The Cloud, AI and the Transformation of Retail

Adriana Lee
·6 min read

According to Google, retail is in a redefining moment with artificial intelligence and machine learning, and the transformation has implications that go beyond today’s COVID-19 reality.

The tech giant’s cloud division commissioned a retail survey from McKinsey & Co., and the results portray a landscape that may be fraught with challenges, but also holds major opportunities for brands and stores — if they know how and where in their business to apply intelligence.

The report reflects what many retail and technology experts have already accepted — that the pandemic has fast-tracked tech adoption in a retail industry that suddenly finds itself forced to adapt.

In essence, the pandemic “condensed the timeline available to play ‘catch up’ in developing agile, resilient operating models powered by cloud infrastructure, artificial intelligence and machine learning (AI/ML) technologies,” Carrie Tharp, vice president of retail and consumer solutions at Google Cloud, wrote in a blog post published Friday.

The survey’s scope covers 100 retail executives from companies with $300 million or more in revenue across North America, Asia Pacific, Europe, Middle East, Africa and Latin America.

Tharp went into a bit more detail in a conversation with WWD: “We all know that the capital is locked up in the product, and merchants and marketers and everybody in these organizations is very specific on maximizing returns and engaging customers in the most effective way. What really came through in the research is really putting a number to that value,” she said.

The numbers are significant.

The survey revealed that AI and ML could potentially drive $230 billion to $520 billion in value by 2023 for specialty retailers, including fashion, accessories, beauty and other categories. The figures are even higher for food retailers, drug stores and big box chains.

When it comes to AI in retail, the conversation often centers around the flashiest, consumer-facing areas. Think chat bots, personalized product recommendations, conversational commerce, computer vision and augmented or virtual reality.

These are important — increasingly so — but they are only one part of a much deeper puzzle that extends across both the front and back ends of the business, according to Google. The span is wide and includes 10 areas, including customer acquisition and retention, omni-channel commerce, merchandising, logistics, real estate and other corporate functions.

Of these areas, Google Cloud found that a few segments that accounted for an overwhelming share of the potential, representing more than 75 percent. For specialty retailers, those segments are merchandising and assortment, product lifecycle management and logistics and fulfillment — with the overwhelming emphasis on merchandising and assortment.

To be sure, AI and ML can help companies recognize critical patterns often missed by traditional analytics, while powering retail services and other critical features. For instance, Hanes Australasia improved product recommendations and revenue with the tech giant’s Recommendations AI. Vestiaire Collective used the company’s cloud translation tools to translate thousands of descriptions from six languages into English automatically, saving as much as 82 percent over its previous service.

Google Cloud is not the only game in town, of course. There’s no shortage of cloud platforms that are lining up to help retailers, chief among them is Amazon and its Amazon Web Services (AWS).

Some retail businesses may be reluctant to join forces with the e-commerce giant, which is often accused of competing with its own marketplace merchants. But the truth is that there are plenty of brands and retailers that rely on its cloud services — including Bonobos, J. Crew, Skechers, Levi’s, Poshmark, Etsy and many others. Its vast retail experience, plus 20 years in AI and machine learning, gives it an informed perspective and no small amount of technical expertise.

From AWS’ point of view, retail in the coronavirus era is fixated on one particular area: efficiency.

“Cloud technologies are really in the forefront now, especially in this pandemic. Retailers are looking primarily at a couple of things,” Tom Litchford, head of worldwide retail at AWS, told WWD. “One, ‘how can I basically start cutting costs?’ And number two, ‘how do I start recovering all that revenue I’ve lost while my stores were closed?’”

First and foremost, Litchford believes businesses need to accelerate their cloud migrations and modernization efforts, “including moving stuff out of data centers and into the cloud,” he said, which could bring savings of anywhere from 30 to 50 percent.

As for AI and ML, he said that every retailer AWS works with has been racing to figure out how to approach it, especially during the pandemic.

“Specifically from a fashion perspective, you’re sitting there on sale merchandise, and you’re trying to figure out how to liquidate, while at the same time, you’re coming into a holiday season trying to get merchandise in for that and planning for your spring merchandise,” Litchford added. “That’s coming up all at the same time. It’s a harsh scenario, not really knowing what’s going to happen and when COVID is going to be under control and we’re back to some sort of normalcy.”

Indeed, apart from efficiency and cost-cutting, the pursuit of deeper customer connections tends to be what drives most intelligence initiatives, regardless of platform or service provider. That has retailers pushing hard for personalization and forecasts, so they can understand their customers better. The goal, of course, is to develop stronger relationships.

It’s a scenario Google’s Tharp sees all the time. “Many merchants are so locked up, perhaps, in an Excel spreadsheet with macros,” she said. “The value of bringing a broader point of view, broader data insights, into an AI and ML-based solution [is that] there’s just a lot of value left to be unlocked. One of the effects is really about ‘everything customer’ — so customer personalization, customer 360.”

This need is not going to go away, even if COVID-19 does.

The Google Cloud executive likens it to the period after 9/11: “From a peak perspective, we’re in it. Much of this year, instead of thinking of the big picture for 2021, a lot of retailers are focused on being ready for battle stations and ‘what do I urgently need in place?’, focusing on survival and living to fight another day — in a way that many retailers had to do in the wake of 9/11,” she said. “And so you saw this very focused period on the most critical things.

“But from a bigger picture, when you think about this study, this is really about, it’s never too late,” she added. “It’s always a good point to start this journey.”

Google offers that glimmer of hope, and it’s not just wishful thinking. It’s backed by data.

Although the market has undoubtedly contracted for major parts of the apparel industry this year, the search giant found that enthusiasm for fashion is still alive and well.

Searches for “fashion online shopping” jumped globally by over 600 percent between March through May versus the same period the previous year. And between June and August, searches for “clothes shopping apps” grew globally by over 200 percent, compared to the year before.

In other words, the public’s appetite for fashion hasn’t gone anywhere. Who will be around to meet it when the restrictions lift, economies recover and people are ready again to indulge may be defined by more than just grit and resilience. It will take preparation. And intelligence — in every sense of the word.

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