What’s Sizzling and What’s Sizzling: Enterprise Recommendation on the Way forward for AI in Retail

At Shoptalk 2024 in Chicago, a panel of investors shared their unfiltered views on the role of AI by transforming retail technology.

The topics of discussion were the areas where AI is most likely to be a game-changer, such as in-store experience or intelligent agents – and how investors separate hype from reality.

The AI-based solutions market is expected to reach $136 billion by 2030, according to MarketsandMarket. Retailers are already using this technology to improve customer service, search functions, store operations and employee training.

But AI fatigue is real. The explosion in the number of AI-based companies means that many of them have been more generous in their descriptions of the application of AI, signaling consolidation to come.

Investors share the highlights of AI in retail and what to avoid.

ShopTalk Chicago VCs Discuss the Future of AI in Retail WEEK

The bright side: investors’ next big bet on AI

The in-store experience is ripe for improvement. AI can help retailers better serve their customers and anticipate their needs while improving loyalty programs and retail media.

“We’re seeing more and more Starbucks-type experiences, where as a consumer my needs are known by the system,” said Aron Bohlig, founder and managing partner of ComCap LLC. “I receive specific promotions for specific products at a specific time I am most likely to act on, through the channel I care about, whether in-store, on a mobile device or on a website.”

Smart sales agents, who understand our needs and take on rote tasks, are another area that can be transformational.

“A smart sales agent understands our needs, our budget and the inventory we have at home and takes action on our behalf,” said Scott Friend, partner at Bain Capital Ventures. “This doesn’t mean you’ll stop following a designer you love or shopping at your favorite store. But the mundane tasks—like planning dinner this week or my child has a birthday party to attend and I need a gift for a second-grade girl—will ultimately be accomplished on our behalf.

For brands, there are clear improvements in inventory management and content creation that AI can make.

Tessa Flippin, founder and managing partner of Capitalize VC, notes that managing product listings, images and brand consistency on platforms like Shopify, Amazon and Walmart has been a challenge, especially for brands with inventory important.

“But with generative AI, if you have hundreds of products across 10 platforms, it opens up a whole new opportunity for brands to leverage different customer touchpoints,” she said.

The overhyped: Be careful

In recent years, companies have layered core applications on top of existing models, leading to an exaggeration of a company’s capabilities, Friend said.

“Anyone, in a matter of hours, could launch an image or video augmentation company that leverages Stable Diffusion or OpenAI,” he said. “It’s not interesting.”

Flippin adds that the inflated valuations of companies deploying Generation AI are contributing to the current market hype.

“If you look at the valuations of [those] businesses, they’re crazy,” Flippin said.

Bohlig predicts that the machine learning (ML) market will consolidate, favoring those with strong customer relationships and valuable data, while smaller companies struggle to establish themselves in the market.

“I’m skeptical that the AI ​​generation players and some older tech companies are probably going to disappear,” Bohlig said.

Bohlig considers the current AI market, particularly that of LLMs, to be “frothy and noisy.” This is largely a rebranding exercise, he said, with AI replacing ML in many cases.

“That’s a lot of what’s happened over the last year and it’s gutted the system,” Bohlig said.

The opportunity: reinventing research

Flippin anticipates a shift in shopping behavior from looking for specific items, like a red dress, to broader lifestyle needs, like planning a vacation to the south of France while wanting to wear red for dinner.

“It’s a huge opportunity for retailers to then offer me the perfect red dress, shoes, bag and earrings to go with it,” she said, which increases the order value of this consumer purchase.

Bohlig, who previously worked with Google’s product management team, believes Google “misses the boat” with its AI shopping experience.

“In the past, Google has told me they want to drive everything through the search box experience,” he said. “But if I’m buying cars or anything else, I don’t want to go through ads to find what I want. I want someone who can give me accurate results and guide me through a process.

The traditional search-based experience is being disrupted and the next generation of shopping experiences are ripe for innovation.

“It’s not clear that Google is going to win this race,” Bohlig said.