holiday season

Speculation abounds regarding how retailers will use AI this holiday season to drive sales. Still, AI will also be playing a starring role behind the scenes where customers may not see the impact directly — but it’ll hopefully improve retailer bottom lines.

Retailers have been using various forms of AI for years, of course, especially when it comes to customer service and chatbots. But Mattia Santin, CMO of user behavior and analytics firm Hotjar, believes there will be more profound enhancements in retail operations and continued consumer-facing AI progressions. “Some of the advancements will be more subtle in the backend, such as supply chain and inventory management,” Santin says.

Karl Cama, senior chief architect, office of the CTO at Red Hat, agrees and sees AI and automation helping retailers to more effectively maintain stock levels to ensure physical stores can maintain product availability.

Devavrat Shah, professor of AI+Decisions at MIT and co-founder CTO at AI firm Ikigai, says there are numerous areas where retailers will soon improve operations with AI if they haven’t already—the most notable being supply chains.

Supply chains have become very long in Retail, Shah explains, and by the time consumers purchase something, and that purchase signal traverses back to the manufacturer, three to six months have passed. “That’s a terribly long delay cycle. It’s like standing under the shower, letting the cold water come through, and then turning the knob. You are never going to have a good shower,” he says.

However, by using historical data and pairing current data with AI and predictive analytics, retailers can better manage their inventory flow. The improvements will come from enhanced data access throughout the supply chain, with AI going to stitch that data together to read demand signals better. “Manufacturers will realize not to wait nine months to manufacture things.” This will smooth out all of the oscillations that we typically see between demand and supply chains,” he explains.

The experts we interviewed see AI and automation capabilities increasingly streamline supply chains and help firms fix their forecasting with dynamic inventory projections with real-time transparency. Such capabilities will also reduce driver wait time at warehouses and the number of cargo-less miles they drive. Keith Moore, CEO of warehouse management software provider AutoScheduler.AI adds that AI will help retailer supply chains better predict and resolve supply chain issues, if not prevent many supply chain snags.

After the gifts have been unwrapped, AI will also play more of a role: Retailers will use AI to improve holiday returns. For instance, AI can help retailers understand the fastest route to the geographical areas with the most significant demand for a returned item and get items on those shelves for hopeful resale.

In 2022, according to a survey by the National Retail Federation and retail data insights technology provider Appriss Retail, total returns that year reached $816 billion, and in-store and online returns were on par with each other. Holiday returns cost $171 billion of that figure, and retailers expected nearly 18% of all merchandise sold in that time to be returned.

Steve Rop, COO at returns management provider goTRG, says the percentage of returns is always high during the holiday season. Still, AI will help retailers identify the best option for a return — which isn’t always reshelving. Sometimes, it’s recycling, refurbishing or resale on some secondary market.

No one likes returns — especially consumers. And that’s why so many consumers shop early. They want to ensure they are getting the best gifts possible. This year, more retailers will use AI to provide those gifts on store shelves.