Tuesday, May 2, 2023
Hello and Good Morning!
Welcome to The Merchant Life where founders, VPs, and C-Suite executives come to seek out valuable merchandising insights.
In this edition, we talk about AI.
Then again, literally EVERYONE is talking about AI.
We were at ShopTalk, and the term was mentioned so much you would think it was the answer to all questions.
“Future of retail? AI.”
“What are you working on? AI.”
“Hey, where’s the closest bathroom? AI think it’s over there.”
Response from the ShopTalk crowd whenever “AI” was mentioned. It’s almost like we’re all jumping onto “The AI Bandwagon.”
But before going for the ride, we give our take on AI and its impact within retail.
The Fur Seal of Namibia endures sandstorms by lying down on the beach, waiting for the storm to end. Baby seals lie adjacent to their mothers, using them as another layer of protection.
Scroll along in your social media feeds, and you’ll see the sandstorm that is AI hype. It’s the hot buzzword at conferences. It’s repeatedly found in earnings calls.
Dire warnings of AI not being the one to replace you, but rather someone who knows AI will replace you are followed by “please sign up for my AI newsletter.” Others tout data from Goldman Sachs that say 300 million jobs will be lost due to automation - for more information like this, please follow me on Twitter.
It feels very similar to the talk of the metaverse last year. What ensued resembled a mad scramble for retailers and brands to make the metaverse work for them.
Right now, it looks like the metaverse bandwagon has lost a wheel and is (quietly) limping along its way. Disney axed their metaverse division. Meta culled their metaverse efforts. Metaverse fashion events don’t pack the same punch anymore.
Moreover, this quote from a Campaign Asia article sums it up:
Guy Futcher, regional creative director at VCCP, also claims he has often seen brands jumping into the metaverse with “average” ideas. “Most companies haven’t thought about the most important thing – whether customers want to spend time there,” he said. “Which means they end up creating expensive digital ghost towns.”
Focus and investments have shifted to, you guessed it, AI.
The bandwagon roars forward.
AI is certainly transformative, but you might be surprised as to the extent. It has been at work for decades, under the radar. Christopher Mims of The Wall Street Journal has a great article discussing this called The Secret History of AI and a Hint at What’s Next.
The progress in the field is rapidly accelerating, as with any R&D over a period of time. Expect the pace of progress to accelerate even more. And the technology has become widely accessible for anyone to use. Take, for instance, writing this newsletter. We use Grammarly, and they have recently released an AI capability to help with re-writing and editing à la ChatGPT.
But, we should ditch our technology hubris for a moment. Our ability to accurately predict the future regarding technology isn’t very good. If so, the world should have ended thanks to Y2K.
Typically, we make predictions based on extremes: either the extreme of hype or fear. We are easily seduced by hucksters and blinded by hype - recall examples of Theranos, FTX and WeWork. And, making long-term plans based on fear is neither prudent nor pragmatic.
Mims offers his own summary of the issue:
“We have been here many times before. The financial incentives to hype a new technology never change, nor does our tendency to both fear and celebrate whatever is the newest, shiniest product of our civilization’s ever-growing expenditure on research and development.”
No doubt, retail will feel the impact of AI.
We would be lying if we said we knew what the impact is.
Instead, we believe there are two key things to remember when looking ahead.
It’s important to challenge the doom and gloom predictions of job loss.
As technology advances, jobs will evolve. New jobs never thought of before will be created - likely because new AI companies will be created. Other jobs will fade away; this is part of the process. There is nothing new about what is happening today.
The World Economic Forum has just released its Future of Jobs report. Read through the key findings and notice that the pace of automation is far slower than originally anticipated.
“Organizations today estimate that 34% of all business-related tasks are performed by machines, with the remaining 66% performed by humans. This represents a negligible 1% increase in the level of automation that was estimated by respondents to the 2020 edition of the Future of Jobs Survey. This pace of automation contradicts expectations from 2020 survey respondents that almost half (47%) of business tasks would be automated in the following five years.”
Again, predicting impact isn’t something that we have perfected.
The main thing for retailers to do is be prepared to upskill/reskill employees, helping them evolve along the way. This could be an investment in specific industry skills or an investment in getting employees comfortable with digital transformation.
Without that effort, the danger of employees falling behind and becoming obsolete becomes very real.
As a follow-up to the point above, this is about not being blinded by the hype.
Consider that a recent report from PwC states that only 17% of supply chain executives say that tech implementations have delivered on expectations. This is not an indictment of the technology. Rather, this shortfall is about companies not changing how they work before implementation. Much of this change is due to processes, internal culture, and upskilling employees.
We talk to retail leaders frequently. Many admit that they succumb to shiny object syndrome. What results is neglecting the fundamentals of the business and the related consequences, including:
The repeated headlines of excess inventory issues.
Giving back gains in profitability and/or cost savings through discounts and markdowns.
The apparent “dry pipeline” of talent for the CEO role due to cuts in talent development and education.
If technology can immediately impact retail, it should serve as a mirror. Reflecting inwardly on how the company works today and thinking about what processes need to be improved. Often, retailers get in their own way because different teams are focused on different priorities. As such, they slow down their speed to market and stifle product innovation.
Further, process innovation is typically considered equivalent to contingent actions. In other words, developing better fixes to solve problems as they arise. Instead, retailers must look at developing/implementing preventative actions, eliminating problems before they occur - that is true process innovation.
Layering technology on top of a poor foundation is a losing proposition. This is essentially "distraction by shiny object." It's best to examine the foundation upon which the technology is introduced - is that foundation even sound enough to begin with?
We are often reminded of a university professor who once remarked:
“Two hours in the lab can save you 15 minutes in the library.”
And for retailers, they need to invest those 15 minutes. Because acting with urgency is needed, not acting in haste.
It’s important for retailers to think carefully and understand:
What are the problems are we trying to solve here?
What are the ways we can elevate performance here?
What are the specific business outcomes that we are looking to drive?
Then, what is the best way AI can be of use?
Candidly, we would be excited with “boring” news from retailers like merchants doubling down on their fundamentals. We would be elated to hear companies discussing getting to market faster, driving full-price sales, and preserving margins by overhauling outdated processes.
THEN, it would be a tantalizing question to ask: how can we use tech, like AI, to elevate performance even further?
An exciting example comes from Fortune talking about how Tapestry Inc. intends to use AI:
Tapestry Inc. highlighted new capabilities to use AI to forecast customer demand and curate its inventory. The analysis “helped to ensure our product was in the right place at the right time,” said CEO Joanne Crevoiserat.
Seeing the enthusiasm and curiosity to explore how technology can improve business outcomes is encouraging. Our intention is not to throw cold water onto that fire. Instead, fires are best burned under control so that the energy is used properly. In contrast, a fire that burns out of control is destructive. While no fire at all means being left out in the cold.
In short, when thinking about how to make AI (or any other tech) work for you, jump off the bandwagon.
It’s hard to think clearly on the noisy wagon ride.
Following what we just discussed in this newsletter, Liza joins our colleagues at Talkdesk for “The Art of the Doable: Chat GPT & Other Trends Transforming Retail Customer Service.”
The discussion is centered on trends that are transforming retail customer service. Unified commerce and AI are some trends that will be discussed.
Taking place on May 3 at 12 p.m. EST | 9 a.m. PST, this webinar is designed for business leaders, customer service professionals, and anyone interested in staying ahead of the curve in retail customer service.
Register by clicking here.
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Retail Strategy Group works with retailers and brands to help them accelerate their speed to market, preserve gross margins and deliver products that their customers truly want. Their monthly newsletter, The Merchant Life attracts retail founders, VPs, and C-Suite executives as they seek valuable merchandising and product creation insights.
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