The Great Retail Rewiring: From Smart Stores To Digital Consumers
Some versions of the future are personal dreams and professional nightmares.
Picture this: I'm planning a trip to Korea. It's crunch time at work, but the mere thought of a holiday with my family keeps me going. I task my AI agent—let us call it Arthur—to handle the logistics.
Arthur knows my preferences, from flight timings to hotel amenities and my extreme fondness for good deals.
I press send on a few emails, and Arthur is back with the trip planned down to the flights, hotels and shopping recommendations. A few tweaks, and I approve it. While I return to work, Arthur makes the bookings.
This scenario isn't science fiction—it's the near future of consumer decision-making.
2025 is unofficially dubbed "The Year Of The Agents." AI agents are intelligent software systems that can understand and respond to customer inquiries, make decisions, and perform tasks without human intervention.
For retailers, AI agents represent both opportunity and challenge. As these digital intermediaries increasingly filter and execute consumer choices, the retail landscape faces its most significant transformation since e-commerce.
The Retail AI & ML Arms Race Has Begun: How Leading Brands Are Investing in the Future
In February 2025, Amazon's stock experienced an unexpected 11% drop despite its solid financial performance. One reason? The company's commitment to spending $105Bn on AI-related capital expenditures, an increase from $77Bn in 2024.
While much of this investment targets Amazon Web Services, their retail operation stands at the precipice of another technological leap forward. Smart fulfillment centers, intuitive shopping assistants, and hyper-personalized recommendation systems are all receiving significant upgrades.
Amazon isn't alone in this high-stakes race.
Big Tech’s Bet on Retail AI
Nvidia's September 2024 retail survey revealed:
- 90% of retailers are either actively deploying or pursuing Generative AI projects
- 97% plan to increase AI-related spending, with over half committing to double-digit growth
- Generative AI use cases in retail, in particular, are omnipresent, with 60% of retailers using the tech for marketing & content creation, followed by predictive analysis (44%) and personalized marketing & advertising (42%).
AI & ML investments are a step-change for all aspects of retail, from supply chain to insight generation. Three significant areas of investment in consumer-facing elements are:
- Hyper-personalization at scale
- Brick and mortar makeover
- Intelligent conversational assistants
Turbocharging hyper-personalization: AI’s Most Valuable Use Case
"Our job is to figure out what they [customers] are going to want before they do...People don't know what they want until you show it to them." - Steve Jobs.
What Jobs imagined as visionary intuition is now algorithmically possible through predictive AI.
Advanced AI and ML technologies enable retailers to collect, analyze, and act on enormous volumes of customer data, making Steve Jobs's vision a scaled reality.What Jobs envisioned as intuition is now becoming algorithmic reality. Advanced AI technologies can now collect, analyze, and act on vast customer data to predict preferences before customers consciously form them.
How Sephora Nails AI-Powered CX
Beauty retailer Sephora has been at the forefront of AI adoption since 2013. Its AI-powered Beauty Insider loyalty program now boasts 34 million members worldwide, contributing to 80% of its sales (Retail Dive, 2023). Sephora uses AI to:
- Personalize recommendations based on past purchases and browsing behaviour
- Offer virtual try-ons powered by augmented reality (AR)
- Automate beauty consultations with assistants trained on its vast product knowledge
Not just Sephora, 86% of retailers say improving customer experience is their top priority for AI investments (McKinsey, 2024).
(Image courtesy: Sephora Media Center)
ROI from AI: Tecovas's SMS Marketing Success
This AI revolution isn't limited to retail giants. Cloud-based solutions have democratized these capabilities for smaller players. Western boot retailer Tecovas achieved a remarkable 14x ROI using AI-powered SMS marketing that delivered personalized messages based on individual customer behavior—proving that exceptional customer experiences now depend more on implementation strategy than company size.
By 2030, customers will expect every brand interaction to intuitively adapt to their preferences. Each email, mobile app home screen, and in-store kiosk will present a personalized experience tailored to individual taste profiles. This invisible but omnipresent personalization, powered by ML algorithms processing thousands of data points, will significantly boost customer lifetime value and retention rates.
Revitalizing Brick and Mortar: The Physical Retail Renaissance
Contrary to predictions of its demise, brick-and-mortar retail is experiencing a technology-driven revival. AI is transforming physical stores from traditional sales channels into experiential destinations with unprecedented efficiency.
Three key innovations reshaping the in-store experience:
- Intelligent monitoring systems - Computer vision technology now detects everything from low stock levels to customer traffic patterns in real-time. In some locations, autonomous robots patrol aisles to verify inventory and pricing while interacting with shoppers.
- Employee augmentation tools - Swedish retailer Lindex's "Lindex Copilot" analyzes sales data and store metrics to guide staff with personalized operational advice. Target's similar "Store Companion" gives associates instant access to product information and inventory status.
- Frictionless shopping - More than one-fifth of retailers (21%) are now piloting autonomous checkout systems that eliminate waiting lines entirely.
Images courtesy: Lindex & Target Media Centers.
By eliminating traditional pain points, AI is revitalizing physical retail. The store of tomorrow combines digital convenience with the much cherished joy of discovery.
Conversational Commerce: The Smarter, Faster, More Human Chatbot
Basic rule-based chatbots are vanishing from retail. In their place, AI-powered conversational assistants now understand context, remember preferences, and engage naturally with customers.
A striking 73% of consumers now welcome AI-powered assistants for customer service (Salesforce, 2024). Modern retail AI solutions must be:
✔ Conversational: Understanding intent and context.
✔ Multilingual: Catering to diverse global audiences.
✔ Voice-based: Offering a more natural, human-like interaction.
Cost concerns remain. Yet, success stories multiply:
- Sephora's messaging assistant on Facebook Messenger achieved an 11% higher conversion rate for in-store makeover bookings than other channels.
- H&M's AI assistant helps shoppers find perfect fashion matches in seconds. It remembers preferences, suggests complementary items, and speeds the path to purchase.
From virtual store guides to reliable 24/7 customer support, customer-facing AI is revolutionizing retail communication.
Emerging Horizons: Agentic AI and the Evolution of Digital Retail
Retail has always been a bellwether for economic and technological shifts. AI is no different.
McKinsey estimates that better AI-driven customer interactions could increase retail sales by over $300 billion in the coming years (McKinsey, 2024).
By 2030, AI will be deeply embedded in virtually all aspects of retail operations and strategy, leading to smarter stores and hyper-personalized shopping.
Agentic AI will transform how customers discover products. Retailers must develop dual strategies: one for human shoppers and another for the AI representatives that increasingly filter their choices. Brands that optimize only for human eyeballs will find themselves invisible to algorithmic gatekeepers.
Like every technological revolution, the benefits will be distributed unequally. Early adopters with a clear strategy and flawless execution will capture disproportionate value.
What Retailers Should Do Next
As the AI retail revolution accelerates, here are five critical steps for retailers:
- Start with clear business objectives. In the rush to adopt the latest AI technology, many retailers fall into the "shiny object syndrome" trap—implementing solutions without clear strategic alignment. Instead, first identify specific challenges: inventory accuracy, customer service efficiency, or conversion rates. Then, select AI solutions that directly address these goals. This approach ensures investments drive business value rather than becoming expensive tech showcases.
- Build your data foundation. AI is only as good as the data that powers it. Audit your current data collection practices. Ensure you have the right infrastructure. Develop a comprehensive data strategy that balances utility with privacy concerns.
- Invest in talent and training. Building capabilities is as crucial as buying technology for successful AI implementations. This requires organization to hire specialized talent and upskill existing teams.
- Embrace experimentation. Start small. Test specific use cases. Scale what works. The retailers seeing greatest returns adopt this test-and-learn mindset, beginning with targeted pilots before expanding successful initiatives.
- Prepare for the agentic future. As AI agents increasingly mediate consumer decisions, retailers must consider how their products, services, and digital presence will appeal not just to human shoppers but to the AI systems representing them.
The retail AI revolution isn't yet another technology upgrade. It will change how consumers discover, evaluate, and purchase products. Retailers who approach AI as merely a cost-cutting tool will miss its transformative potential. The winners in this new era will be retailers who harness AI to create genuinely better experiences for customers while preparing for a future where algorithms increasingly influence—or even make—purchasing decisions.
The time to build that future is now.
Join the Retail AI Revolution at eTail Asia 2025
The retail AI revolution isn’t just another tech upgrade, it’s redefining how consumers discover, evaluate, and purchase. Retailers who treat AI as a cost-cutter will fall behind. The real winners? Brands that use AI to deliver smarter, faster, and more personalized customer experiences - while preparing for a future where algorithmic agents shape shopping decisions.
Whether you're just starting or scaling fast, this blog authored by Garima Mamgain, Global Portfolio Manager, 3M Inc. offers practical frameworks and success stories to help you stay ahead.
Join her at eTail Asia 2025 or download the event agenda to explore cutting-edge strategies, real-world use cases, and insights from Asia’s most innovative retailers.
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https://www.mckinsey.com/industries/retail/our-insights/llm-to-roi-how-to-scale-gen-ai-in-retail
https://blogs.nvidia.com/blog/ai-in-retail-cpg-survey-2025/