Rising costs and declining consumer spending are among the main concerns for retailers.

This year, retailers are more concerned about rising costs, declining consumer spending, and supply chain volatility, according to new research from strategic consulting firm Boston Consulting Group (BCG) and the World Retail Congress (WRC).

The report, titled “Amid Uncertainty, AI Gives Retailers a Path to Resilience,” analyzes the outlook for 2023 and how artificial intelligence can provide solutions to the most relevant problems.

According to the study, respondents largely agree that economic and operational uncertainty will continue in 2023. However, there are signs of optimism, as 65% expect the economy to grow this year, slowly or rapidly (compared to 11% who believe the economy will slow down).

Concerns

In particular, what currently worries industry executives is rising costs, followed by falling consumer spending and supply chain volatility. Rounding out the top 5 biggest uncertainties are consumer sentiment and the growth of e-commerce.

Other concerns include labor challenges in the retail sector, the changing competitive landscape, geopolitical factors, stock levels, changes in consumer foot traffic, and talent and culture.

Response to challenges

Less than 13% of the executives surveyed say their organizations are investing in long-term solutions, such as the use of artificial intelligence, to address these challenges. Most focus on short-term solutions, such as price increases and marketing campaigns. "This study makes it clear that many retailers are missing out on the potential of AI-based solutions to address challenges and build long-term resilience for their businesses." says Ian McGarrigle, president of the World Retail Congress.

In response to rising costs, 55% of respondents say their organizations are raising prices and 52% are renegotiating with suppliers, except in Asia, where the main solution is tracking and cost management processes.

The study suggests that retailers can leverage artificial intelligence to create a next-generation pricing strategy through various means, such as price setting by geographic area and channel, dynamic price changes, and personalized offers.

Machine learning solutions can also be used to better understand price elasticity and make predictions, as well as to simulate and optimize price changes in different positions, promotional plans, sales, and personalization strategies.

Another option offered by artificial intelligence is the monitoring of relevant competitors and alternative data sources, such as social networks, in real time, to respond quickly to competitor moves and demand signals.

Outside of Asia, most retailers are moving away from artificial intelligence as a tool to deliver a more personalized shopping experience that helps overcome the decline in consumer spending. Instead, the most common approaches are investments in loyalty programs (45%), product offering optimization (44%), promotions (40%), and investments in the digital customer experience (40%).

Previous reports from the Boston Consulting Group indicated that consumers were 110% more likely to add products to their shopping cart and 40% more likely to spend more than expected when the shopping experience was highly personalized.

Limited use of artificial intelligence.

Similarly, nearly half of the distributors who cited supply chains as a major concern are trying to improve their inventory management tools. Others are focusing on improving supplier and transportation management and diversifying their supplier base as solutions to supply chain complexity and constant volatility.

The study indicates that there is a relatively untapped opportunity for retailers to integrate artificial intelligence into these solutions and their overall supply chain strategy, in order to better understand and address the root causes of volatility from producer to customer.

Combined with the ability to simulate and optimize various scenarios, AI-based insights can help retailers be more flexible and more accurately predict long-term needs, while being proactive about short-term supply and demand volatility.

"The new retail environment after the pandemic is more complex and competitive than before." says Joan Sol, partner and head of FMCG and Distribution practice at the Boston Consulting Group in the Iberian Peninsula. “The vast majority of retailers are missing the opportunity to adopt solutions with artificial intelligence technologies. It’s about implementing them as quickly as possible to leverage them now as a competitive advantage that drives their businesses.” he adds.

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