U.S. Retailers Plan For an AI-Fueled Rebound

With consumers souring on the economy, retail turns to artificial intelligence to make up lost ground.

While U.S. retail spending held up for 2023 thanks to a resilient U.S. consumer base who didn’t hesitate to reach into the savings account for household expenditures, 2024 could be a different story for the retail sector.

That’s the outlook from Fitch Ratings, who call for a more conservative-minded shopping mindset in 2024, given rising consumer debt and stubbornly high inflation rates.

Household debt increased substantially over the last four quarters ending in 3Q23, largely driven by mortgage debt and credit card borrowing,” Fitch stated in a February 5th research note. “Consumer use of home equity line of credit is now growing, which suggests consumers are slowly tapping into the significant increase in real estate equity built up since 2020. Credit card spending growth is starting to decelerate.”

Household debt service was relatively stable in the third quarter of 2023, but Fitch notes that debt levels will rise to 11.7% by 2025 from 9.9% in 2023.

“The percentage of loan balances 90+ days delinquent remains at multi-decade lows across all loans combined,” Fitch added. “Auto and credit card transition rates have regressed to pre-pandemic levels and are likely to trend higher in the coming quarters.”

With an increasingly dour outlook for the rest of 2024, the retail sector is ramping up artificial intelligence deployments – and not a moment too soon.

“To stay ahead in a highly dynamic market, retailers are actively considering how AI can help them meet evolving customer preferences, address labor shortages, and drive sustainability efforts,” said Nvidia in its first annual “State of AI in Retail and CPG” report. “AI has already proved to be a game-changer for retailers, with 69% reporting an increase in annual revenue attributed to AI adoption. Additionally, 72% of retailers using AI experienced decreased operating costs.”

Getting Consumers To Break Out Their Wallets

Making it easier for consumers to click the “buy now” button is a high priority for retailers in 2024. Nvidia points to several use cases that they hope will increase consumer engagement and sales.

1. Store analytics and insights.
2. Personalized customer recommendations.
3. Adaptive advertising, promotions, and pricing.
4. Stockout and inventory management.
5. Conversational AI.

Retailers are also leaning into generative AI in “prominent” ways, Nvidia reported.

“Use cases ranged from multimodal shopping advisors for personalized product recommendations; adaptive advertising, promotions, and pricing; product tagging and cataloging; identification of similar and complementary products; and deployment of brand avatars for automated customer service,” the study noted.

86% of retailers also told Nvidia they use Gen AI to enhance customer experiences.

The report also said AI adoption is still in its “early stages.” Still, retailers are determined to see what they can get from their AI investments in a rough and tumble consumer spending economy.

Over 60% of retailers surveyed told Nvidia they will increase their AI investments through mid-2025. “This commitment reflects the industry’s recognition of the technology’s potential to enhance operational efficiency, reduce costs, elevate customer experiences, and drive growth,” the study stated.

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