making. Phillip Sewell, CEO and co-founder of Predyktable’: “In a landscape defined by rapid change and unprecedented challenges, the ability to adapt, innovate, and harness the potential of predictive intelligence will be the linchpin for retail leaders striving to navigate the tides of change in 2024… There’s also a need for actionable, forward recommendations that facilitate more profitable and ethical business-critical decisions.”[vii]  We should, therefore, expect to see retailers continue to pursue increasing levels of digital sophistication in the coming year, with clear daylight emerging between those able to utilize these tools to deliver insights and value and those who cannot.

In conclusion

All the above factors ultimately require better ways of using data and content, and that’s the real secret behind successful retail transformations in this age of digital technology and market uncertainty. Getting the basics right, bringing together physical and digital operations and the data attached to them into an omnichannel platform that makes sense while providing the supply chain operations to support it, is essential to prepare for next year in retail - no matter how it turns out.