Shoptalk 2024 Day Three: A Thoughtful Approach to GenAI; Retail Innovation in China

Introduction

Coresight Research is a research partner of Shoptalk 2024, which is taking place during March 17–20 in Las Vegas, Nevada. Shoptalk is an annual retail conference focusing on the trends, business models and technologies that are shaping the future of retail.

This year, the conference covers five major themes in retail: employing AI (artificial intelligence) to transform your business; harnessing brand power and building brand trust; building loyalty via seamless customer journeys; creating unified retail experiences; and navigating changing industry relationships. (Not all our reports will cover all five themes.)

We present key insights from day three of the event, with highlights covering GenAI implementation, focus areas for success in the China market, the future of retail media, and more.

Shoptalk 2024 Day Three: Coresight Research Insights

1. Employing AI To Transform Your Business

Continuing the focus on AI-enabled personalization that we saw on Shoptalk day two, the keynote delivered by Amit Jhawar, CEO of Attentive (a personalized text-messaging solution provider), highlighted the need for and huge benefits of personalization in e-commerce:

• Two-thirds of consumers say they will leave a brand or retailer’s website if it does not have some form of personalization; however, nearly 80% say that they are not happy with the way those websites are collecting data.
• Personalization results in a 120% increase in clicks and 115% more revenue. (A similarly high data point was used in another session at Shoptalk: Anna Barber, Partner at M13, said that revenue increases by 90% when companies employ personalized digital experiences.)

Jhawar explained that AI is driving change in the marketing space, with the increased power and availability of chips is pushing companies toward AI-powered platforms and solutions. Now, companies can send customers personalized messages, instead of sending the same email to all customers, as GenAI can instantly create brand new text for bespoke messages. AI can also build customer profiles (using purchase history, demographics) and predict what a customer will do based on how long they’ve spent on a website and what they’ve clicked on, enabling online retailers to find new ways to personalize experiences and connect with shoppers, Jhawar said.

In another session, Purva Gupta, Co-Founder and CEO of Lily AI, gave an example of e-commerce personalization through AI-powered search and recommendations. She explained that, currently, customers need to “decode” retailers’ websites and catalogs to find the things they are looking for, but AI has the ability to change this as it can understand exactly what customers are looking for, even when they use natural language or words that are not connected to tagging on the back end of retailer’s site.

Jhawar stressed that as AI is evolving quickly, companies “need to make sure [they] are on the forefront of technology to be a winner… [They] have to stay on the cutting edge.” However, he also warned that retailers won’t be successful by simply focusing on tech. Instead, they need to focus on their core competencies (such as their branding, customers and/or storytelling) and then determine the software can help them do that.

Jhawar explains that AI is driving change in the marketing space
Source: Shoptalk

 

Walmart is pro-AI, and management has taken a critical and thoughtful approach toward its implementation. Nuala O’Connor, SVP & Chief Counsel, Digital Citizenship at Walmart, delved into how the company is managing the risks of GenAI (generative AI) by taking a comprehensive approach to digital citizenship, spanning all forms of technology and its responsible use.

Walmart drafted its principles to cover AI risk four years ago and informs consumers when AI is being used. The use of data related to AI has many of the same considerations as other types of data use, particularly privacy: O’Connor highlighted that consumers “expect respect” from businesses when it comes to using their personal data—i.e., they provide their home address for delivery of an online order, but they don’t expect the retailer to see that information. However, there is “a frenzy of concern and fear” around GenAI because it is hidden, opaque and makes instantaneous decisions, she said. This drives the need for transparency from Walmart, which believes it has a “duty of care” to the customer to explain new technology and the retailer’s use of it, so consumers are aware when they are encountering or interacting with AI in their daily lives. Not doing so would be a breach of consumer trust, O’Connor explained. “Inform, educate and entertain”: these are the pillars to driving successful adoption of GenAI, she said.

Walmart is also using GenAI for associate enablement. As a large retailer, the company has myriad policies, and one of its applications for GenAI was to codify these policies in a form that employees could easily access. O’Connor revealed that the company has saved millions of dollars in labor hours through chat-enabled queries of policies and procedures, as staff don’t have to hunt through manuals in back offices.

When adopting GenAI, Walmart had the sandbox, controls, trusted partnership and datasets—as well as a policy—in place “on day one of GPT,” according to O’Connor. The biggest concern for the retailer was that somebody would input sensitive, corporate information to the AI system that would end up in the public domain. O’Connor also stressed that GenAI is not the right tool for everything; it needs to be evaluated critically and thoughtfully. She gave the example that if you want precisely the same answer every time, GenAI is not appropriate, because it learns and evolves. Walmart is not adopting “AI for AI’s sake,” but carefully considers the tool’s fit for each use case, O’Connor explained.

In a separate session, Gupta (Lily AI), echoed this sentiment, stating that “AI is not a silver bullet.” Companies should first start with the problem, not the product, and determine the best way to solve the problem, regardless of the technology or platform used, she said.

We saw during Shoptalk day two much discussion around whether GenAI is being under- or over-hyped. O’Connor offered her view of this, which is mixed: the technology is overhyped in that “people are throwing it around” as a catch-all solution, but it is underhyped in that “it is terrific if used appropriately.” Her advice is to companies looking to adopt GenAI is to take a four-step approach: “learn, test, build, invest.”

O’Connor delves into how Walmart is managing the risks of GenAI
Source: Shoptalk

 

In the session, “Tactics for Building the Right Infrastructure and Team for AI,” we heard how the “right” AI model means that teams can actually operationalize the insights that AI provides them. There needs to be an experience or delivery team that knows how to apply the insights provided by AI to questions that need answers.

Amitabh Mall, Chief Analytics Officer at Woolworths Group, told the audience that when implementing AI, companies “need to focus on the interconnection between key business drivers and the factors that influence the decisions of customers.” If the company does not understand what customers want, their solutions are not guaranteed to work and, if they do work, it will be coincidence, he said. Furthermore, companies need to realize that they do not need a lot of data to implement AI—they can “smart size” data for their uses, Mall explained. He touched on the necessarily time-consuming process of implementing AI effectively, stating doing it quickly is too much for an organization to handle and will often result in failure.

Mall believes that the enablers for success with AI are solid infrastructure, increased capacity and a working model. “The magic of AI happens at intersections,” he said, such as the intersection of data and behavioral science or experimentation and tried-and-true business strategies.

Mall discusses the need for AI infrastructure with Rogayeh Tabrizi, Co-Founder & CEO, Theory+Practice (Interviewer)
Source: Shoptalk

 

In the session, “Rapid Fire: Retail Technologies for the Next Decade,” panelists from brands and the investment community identified e-commerce, automation and inventory management as the current tech projects at the top of their lists. Regarding GenAI, the panelists had yet to see a large-enough opportunity and commented that the technology still remains in its early stages. Moreover, they saw a kind of capability inflation surrounding AI, with many AI/ML (machine learning) tasks characterized as GenAI, some AI that was just automation, and some ML that was just analytics or regressions.

PepsiCo, in particular, is focused on automation. Anna Farberov, GM PepsiCo Labs at PepsiCo, stressed the need in modern retail for an agile, smart supply chain with automated warehouses in order to optimize inventory management and effectively respond to ever-changing consumer habits.

Left to right: Anna Farberov, GM PepsiCo Labs, PepsiCo; Holly Briedis, Chief Customer Officer, Fossil Group; Sydney Sykes, Partner, Lightspeed Venture Partners; Chris Walton, Co-CEO, Omni Talk (Interviewer)
Source: Shoptalk

 

2. Harnessing Brand Power and Building Brand Trust

Luxury shoppers, like many other customers, are looking for authenticity. They are also looking for great experiences and now, more than ever, expect more from brands, said Dani Reiss, Chairman and CEO of Canada Goose. To meet this demand, Canda Goose has added new Cold Rooms/Show Rooms to its stores, which simulate Arctic conditions for shoppers to properly test coats before they make a purchase.

Canada Goose is also expanding into knitwear and shoes. Reiss said that entering new categories will always be a long journey. Products have to fit the brand, and “it requires discipline,” he stated. For instance, the company has been very gradual with its footwear releases, especially as footwear is a “very tricky category.”

When asked about how Canada Goose attracts customers despite its high price points, Reiss highlighted three keys to success:

• Canada Goose has built a strong following, which leads to recognition, as well as word-of-mouth and social media recommendations.
• The retailer offers a lifetime warranty on its products.
• Canada Goose is a family company that remains based in Canada (and makes its products in Canada)—something that is very important to many consumers.

Reiss also pointed out that they do have lower-priced, entry-point items, such as belts and bags.

Reiss discusses the keys to success for Canada Goose with Melissa Repko, Retail & Consumer Reporter, CNBC (Interviewer)
Source: Shoptalk

 

To set its new course for growth, Kohl’s—the largest department store in the US by store portfolio (nearly 1,200 stores) and with 90 million active app users—has launched a new strategy for 2024 that is built around four pillars:

• Enhance the customer experience
• Accelerate and simplifying the company’s value strategy
• Manage inventory and expenses with discipline
• Strengthen its balance sheet

During his session, Tom Kingsbury, CEO of Kohl’s, focused on one of the new pillars: enhancing the customer experience. Part of this pillar is focused on bringing on new brands, such as Kohl’s did with Sephora, which is set to make $2.0 billion in revenue by 2025, Kingsbury revealed. One of the brands Kohl’s is now partnering with is Babies R Us, with the partnership set to launch in the fall. According to Kingsbury, other actions that the company is taking that align with this pillar include:

• The launch of a new home marketing campaign to bring in new customers
• Increasing trendy items in its stores—reducing the current 12-month lead time of kids and teens clothing arriving at stores
• Focusing on home goods and gifting items (namely fragrance sets, toys, candy, and bath and body products) over small electronics
• Encouraging cross-shopping from its Sephora customers—currently, only 40% of Sephora shoppers buy from another department (namely, women’s, children’s and accessories)

Kingsbury also pointed to the company’s large private-label program (comprising 30% of its business), with apparel private label being a particular pride point.

Kohl’s is focusing on its physical stores to drive productivity. “Brick and mortar is not going away… [Brands] need a brick-and-mortar presence,” Kingsbury said.

Kingsbury outlines the four-pillar strategy for growth in 2024 at Kohl’s, in conversation with Melissa Repko, Retail & Consumer Reporter, CNBC (Interviewer)
Source: Shoptalk

 

3. Building Loyalty via Seamless Customer Journeys

In the session, “Checkout, Loyalty and Post-Purchase Experiences,” we heard from a range of solution providers that are helping retail companies increase customer loyalty by enhancing different operational areas.

• Consumer credit—Michael Hershfield, Founder and CEO of Accrue Savings, said that one-third of consumers face credit issues. As such, retailers need to reconsider offering them a credit card. Accrue Savings provides an FDIC (Federal Deposit Insurance Corporation)-insured wallet that deepens engagement and enable repeat purchasing. Hershfield explained that wallet products create “sticky loyalty.” For instance, nearly 12% of Target purchases are made with a Target Red card, while Starbucks has seen a 2.7X lift in visits from customers who use the Starbucks wallet.
• Product and shipping protection—Woodrow Levin, Founder and CEO of protection provider Extend, said that 260 million packages are stolen every year. Customers who add product and shipping protection are high-value customers: they have 61% higher lifetime value and 46% higher AOV (average order value), Levin claimed. By providing their customers with protection at checkout, companies can deliver a superior customer experience, reduce operational overheads and remove financial risk. Levin also highlighted that shipping protection helps turn “negative product interactions into positive customer experiences:” 70% of customers said that Extend provides brand confidence.
• Resale—Croissant offers guaranteed buybacks for luxury and fashion purchases. John Howard, Co-Founder and CEO of Croissant, told the audience at Shoptalk that resale is growing 9X faster than the broader apparel category, while online resale is growing 2X faster than the secondhand market overall. Furthermore, 82% of Gen Zers consider the resale value before purchasing, he said. Croissant takes care of everything on the back end, and results in lower returns and better purchase rates.
• Customer Feedback—More than 95% of customers do not provide feedback (post reviews/take part in surveys) to brands or retailers when they shop, according to Georgina Nelson, Founder and CEO of technology startup TruRating. TruRating gives this “silent majority” a way to have a say quickly, simply and at checkout (including in physical stores). This feedback provides actionable insights on which companies can make decisions with real business benefits. Nelson gave the example of a retailer that was considering offering a discount to its loyalty members. After polling, the retailer found that 85% wanted a free gift over a discount. By providing the free gift and not the discount, the company rid itself of back inventory and did not have to offer a discount.

Left to right: Nelson, Howard, Levin, Hershfield and Zach Bratun-Glennon, General Partner at Gradient Ventures (Interviewer)
Source: Shoptalk

 

4. Creating Unified Retail Experiences

As part of the “Inspiring Global Retail Experiences and Innovations” track, Deborah Weinswig, CEO and Founder of Coresight Research, presented insights on retail innovation in China. In addition to detailing the Coresight Research “Innovation Adoption Path” (comprising the stages of exaggeration, deflation, realization, cultivation and innovation), she discussed the market factors that are influencing China retail and e-commerce growth (and how these factors stack up against the US and India).

Critically, Weinswig presented five ways that retail companies can win in China’s complex and competitive market:

• Product localization—Retailers should tailor their products to the local tastes, needs and culture of Chinese consumers, as well as incorporate elements of local heritage and identity. For example, luxury brands can collaborate with local artists and designers to create limited-edition products with Chinese motifs and symbols, or offer customization options for a personal touch.
• Brand localization—Retailers should localize their brand image, positioning and communication to resonate with Chinese consumers and differentiate themselves from the competition. For example, retailers can leverage social media platforms, influencers and celebrities to promote their brand story and values, or participate in local festivals and events to enhance their brand awareness and loyalty.
• Marketing localization—Retailers should adopt a data-driven and customer-centric marketing approach, using various channels and formats to reach and engage their target segments. Retailers can use livestreaming, gamification and interactive content to showcase their products and services, or establish comprehensive affiliate networks to expand their reach and drive sales.
• Festivalization—Retailers should capitalize on the festival-driven nature of the China market, which offers huge opportunities for sales and promotion. Retail companies can launch special campaigns and offers for major shopping holidays, such as 11.11 (Singles’ Day) and 6.18, or create exclusive digital content and collectibles for cultural and seasonal festivals such as Chinese New Year and the Mid-Autumn Festival.
• Immersive brand and product discovery—Retailers should provide a seamless, convenient and personalized customer experience, leveraging digital technologies and the human touch. Retail companies can use 3D product visualization, virtual try-on and metaverse integration to enhance online shopping, or offer personal consultations, product personalization and post-purchase services to replicate the in-store luxury experience.

Read the full presentation here, and look out for our separate report on the topic on coresight.com.

Weinswig presents five ways that retail companies can win in China’s complex and competitive market
Source: Shoptalk

 

5. Navigating Changing Industry Relationships

Andrew Lipsman, Founder and Chief Analyst, Media, Ads + Commerce, characterized three eras of retail media. The retail media 1.0 era was primarily driven by search. We are accelerating into the 2.0 era, which involves evolving media formats such as streaming. The 3.0 era represents the future of retail media, which Lipsman expects to be more experiential and to have a focus on customer lifetime value.

To develop retail media networks (RMNs), companies need to “tear down siloes and connect media and promotion,” according to Eric Tarnowski, SVP of Connected Commerce at consumer health company Kenvue. He stressed the importance of “nailing the fundamentals,” supported by data transparency. Tarnowski added that iROAS (incremental return on ad spend) is “a useful vehicle when it’s done right.”

The liquor industry faces specific roadblocks, with liquor makers prohibited by US law from engaging with retailers, as discussed by Emily Bibeault, Head of E-Commerce at Campari Group. However, the emergence of Uber Eats and Instacart offer opportunities for the manufacturers to collect data. Data measurement still remains a major impediment preventing retailers and brands from sharing data to their mutual benefit.

The panelists in that session also discussed the slow move to in-store retail media. The “core challenge is structural,” said Tarnowski, and the industry has not yet solved for reimagining the structures in the world of shopper marketing. Pinterest is ready for that evolution, according to the company’s VP of Retail Partnerships, Carrie Sweeney. She said that Pinterest is the most-used social app in grocery stores and that before the pandemic, it “dabbled with shelf-edge, smart mirrors with Kohl’s.” Retailers are continuing to make improvements in store operations, and in-store retail media is the next frontier. Bibeault emphasized that retailers need to be shown why in-store RMNs will drive value.

All panelists agreed that ensuring comprehensive, accurate and transparent measurement of retail media will be the key to the development and success of RMNs in the next five to 10 years. There is currently a disparity between retailers and brands on the topic, with only the latter reporting problems with measurement. Tarnowski added that leveraging RMNs as a driver of data more holistically is a critical opportunity.

Left to right: Sweeney, Tarnowski, Bibeault and Lipsman
Source: Shoptalk

 

What We Think

It is positive that although brands and retailers are not retreating on their technology plans, many (including Walmart) generally have a very objective view on the use of GenAI, rather than piling on to its hype. There are still “traditional” technologies such as automation, advanced analytics and ML that can accomplish many of the magical tasks promised by GenAI, which may be better suited to individual business needs—particularly as fear and risk around GenAI is prevalent.

AI can solve a variety of problems, especially when it comes to connecting consumers with the products they want most. However, it is not a silver bullet. Even worse, using third-party data—especially illegally obtained data—can chip away at customer trust, leading to even larger problems. So, when implementing AI, companies need to not only consider the problem they are trying to solve, but also where their data comes from. If they do not, they will ultimately lose customer trust. Walmart has taken a considered approach toward managing AI and GenAI, recognizing its obligation to use the technology responsibly and viewing GenAI holistically as a source of risk. The retailer is a technology leader, having already deployed GenAI internally and launching a conversational AI shopping assistant at the beginning of 2023.

China is a vibrant and evolving market that poses both opportunities and challenges for global retailers. To gain a competitive edge and achieve sustainable growth, retailers need to understand the market factors, diverging trends and consumer segments that shape China’s innovation and retail landscape. Coresight Research recommends that retailers implement a combination of product, brand, marketing and customer experience strategies that are localized, innovative and efficient.

RMNs continue to present an explosive opportunity for retailers, and we heard predictions that streaming ad revenue will exceed that of linear TV in 2025. Events such as Walmart’s offer to acquire Vizio underscore the importance of gaining a data pipeline to the consumer. Despite the enormous present and expected future success of RMNs, there is much work to be done in eliminating the data siloes between retailers and brands.

Implications for Brands/Retailers

• Given the current pace of innovation, changes to technologies and platforms are coming faster than ever. In order to win, companies need to get ahead of these changes, experiment, and, perhaps most importantly, learn from their mistakes. Those early adopters who stay on the forefront of technology, especially game-changing technology such as AI, will be best positioned to win moving forward.
• Brands and retailers stand to benefits from efficiency gains, improvement of the employee experience and the customer experience if they can deploy AI (including GenAI) successfully. Walmart has an early lead in understanding and deploying GenAI.
• To increase customer lifetime value, retail companies should explore solutions spanning AI, resale offerings, product insurance, surveying and more to develop a seamless customer experience that engages each consumer from the moment of discovery and takes them to the point of purchase without friction.
• China’s digital economy continues to expand rapidly, driving competition higher than ever before. Brands and retailers will need to lean into their points of differentiation, tech innovation and partnerships to help them scale.
• RMNs present brands and retailers with opportunities to reach consumers as well as collect targeted data (with the ability to segment and reach consumers at the time of purchase). To capitalize on the continued growth of retail media, retailers need to effectively differentiate their offerings through unique features and data insights. Retail companies not involved in RMNs will lose out on data insights, revenue opportunity and growth.

Implications for Technology Vendors

• GenAI technology is still in its early stages, so there remain opportunities for emerging innovators to develop infrastructure, models and applications, even leapfrogging existing leaders.
• There is no pause in demand for vendors that can offer the right technology to help brands and retailers solve their business problems—from data analytics to inventory management to AI solutions and more.
• There are opportunities for technology vendors to offer tools to further the adoption and evolution of retail media, particularly in the measurement and attribution functions.

Impacts from AI

• AI and GenAI offer enormous potential productivity and revenue gains, yet retailers and brands need to take the time to translate their needs into the potential uses of the technology and keep in mind the additional needs for model monitoring, maintenance and governance and compliance.
• Demand for GenAI will be dampened while retailers remain in the testing phase and until robust, enterprise-grade tools and applications become available.
• For retail media, AI/ML excels at crunching the data to determine the most impactful ads to consumers and to make predictions from the data.