World Retail Congress in Berlin review – where AI and people collided
All the talk was of AI and people at the World Retail Congress (WRC) in Berlin where there seemed to be a growing recognition that while AI could ultimately deliver operational excellence it is still people and the human connection in stores that differentiate retailers.
Judith McKenna, non-executive director at Unilever and Delta Air Lines, says: “Retailers want to grow the basket and increase loyalty so are looking at automation to increase efficiency but it’s the people that create growth. It’s a false economy reducing staff. It’s a question that boards should have an answer for. It’s about connecting the store to the customer, even employees smiling counts. This will become an increasing skill.”
Subscribe to TRBStore managers make all the difference
For David Boynton, MD for Northern Europe at Pandora, the key to success for retailers is store managers who he says make all the difference in a business. “They are the talent magnets and are the [value] unlock. In businesses 20% of stores will be top performing, the 60% in the middle are a blob and the other 20% underperform. The key is the store manager. There has got to be a way that outstanding talent are placed in the best areas in order to deliver the most value. There is a ton of value in the middle of the business that can be unlocked.”
With the right store managers and front-line teams the physical store is a “compelling place”, according to Melanie Gallop, former president of Calvin Klein Europe, who says: “This is where brands are felt by the customer. There is an anticipation of not knowing what you’ll discover. We’ve experimented with AI to enhance the customer journey by giving our top customers an iPad to ‘show me something I could possibly not live without’ but we were trying to be too precise and efficient. With this we lose the magic of discovery. There’s nowhere like stores for this.”
She adds that emotional connection is critical and that this comprises relevance and resonance. “Relevance can be bought through say collaborations, but resonance through meaning and consistency has never been more powerful and is most likely to be found in-store,” she says, adding that while data is “super important” being in-store gives customers more than any algorithm ever can.
Experiences outside digital
Richard Butler, VP retail in North America for Coach, has found that Gen Z’s are today looking for experiences outside the digital world and that Coach is building stores that touch on all four senses: “We build with dwell time in mind so people can just hang out. We’re experimenting with dedicating 15% of stores to the likes of coffee shops. The magic really happens with customers on the shop floor. It’s an art that evokes emotion. We’re building the connection with the customer in-store.”
Anca Marola, global chief digital officer at Sephora, agrees with the high value placed on stores – including for Sephora that has many Gen Z customers: “What’s not changing is that people still love the stores. On Saturdays they experience the excitement of shopping together with friends and getting advice. This only happens in-store.”
To enhance this experience and improve the advice offered there is plenty of innovation taking place in Sephora’s stores. This includes AI-powered skin diagnostics via the beauty scan that involves an algorithm matching skin types with certain shades [and relevant products]. The Sephora app can store such data and be used to filter product searches. These searches via a search bar could be replaced by agentic AI in the future, suggests Marola, which would take in relevant data from that it holds on its customers in order to make informed choices and offering valuable advice.
Safeguarding trust
Having recognised that advice engenders trust she says that care has to be taken with AI to ensure this is not damaged. Alex Baldock, CEO of Currys, has the same sensitivity: “Trust is super important to us in a world of AI and ChatGPT.” But this is not detracting the company from working on supplying all colleagues on the shop floor with an AI-powered iPad that will enable them to source relevant advice on-the-fly for customers across the thousands of complex products and services it stocks.
The impact of AI will also be felt online. “E-commerce has not moved on in 30 years but agentic AI will upend this as it will be a conversation. We’ll be able to solve the customers’ needs and sell them more products,” he says.
Such technology will further help Currys with its objective of increasingly selling solutions that solve problems – that not only include say the PC but also the cables, warranty and bag etcetera. It is a similar scenario for Parag Parekh, chief digital officer at IKEA IT, who says: “Customers are moving away from transactions to wanting help with a problem. We’re not selling a bed anymore but we’re helping them with [enjoying] better sleep. One of the biggest shifts is how to leverage AI for this.”
The company uses technology for customers to take a scan of a room and to then receive ideas for what might suit the space. “Previously it could take eight to nine hours working on one room with a customer assistant in-store but now it takes just 30 minutes with AI,” he says.
Bring along the workforce
For Parekh one of the most important aspects of the adoption of AI by IKEA is that the 160,000 workforce are brought along on the transformation. “The awareness of AI is there but there also needs to be education. We start with AI literacy and 40,000 workers have been enabled so far,” he says. This is something to which Baldock is also attuned: “The honest truth is AI will be disruptive and some jobs will go but new ones will be created. We’re starting [on this journey] by being honest.”
Christoph Werner, chairman of DM Drogerie Markt, says care has to be taken around communications and messaging and he cites the recent news from Meta that it is to reduce its workforce as a result of AI. He believes this could result in a slowing down of people deploying AI in retail organisations, which is detrimental because in the case of large companies change is very much needed.
“Huge organisations have become slow. In order to offer low prices and have low operating costs they have needed to be process-driven. The challenge now is that they have lost the ability to quickly change and adapt. In some countries bricks and mortar is terribly under-invested,” he says.
Lionel Souque, CEO of REWE Group, recognises this situation and suggests e-commerce is not as developed for food as it is in other categories as a result of the difficulty of making a profit from home delivery. This is leading to a focus on AI developments in the stores. “We’re using AI and computer vision to test store formats. If one or two of these is successful then it will be worthwhile,” he says.
Other areas of focus are: space optimisation across its 4,000 stores; product assortment optimisation; and hyper-personalisation, which involves the company’s loyalty programme that currently has 11 million members.
Laying the foundations for AI
For Werner and DM a major project involves the creation of digital twins for each of its stores in order to lay the foundations for improving the business through a host of AI-driven activity. It is the underlying structure (foundations) where problems need to be addressed – particularly for established businesses – if value is to be leveraged from AI.
Mark McLennon, founder & CEO of Ridgewood Advisory, says it boils down to the data: “There are lots of problems in businesses and certain problems we decide are too much trouble and one of these is data quality. Everyone knows it’s not where it should be and now is the time to think about these problems as it’s now in an AI context. There is a whole eco-system out there to help, with some amazing businesses. AI has big upsides but you have to fully commit to it.”
For Scott Price, group CEO of Dairy Farm International, data has certainly been identified as one issue to address: “To be a start-up would be great. I joke that our data is a lake so that humans can’t get in! AI platforms are an opportunity and a risk as it revolves around them having the data…and also the fee they charge us is high. But the biggest risk is not adopting AI.”
Laura Cook, director of procurement at Primark, says the retailer is aware of the upsides to adopting AI and that this requires a fundamental rethink of the business with data at the heart of this process. “We have to deliver a positive P&L. But these are tough trading conditions that puts pressure on costs and margins. We’ve had to reimagine all our operating model.”
She admits that data has been problematic for some time, with 3,500 suppliers and 200,000 invoices. This has needed categorising and cleaning and most of the time the business has not achieved this successfully. “We’ve been doing it on Excel and not very well,” Cook explains.
Teaming up with Deducta has helped the company with its data. Jeffrey Fasegha, CEO of Deducta, says this is a universal challenge for all businesses – to have one source of the truth. “We’ve partnered with Primark to co-create a solution. People think of data integration and think it takes a long time – and costs a lot – but it could be done in just hours,” he suggests.
Don’t look at AI in isolation
Such initiatives require wholesale changes, according to Cook, who says: “You can’t look at this technology in isolation. We looked at our teams, structures and processes. Think of all these things in a different way. It involves education of the board and you need to look at the total operating model. The returns will then considerably outpace the investment.”
Despite the obvious challenges David Schneider, co-founder of Zalando, believes it is a good moment to invest, innovate and to form partnerships. “The entrepreneurial side of me is excited but consumer markets are difficult. However, such crises lead to innovation,” he suggests, adding that there is now an opportunity to leverage technology and data to a level that he had only “fantasised” about before.
Whereas content was a bottleneck at Zalando today 90% of its marketing content is AI generated compared with zero two years ago and what took eight weeks to create now takes a mere two days. The technology is also making it possible to deliver a personalised feed to every customer and the issue of fit is also being gradually addressed by AI.
While all this online innovation is good for retail in general there are some concerns about the implications for physical retail, according to Dr Karsten Wildberger, minister for digital transformation at the Federal Government of Germany, who says AI can potentially help to make much of retail incredibly efficient but this is not necessarily the case for stores.
Stores are the heartbeat of cities
“Not everything in life is efficient. Physical retail is more costly than online but it serves a purpose. It provides an infrastructure for everyday life. It is food on shelves and keeps cities alive. It’s the heartbeat of cities, where people meet. We need to ensure the social value of physical retail is not crushed,” he explains.
To help this scenario Wildberger suggests Europe must act with speed on issues such as: addressing the tax loopholes on parcels from China; acceptance of technology that helps combat theft in-store; and help ensure that the AI and data infrastructures on which European retailers are increasingly relying is not all supplied from other continents who are effectively exerting an onerous rent on retailers.
“The US stock market has increased three-fold over the last 10 years while Germany has barely moved. Technology has delivered incredible growth but we’ve not played a part. We can’t afford another phase like this. We do not want to lose retail to technology,” he argues.
Fahed Ghanim, CEO of Majid Al Futtaim Lifestyle – that operates shopping malls and other venues, agrees it should not all be about technology. He suggests AI, VR and the metaverse are just tools and that people are becoming lonelier, despite being better connected than ever.
Ghanim is an advocate for communities where like-minded people can come together and want to be seen. “We are effectively a platform at scale where people come together. We all need to slowdown and not depend on deliveries every five minutes. Instead we need to engage in real activities.”
