Generative AI will create new revenue for leading retailers.
Two retailers will account for close to 40% of an expected windfall from radical industry transformation caused by artificial intelligence (AI).
The top 212 North American public retailers and restaurants could see over $1.5 trillion in additional financial impact through 2029, with Amazon and Walmart expected to account for more than $580 billion, or 38.5% of the total, according to the new Retail AI Readiness Index from analyst firm IHL Group.
Slightly less than half of this value will be created by generative AI, which is based on machine learning (ML), can create new content and ideas, including conversations, stories, images, videos, and music.
“AI is already transforming the retail market behind the scenes with traditional AI/ML improvements. Generative AI simply adds rocket fuel to that potential financial impact,” said Greg Buzek, president of IHL Group. “This financial impact is a factor of the company’s data and structural readiness to take advantage of the advancements as well scale and free cash flow to invest in the technologies. The real exponential impact comes when generative AI is added onto the hard work companies have done to clean, tag and manage their core data in customer, inventory and product data for traditional AI/ML applications.”
The Retail AI Readiness Index provides an AI readiness score comparison as well as potential financial impact for individual companies from sales growth, gross Margin improvement, and sales/general administrative cost improvement.
The research includes rankings for the top seven companies in the following segments: Fast Moving Consumer Goods (Grocery, Mass Merchants, Warehouse Clubs), Apparel/Shoes, Hard Goods (Home Improvement, Electronics, Pets, Sporting Goods, Furniture), Health and Beauty (Pharmacy and Cosmetics), Restaurant Chains (Fast Food and Table Service) and Pure Play E-commerce companies (those with all online sales or few physical stores compared to total sales), as well as a listing of 212 public companies in total.
Generative AI will have $9 trillion impact on retail
According to another recent forecast from IHL Group, while currently representing only 9% of the overall retail industry financial impact in 2023, generative AI will account for 78% of the total financial impact by 2029 and a total of $4.4 trillion during that year.
IHL analysis indicates the benefits of generative AI will stem from three primary areas: increased sales (51%), improved gross margins (20%), and lowered selling and administrative (S&A) costs (29%).
Through 2029, IHL’s forecast predicts that 47% of the benefits of cumulative impact of AI will come from traditional AI/ML technologies in closed systems, 48% from generative AI functions, and 5% from artificial general intelligence tools which will become available later in the decade.