The retail sector is buzzing about AI, but is it a revolution or just the latest shiny object distracting from fundamentals? Berkeley Research Group reports that over 80% of retailers have integrated AI to some degree. The common applications? Marketing (70%), IT (62%), e-commerce (56%), and merchandising (54%). Sounds impressive, but the report itself throws cold water on the hype, questioning whether this adoption is actually leading to "tangible business impacts."
The report suggests focusing on KPIs like average order value, inventory turnover, and customer retention. Fair enough. But here's where the easy narrative falls apart. Every retailer *already* tracks those metrics. Slapping an AI label on existing processes doesn't magically improve them. It's like saying a new coat of paint makes a car faster.
Generative AI: Snake Eating Its Own Tail?
The Generative AI Mirage
Generative AI gets a lot of attention. Retailers are using it to rewrite product descriptions, hoping to game AI-powered search results. Wharton professor Stefano Puntoni calls it a "feedback loop": retailers using AI to understand and adapt to AI. It’s a snake eating its own tail.
Retailers enter a generative AI feedback loop
Target has noticed a shift in search queries. Instead of "black coffee mug," customers are now typing in descriptive requests, like "a cozy morning ritual." Fine. But are those new long-form queries *actually* converting to sales? Or are they just inflating keyword counts and making SEO teams feel busy?
Barbara Kahn, another Wharton professor, argues that AI is changing the entire consumer decision funnel. "You no longer search for yourself," she says. "You go to ChatGPT, and it tells you something, and then you respond to that." It’s a stimulus-response model, supposedly. But I've looked at hundreds of these consumer behavior reports, and this feels like a massive overstatement. (The sample sizes are often questionable.)
The OpenAI study showing that almost half of ChatGPT interactions are "Asking" patterns is interesting, but it doesn't prove that AI is fundamentally rewiring consumer behavior. It just proves people like asking chatbots for advice. The jump to "advisor" from "task completion" might be a bridge too far.
Retailers are even creating AI-powered "digital twins" of consumers to conduct synthetic market research. Columbia Business School professor Tianyi Peng admits these personas still exhibit biases. (Surprise, surprise.) This is the part of the report that I find genuinely puzzling. If the AI is biased, and consumers are already biased, what exactly is this synthetic research *telling* anyone? It sounds like a recipe for reinforcing existing prejudices with a veneer of technological legitimacy.
AI Isn't a Retail Savior (Yet)
The Fundamentals Still Matter
While everyone's chasing the AI dragon, basic retail principles remain crucial. Katherine Black, a partner at Kearney, states that fast shipping, easy returns, and accurate in-stock statuses are "nonnegotiable." AI, she argues, doesn't beat reliability. About 40% of consumers still plan to split their holiday shopping between physical stores and online. Michael Brown at Kearney correctly points out that single-channel promotions will miss bargain hunters.
This brings us to the companies that "need a win this holiday season." Saks Global is struggling with vendor relationships and inventory issues. Lululemon is losing market share to competitors like Vuori and Alo Yoga. Nike is trying to balance its DTC strategy with wholesale partnerships. Mattel is facing tariff headwinds and shifting retailer ordering patterns.
4 retailers that need a win this holiday season
Notice a theme? None of these challenges are primarily AI-related. They're about supply chain management, brand differentiation, and macroeconomic pressures. Throwing AI at these problems without addressing the underlying issues is like putting a band-aid on a broken leg.
Target is a prime example. Despite its efforts to revamp merchandising and launch new brands, the company is facing declining sales and consumer backlash. CEO Brian Cornell acknowledges the importance of "retail fundamentals." UBS analyst Michael Lasser questions whether Target's differentiators still work, noting that other retailers have caught up.
The company's DEI initiatives have also sparked controversy, highlighting the challenges of navigating a polarized political landscape. It’s hard to quantify the exact impact of any individual headwind it is facing right now.
Show Me the ROI
AI *can* be useful in retail. But it needs to be approached with a healthy dose of skepticism. Retailers need to focus on specific business problems, measure ROI rigorously, and avoid getting caught up in the hype. The real money, as Clerk CEO Marlow Nickell puts it, is still in in-store shopping. Digitizing the store experience is valuable, but it's not a magic bullet.
The tariff rate on many imported Chinese goods was at 145% for a few weeks, but is currently at 30%—a difference of 115%. This isn't some abstract economic concept; it's a massive swing that directly impacts retailers' bottom lines. Focusing on that kind of volatility is far more important than chasing the latest AI chatbot integration.
AI: A Solution Looking for a Problem?
The data suggests that AI in retail is more hype than hyper-performance. It's a tool, not a strategy. And like any tool, it's only as good as the hands that wield it. Retailers need to get the fundamentals right before they start chasing the AI mirage. Otherwise, they'll just be automating their way to obsolescence.
