AI's Transformative Impact on Retail: Personalization, Efficiency, and Challenges in 2024-2025

How AI Reshaped Retail in 2024: 10 Key Developments | PYMNTS.com

In 2024, artificial intelligence (AI) evolved from theory to practice in the retail industry, changing the way businesses interact with customers, manage operations and develop products. From inventory management to virtual shopping experiences, AI has become essential for retailers looking to stay ahead. Here are ten key ways it reshaped the industry this year. Retail giants like Amazon and Walmart expanded their use of AI assistants to improve customer service. Amazon's "Rufus" offered tailored product recommendations. While effective overall, these tools faced occasional errors, underscoring the need for ongoing refinement. Generative AI tools like ChatGPT played a significant role in holiday shopping, helping consumers find products and deals more efficiently. Retailers reported significant traffic growth from AI-powered searches, marking a shift from traditional search engines. This approach streamlined the shopping process and highlighted AI's role in driving online retail engagement. AI agents in 2024 began handling complex retail operations autonomously, from managing supply chains to personalizing customer interactions. These agents acted as decision-makers, analyzing vast datasets in real time to adjust inventory levels, optimize delivery routes or recommend products. Companies like Skyfire Systems launched payment networks specifically for AI agents, enabling them to execute transactions without human involvement, further streamlining processes. Predictive AI models enhanced inventory management efficiency in the retail sector. Retailers implemented tools like Gated Recurrent Units to analyze historical sales data, seasonal patterns and market trends, enabling more accurate demand forecasting. This approach reduced instances of stockouts and overstock, leading to better inventory control, minimized waste and improved profitability. Retailers used AI-powered analytics to understand how customers interacted with their stores. Technologies like YOLOV8 tracked shopper movements, identifying high-traffic areas and pinpointing where customers spent the most time. This data enabled retailers to make strategic decisions, such as relocating popular items to easily accessible locations and streamlining aisle layouts to improve flow. AI tools were integral to the success of Black Friday, with U.S. online sales reaching a record $10.8 billion. Generative AI chatbots guided shoppers to deals and sped up checkout processes, helping retailers achieve higher conversion rates. AI reduced the time and cost of developing new products by analyzing market trends and customer feedback. This allowed companies to roll out products more quickly and tailor them to specific consumer needs. Retailers using AI in product development gained a competitive edge by being able to respond faster to market demands. As AI became integral to personalization, retailers faced growing scrutiny over customer data use and security. Balancing the benefits of AI-driven insights with ethical data practices and compliance was a priority for many companies. AI-powered visual search tools, like those offered by Pinterest and Google Lens, changed how consumers discovered products. By uploading images, shoppers could find visually similar items online. Retailers integrated these tools to improve product discovery and better align with consumer shopping trends. Retailers increasingly use AI to enhance sustainability in their operations. Algorithms optimized supply chains, reduced waste and monitored environmental impact, helping businesses meet both regulatory requirements and consumer expectations. AI's role in sustainability also offered cost-saving benefits alongside ecological ones. In 2024, AI's role in retail shifted from experimental to essential. While its implementation presented challenges around accuracy, privacy and ethics, efficiency, engagement and innovation, its benefits were undeniable. As the industry looks ahead to 2025, AI will likely continue to evolve, further transforming how retailers operate and connect with customers.

AI to Power Personalized Shopping Experiences in 2025 | PYMNTS.com

Tech executives and investors told PYMNTS that artificial intelligence will reshape retail shopping in 2025, with AI assistants offering unprecedented personalization and handling up to 20% of eCommerce tasks, from product recommendations to customer service. Industry leaders from Citi, Google Cloud and global tech investment firms envision a future where shopping becomes more intuitive and efficient. However, they emphasize the need for careful implementation to ensure security and accessibility. Artificial intelligence will transform retail in 2025 by predicting consumer behavior with unprecedented accuracy and delivering personalization that might feel unsettlingly prescient, Lars Nyman, chief marketing officer at CUDO Compute, told PYMNTS. "AI-driven personalization will go full Black Mirror in some cases, where your virtual assistant might ask, 'Are you sure you don't need those hiking boots before your Yellowstone trip next month?'" Nyman said. He predicted AI will help retailers cut inventory costs by up to 10% through improved demand forecasting, citing McKinsey research. However, this enhanced personalization comes with challenges. "Consumers will demand transparency on how their data is used," Nyman said, suggesting renewed debate about data privacy as AI makes shopping more intimate yet potentially invasive. The rise of artificial intelligence will fundamentally change how businesses interact with customers on mobile devices, creating unprecedented levels of personalization, according to Daniel Nguyen, vice president and general manager of customer success at mobile marketing firm Airship. "AI-powered hyper-personalization is going to change the game for mobile marketing," Nguyen said. He emphasized that location-based targeting and in-app interactions will help businesses boost customer engagement. Companies will need robust data strategies and experimentation frameworks to implement AI marketing tools, Nguyen said. The technology will handle time-consuming tasks like data analysis and content creation, allowing marketers to focus on optimization. Citi Ventures Head Arvind Purushotham said the future of online shopping will be intensely personal, with artificial intelligence helping retailers predict and cater to individual customer preferences like never before. Purushotham told PYMNTS that AI advances will enable merchants to move far beyond basic product recommendations to create highly customized shopping experiences. "We were expecting you," Purushotham said, describing how AI will transform eCommerce. He predicted retailers would increasingly partner with AI startups to offer individualized perks like personalized discounts and custom return policies. Fraudsters armed with artificial intelligence will pose a growing threat to online shoppers in 2025, Ariel Tiger, CEO of FinTech company EverC, told PYMNTS. The rise of AI tools has made it easier for scammers to deceive consumers. "Fraud is only going to continue to escalate in 2025, especially as technologies like ChatGPT are making it easier for fraudsters to spoof product descriptions and images," Tiger said. Regulators are racing to catch up. The European Union is preparing new AI rules, while U.S. states are rolling out their own regulations. Meanwhile, many companies are jumping on the AI bandwagon -- though Tiger suggests some may be exaggerating their capabilities, and that as AI becomes more central to online shopping, the gap between businesses with real AI expertise and those making empty claims is likely to widen. Accion Venture Lab, an early-stage investment firm, told PYMNTS that AI technology will enhance rather than replace human customer service while expanding access to commerce and financial services across sectors, including construction, manufacturing and agriculture. The firm recently backed this vision by investing in Sukhiba, an African AI platform that helps small businesses manage inventory and sales through WhatsApp. However, Managing Partner Amee Parbhoo cautions against potential pitfalls. "The potential danger lies in algorithmic biases -- if AI modules are built without small businesses, low-income consumers, and other vulnerable groups in mind, they will only further exclude these populations from the formal economy," she told PYMNTS. AI will reshape business in key ways during 2025, according to Google Cloud, which predicted in a Tuesday (Dec. 17) post that companies will use AI that understands multiple formats -- text, images, sound and video -- for more natural interactions. AI agents will handle complex tasks, providing consistent customer service across all channels, according to the post, and internal search systems will become smarter, letting employees find information through natural conversation and images. Artificial intelligence agents will revolutionize online shopping by handling one-fifth of all eCommerce tasks within the next year, predicts Paul van der Boor, vice president of AI at technology investment firm Prosus. He told PYMNTS that AI agents will emerge as key players alongside buyers and sellers in the eCommerce ecosystem, transforming how consumers shop online. "Buyers will replace scrolling through pages of products with simply telling the AI what they're looking for," said van der Boor, whose company has invested over $1.4 billion across more than 80 companies in 100-plus markets. Companies will harness digital behavioral data to drive revenue growth in 2025, according to Scott Voigt, CEO and co-founder of customer experience analytics firm FullStory. He told PYMNTS that businesses would leverage deeper insights into customer interactions, from website visits to shopping cart actions and "rage clicks" -- signs of user frustration. "Digital behavioral data uniquely fills gaps left by traditional analytics, offering richer insights into customer preferences, engagement patterns, and pain points," Voigt said. His Atlanta-based company analyzes user behavior for more than 3,000 customers, including U.S. financial institutions, airlines and retailers. This shift toward behavioral data will transform how organizations understand and engage with their audiences, according to Voigt. While eCommerce companies will begin testing AI agents in 2025, the technology won't revolutionize the industry for several more years, according to a senior analytics executive at a fulfillment company. Steven Sermarini, senior director of data and advanced analytics at Radial, told PYMNTS that widespread adoption faces hurdles including scalability, data integration and trust in AI decision-making. "Agentic AI will benefit customer communication by delivering personalized, timely updates on fulfillment status and timelines," Sermarini said, predicting a 3- to 5-year timeline before major industry transformation.