Retail IT leaders considering leveraging AI investments to potentially add more gold to the golden quarter should look before they leap. Start with these 3 need-to-knows for AI-ready IT that won’t leave you penniless.
Artificial intelligence (AI) has long been a hot topic in retail but has now become a pivotal factor as retailers compete to showcase their innovative edge. And with good reason: According to research from the IHL Group, retailers that use AI enjoy more than twice the sales growth and nearly three times the profit growth compared to competitors. That’s why successful companies ranging from Estee Lauder to Marks & Spencer, Sephora and John Lewis are all investing in AI, moving fast to expand market share, generate customer loyalty, and drive revenue.
Estee Lauder, for example, is expanding their use of Google Cloud’s Generative AI capabilities to power real-time consumer sentiment and feedback monitoring. Marks & Spencer is deploying AI-based computer vision from SymphonyAI on handheld devices for instant views of store shelf program compliance. Sephora uses several types of AI, including natural language processing, machine learning, and computer vision, all of which are combined to bridge the gap between offline and online customer experiences.
The next ‘Golden Quarter’ may feel like a long way off, but retail CIOs know they must get ready now if they are to realize the potential benefits that AI can offer. And that starts by answering the question: How quickly can we leverage our core IT systems to be ready for AI?
Three steps toward AI readiness, faster and with less hurdles along the way
Backoffice enterprise applications can be a rich source of insights for AI tools that tap these vast amounts of data, but data must be accurate, complete, and free from bias to avoid misleading predictions and decisions. If retailers are to successfully leverage AI, they must first ensure these core systems are “AI ready” which—in addition to addressing data quality issues—entails reducing technical debt, ensuring seamless interoperability, and generating real-time insights.
Some ERP vendors might say the best way to solve these challenges is through upgrades or complete system reimplementations, but such vendor-driven approaches don’t necessarily equate to modernization or transformation. It’s important to first take into consideration three steps to ensure your core IT systems are prepared to maximize the value that AI can deliver:
- First, know the difference between mission-critical and strategic systems. Mission-critical applications run core business processes such as HR, finance, and payroll. While they must remain operational, they are not what separates you from your competitors. Strategic systems, on the other hand, help deliver competitive advantage, such as Sephora Virtual Artist, an augmented reality feature of the Sephora mobile app which allows customers to try on make-up, or Uber Eats new Sales Aisle, an AI powered virtual assistant to help users find deals and explore different food options. Retailers can leverage new, emerging AI tools by “innovating around the edges” of their mission-critical applications—an approach Gartner calls composable ERP—and remain focused on a business-driven IT roadmap instead of vendor upgrade or reimplementation mandates. This can equate to a faster, easier path to innovation with greater flexibility, all of which can go out the window when you lock yourself into a contract that requires unneeded resources constraints of people, time and money and locks you into the vendor trap.
- Second, consider the hidden costs of moving to the cloud. There can be significant (and sometimes hidden) consequences to cloud reimplementation. For starters, you may lose your customizations; how might that impact your business processes? Do you have the requisite skills in-house to operate cloud-based environments? As my colleague David Rowe, chief product officer & EVP, global transformation asserts, “There are a few things enterprises must consider carefully before they adopt the cloud — things like the risks of vendor lock-in, the pressure of migration mandates, and security and compliance issues.” A recent CIO Dive article entitled, “Half of cloud transformations are ‘abject failures’” cites research from HFS that finds 65% of organizations have made strategic investments in cloud, but only 32% are achieving their ambitions. And according to research from CloudZero, cloud costs are higher than expected for 6 in 10 organizations, and 7 out of 10 companies aren’t sure what they spend their cloud budget on.
- Third, use the opportunity to turn IT into a profit center. Historically, IT has been viewed as a cost center, using precious and limited budget to keep systems running. In a sector like retail, where margins and investment funds are tight, acknowledging that IT should be viewed as a profit center is critical. This means allocating IT spend where the business has a clear return on investment. And for retailers, ROI is of paramount importance. A recent Upside survey finds cost among the biggest challenges retailers face, with 44% of retailers citing cost reduction as an immediate business priority—which is understandable, considering razor-thin margins: Q1 2024 data from CSIMarket for the retail sector shows a pre-tax net margin of just 1.42%.
Don’t buy into an overnight trend. Go for the gold, and go for the distance.
Given the volume and velocity of AI news today, it’s easy to be enrapt by all the hype and rush to adopt AI to make the most of this year’s Golden Quarter. It is more important to take a step back and look at your overall IT strategy, as many moving parts can impact the effectiveness of AI tools.
This starts with adopting the mantra that IT investment must drive profitability and operational efficiency. This can only happen if your innovation is built on a solid foundation. Optimize your core applications and tune it to leverage the capabilities of AI tools. AI may be the new shiny toy in retail, but success depends on building a strategy from the ground up.
That’s how you ensure your Golden Quarter becomes your golden goose.
Learn more: Discover how Rimini Street independent, third-party support services can help retailers gain operational efficiency, maximize the value of current systems, and invest savings in transformative digital innovation.