Back to Blog

Exploring the transformational role of AI in modern retail

Table of contents

Artificial intelligence (AI) has undoubtedly made its dent in modern retail.

This article provides a detailed overview of how AI is revolutionizing the retail industry, the benefits it offers to businesses and consumers alike, and the practical steps required to leverage AI in existing retail systems.

It also explores the future trends that promise to continue reshaping retail interactions and experiences.

Understanding AI in retail

AI refers to a wide range of technologies that simulate human intelligence, including learning, reasoning, self-correction, and interface interpretation.

In retail, businesses typically leverage AI to streamline and optimize various aspects of operations, including sales, customer service, call center, and marketing. AI aids in gathering and analyzing customer data, predicting buying behaviors, automating routine tasks, forecasting trends, and improving overall customer experience.

Generative AI in Retail Stores

Types of AI revolutionizing retail

The most widely used types of AI in the retail industry include:

  1. Chatbots: AI-powered chatbots are increasingly common in retail for customer service. In fact, Gartner research shows that by 2027, chatbots are expected to be the main way a quarter of all businesses handle customer service. They can answer customer queries, provide product recommendations, and even assist shoppers in completing purchases, all in real time.

  2. Predictive analytics: This technology uses AI to analyze and predict shopping behaviors and trends. It can also be used for stock management, accurately predicting which items will be in demand, and helping retailers manage their inventory.

  3. Machine learning (ML): This allows systems to learn from data and improve over time without being explicitly programmed. In retail, such technology can have many applications, like improving product recommendation systems or optimizing supply chain processes.

  4. Computer vision: This AI technology can interpret and respond to visual data. In retail, businesses can use computer vision for in-store surveillance, shelf inventory checking, and customer tracking for in-store analytics.

  5. Voice assistants: AI-powered voice assistants like Alexa, Cortana, or Google Assistant are gaining popularity. They can help customers place orders, provide product information, and offer personalized recommendations.

6 benefits of AI in retail

There are six major benefits to implementing AI in online and brick-and-mortar stores.

1. Personalized shopping experiences

AI algorithms are designed to understand customer preferences and buying habits, enabling retail companies to offer product recommendations and promotions. This approach strengthens brand loyalty, improves customer satisfaction, and increases the chance of purchases, enhancing overall sales.

2. Improved inventory management

Through ML and predictive analysis, AI can help retailers manage their inventory more effectively by predicting which products will be in demand in the future. This knowledge helps retailers stock up accordingly, reducing the chance of overstocking or understocking.

3. Enhanced customer service

Using chatbots and AI virtual assistants, retail companies can provide immediate responses and 24/7 customer service. Moreover, this technology allows customer service departments to handle customer inquiries simultaneously, providing fast and efficient service.

4. Lower operational costs

AI can automate various operational processes, including order processing, dynamic pricing model, inventory management, and customer service. Besides improving operational efficiency, AI also reduces the overhead cost of hiring entire teams of workers to perform these tasks. A survey shows that 54% of respondents reported cost decreases in service operations and manufacturing due to AI adoption.

5. Accurate business forecasting

With AI's predictive analysis capabilities, retail companies can accurately predict future sales trends, customer behavior, and market changes. This allows brands to make informed decisions to plan their future strategies accordingly.

6. Fraud detection

AI can play a crucial role in detecting and preventing fraudulent transactions in retail. By recognizing patterns and inconsistencies in customer behavior, card usage, and other parameters, AI systems can alert retailers about potential fraudulent activity, ensuring financial security and increased customer trust.

While it is clear that AI can’t replace human workers in the retail industry, it can improve operational efficiency while keeping costs down.

Implementing AI in your retail company

Before implementing AI, it’s important to understand how to get started and what challenges it may bring.

How to implement AI in a retail setting

  • Define your objectives: Determine the specific goals you want to achieve by implementing AI in your retail setting, such as improving customer experience or increasing sales.

  • Collect and analyze data: Collect relevant data from your sales, customer interactions, and other sources to train AI algorithms. Analyzing this data will help you better understand customer behavior and preferences.

  • Choose the right AI technology: Pick the appropriate AI technology for your specific needs, whether it's ML for personalized recommendations or natural language processing for chatbots.

  • Integrate AI into existing systems: Integrate AI solutions into existing systems, such as POS systems, CRM platforms, and your website, to ensure a smooth transition and maximum efficiency.

  • Train and educate employees: Provide training to your employees on how to use AI tools effectively.

  • Monitor and optimize performance: Continuously monitor the performance of your AI implementation and make necessary adjustments to improve its effectiveness over time.

Challenges of integrating AI in retail businesses

With innovation come challenges.

In retail, these challenges may include concerns over data privacy policies and ethics regarding the amount of customer data required to personalize AI solutions.

Technological infrastructure may also be a barrier for retailers that lack the resources to support advanced AI systems.

Ensuring that AI does not depersonalize the retail experience can also be a complicated task. While AI provides data-driven insights and predictions, it still lacks human touch.

How retail businesses are using AI

Take a look at how these three retail giants implement AI into their business strategy.


Amazon uses AI to provide personalized shopping experiences through product recommendations based on a customer's purchase history, viewed items, and popular trends. Amazon’s AI system also facilitates demand forecasting, distribution, warehouse management, and delivery services.

Additionally, Amazon Web Services utilizes various AI functionalities, including generative and language AI, such as Amazon Q, Amazon Lex, and Amazon Polly.

Amazon AWS function


Starbucks uses its Deep Brew AI system to provide personalized food and drink recommendations to its customers based on their orders and preferences. AI also assists in managing staff schedules and streamlining drive-thru services.

Starbucks AI


Sephora uses an AI-powered Virtual Artist for virtual makeovers and makeup trials. Customers can try different makeup products virtually and make informed decisions.

Sephora AI Virtual Artist

The future of AI in retail

AI isn’t going away. It’s important to understand emerging technological trends in retail and use them to your advantage.

Rise in virtual shopping assistants

Virtual reality online shopping uses AI to create a more personalized shopping experience for consumers. These AI-powered bots are designed to offer personalized product suggestions, answer queries, resolve issues, and essentially mimic human customer service.

While they already exist, a wider adoption could lead to significant cost reductions for retail businesses, increased customer satisfaction, and an enhanced shopping experience.

Creating Augmented Reality (AR) and Virtual Reality (VR) experiences

These technologies present exciting opportunities for creating immersive shopping experiences. While some major brands have begun exploring these technologies, they are still seen as somewhat futuristic in their approach.

AR can augment the shopping experience by overlaying digital information on physical products or settings. For example, it can help you imagine how a sofa would look in your living room before buying it.

VR, on the other hand, can create virtual store environments where customers can “walk” through the aisles or experience products before buying them.

By merging online and physical shopping experiences, these technologies offer a unique, interactive, and personalized shopping journey, ultimately driving higher engagement and increased sales.

Wider use of autonomous retail stores

Autonomous retail stores leverage AI to track what products customers pick off the shelves and automatically charge their accounts, eliminating the need for checkout lines.

In 2021, the retail automation market was worth $14 billion, and is expected to grow to $36 billion by 2030, with a 10% annual growth rate from 2023 to 2030.

With autonomous retail stores, retailers can enhance shopping efficiency and deliver a streamlined experience to customers.

Retailers can also lower labor costs, improve operational efficiency, and gather valuable data on customer behavior for store optimization.

The power of AI and retail

AI is changing retail by offering personalized shopping, better inventory management, improved customer service, and accurate business forecasts.

And the role of AI in retail will continue to expand. This includes wider adoption of virtual shopping assistants, AR and VR experiences, and an increase in autonomous retail stores.

The growing use of AI represents more than just a passing trend—it signifies a transformative shift with the potential to reshape the retail industry. As such, understanding and leveraging AI technology should be a top priority for retailers looking to thrive in e-commerce.

Get a hands-on look at AI virtual assistants

Book a walkthrough of Dialpad Ai with our team, or take a self-guided interactive tour of the app first!