The arrival of a New Year in the retail and CPG world always brings predictions of industry trends and coming disruptions. While some are more insightful than others, it is common to see forecasts filled with generalities about things that may happen rather than more precise assurances of what will happen.
Certainty is more valuable than ambiguity so let’s look at a prediction for the retail and CPG world that is guaranteed to come true in 2023: Winners and losers in the New Year will be determined by the technology choices they make and how they create value from data.
If you think this sounds like a prediction that could have been made 10 or 20 years ago, you would be right. Technology and the use of data obviously have had a profound effect on retail for decades. However, 2023 will be different for three primary reasons:
- The exponential growth of data: There is more of it and there are new sources of it that will enable some retailers to operate stores and supply chains more efficiently and make more effective merchandising and marketing decisions to increase loyalty and sales.
- Tremendous advances in technology: AI/ML powered solutions will enable more retailers to integrate sources of data across the enterprise, uncover insights and make decisions faster, more accurately and more autonomously than ever.
- New competitive dynamics and consumer behavior: The volatile behavior of post-pandemic, inflation-weary shoppers will fuel the increased need to modernize legacy solutions and processes implemented during an era when the pace of consumer change was more deliberate, shoppers were less likely to shop cross-channel and competitors operated in clearly defined categories.
The intensification and combination of these factors in 2023 is why it is critical that retailers embrace advanced technology or risk falling behind those who appreciate the role of AI/ML in creating value from increasing volumes of data.
Entering the Unknown
Anyone involved in the retail industry, even if only for a few years, has witnessed stunning growth in the volume of data. This phenomenon will continue to accelerate, according to International Data Corporation’s (IDC) annual report called the Global DataSphere. IDC’s forecast of data creation projects the volume of all types of data will grow at a compound annual rate of 21.2% and exceed 221,000 exabytes by 2026. For reference, an exabyte is 1,000 petabytes and a petabyte is 1,000 terabytes.
Retail only accounts for a portion of the Global Datasphere, but it is growing in areas that are critical to retailers’ future performance such as shopper data, supply chain, and the emerging field of store intelligence enabled by computer vision. Retailers are gaining new visibility into store conditions, and it is unlocking exciting new opportunities for sales growth and operational efficiency.
The AI/ML Advantage is Real
It is impossible to overstate the importance of the fundamental shift occurring in retail when it comes to digital haves and have-nots. Generally speaking, retailers have access to similar types of data, but in varying quantities. Larger retailers obviously have more, and the volume of shopper data will vary based on program maturity and penetration. Some retailers’ data volumes are affected by the number of third-party sources and data captured throughout their supply chain.
Having a lot of data is nice but having the ability to integrate data and use it effectively is essential. This is where retailers’ technology choices and 2023 commitments to AI/ML-based solutions come into play. The principle is well-understood and helps explain why spending on AI is forecast to surge, according to IDC’s Worldwide Artificial Intelligence Spending Guide released last September.
The firm forecast that ongoing incorporation of AI into a wide range of products will drive a compound annual growth rate of 26.5% during the 2022-2026 forecast period, with the retail and banking sectors responsible for the largest percentage of spending. IDC went on to note the AI spending growth rate is four times the 6.3% growth rate for worldwide IT spending over the same period.
AI investments fit within organizations’ larger digital transformation efforts, and this too is an area where IDC has released an aggressive forecast. Global spending on digital transformation is forecast to reach $3.4 trillion in 2026 based on the projection of a five-year compound annual growth rate of 16.3%, according to IDC’s Worldwide Digital Transformation Spending Guide.
It is worth noting that both the AI and digital transformation forecasts were made last fall as inflation was surging and it was well-understood that central banks were keen to increase interest rates to slow economic growth, possibly inducing a recession.
An Easy Choice at a Challenging Time
Even faced with the prospect of a recession, retailers will need to move forward with technology initiatives that improve their usage of data. Doing so is a business imperative that cuts across the enterprise because technology and data affect every aspect of a retailer’s operation.
While the severity and duration of a potential economic slowdown is unknowable, what is clear from history is that market leaders use periods of economic weakness to gain competitive advantage. In 2023 they will do so again by making smart technology choices that increase their ability to create value from data.
Retailers focused on improving productivity in 2023 are making bold moves with AI-powered solutions. Discover what’s possible when an integrated approach is applied to your organization’s data. Connect with an expert in AI and data integration today!