How AI can help small retailers maximize holiday sales and revenue

The shopping frenzy is about to begin. It is that time of the year when customers start their holiday shopping. The celebratory mood of the holiday season kicks in while the purse strings loosen, and personal spending (and purchases for gifting) reaches an all-time high.

The floodgates open with Black Friday, which is one of the oldest and most popular shopping events of the year in the US. Its origins can be traced back to the early 1960s in Philadelphia [1], when streets got clogged with suburban tourists coming into the city for their holiday shopping on the day after Thanksgiving. This chaotic event caught everyone's attention, resulting in the name "Black Friday." By the 1980s, retailers started marketing around it with the "red to black profit" narrative throughout the US. And it became the day for stores operating at a loss (red) to attain maximum profit (black). Recently, other events have joined Black Friday, such as Small Business Saturday, Small Business Sunday, Cyber Monday, etc.

For small retailers, the holiday season marks the beginning of a challenging period of high-intensity shopping activity. Reports from Statista indicate that even in pandemic-stricken market conditions, retail and e-commerce holiday sales in the United States were around 185 and 206 billion USD [2], respectively. These are impressive numbers amidst various disruptions and other pandemic-induced constraints. Even though the situation has improved now, new worrying factors have emerged: economic uncertainty and the threat of recession [3].

However, market indicators remain largely positive for the 2022 holiday season. Forecasts suggest that consumer spending will remain strong. Based on data from an industry report [4], the online sales projection for the holiday period is approximately 210 billion USD. The report also indicates that the 2022 BFCM (Black Friday & Cyber Monday) will be the busiest shopping event during this period.

Naturally, with more shoppers, competition among sellers will intensify. And to complicate matters further, the retail giants have the lion's share of the market and the resources to cope with this dynamic environment. So, how can small retailers overcome this competition and win the holiday season? The answer is Artificial Intelligence (AI).

Here are some of the ways in which AI can empower small retailers this holiday season:

Hyper-Personalization
Pricing Optimization
Inventory Planning & Supply Chain Management

#1. Hyper-Personalization:

Hyper-personalization is an advanced strategy for brands to create authentic interactions and deliver a seamless experience to the customer. It was the winning formula for big e-commerce players all these years. But, with the increased popularity and availability of technologies like AI and Machine Learning (ML), even small retailers can look to tap into its potential. And in a busy holiday period, hyper-personalization will be a competitive advantage.

Intelligent ML models developed using AI, data science, and marketing analytics can help small retailers in different ways. From running highly targeted advertisements to creating dynamic webpages, interactive chatbots, and smart product recommendations, AI and analytics can deliver hyper-personalization on multiple levels. According to a survey conducted in the US, 81% of shoppers preferred brands with personalized products, services, and experiences [5]. With hyper-personalization, brands can increase clickthrough rate and boost their average order value (AOV) while building loyal and long-lasting relationships with customers.

Let us look at some examples of hyper-personalization:

A British digital retailer leveraged users’ location information and combined it with real-time weather data to deliver highly personalized content. This strategy helped the company boost audience conversion rates and overall ROI (return on investment) [6].
One of the largest beauty retailers in the world developed personalized email campaigns powered by individual data and analytics. This campaign increased the open rates by 80%, resulting in improved revenue and customer engagement [7].
A French apparel retailer tackled the issue of abandoned carts with a highly personalized push notification campaign. This campaign resulted in a higher clickthrough rate when compared to classic mobile ads [8].

#2. Pricing Optimization:

Pricing is a key differentiating factor that determines success during the holiday season. In the post-pandemic market, when consumers are concerned about inflationary threats, companies need to devise a pricing strategy that is consumer-centric. With data-driven pricing models that boost revenue without impacting customer loyalty, small retailers can use this holiday period to their advantage and capture a significant share of the market.

Traditional pricing optimization methods are too complex to implement. Also, they cannot incorporate multiple cost factors at the same time, making them outdated. AI-based pricing optimization uses competitor and historical data combined with real-time market insights to deliver dynamic pricing strategies.

How can AI improve pricing:

AI can help find a higher price point without impacting sales. It can easily encompass concepts like demand elasticity for a specific product to recommend an optimal price for generating higher margins. For example, a large European retailer uses AI-enabled predictive pricing to ensure shoppers always receive the best discount with different products and assortments .
AI can integrate dynamic factors to deliver optimal prices. It can factor in different aspects of the market dynamics to formulate the best price. An online marketplace in the hospitality segment applied AI prediction models for optimizing service prices by integrating variables like seasons, local events, and much more.

#3. Inventory Planning & Supply Chain Management:

The pandemic years were marked by supply chain crises and poor inventory planning, and all the major players were directly impacted as a result of these setbacks. Shopping data from an industry report highlights that out-of-stock messages on US retail sites increased by about 250% in 2021 compared to the pre-pandemic period [9]. On the other hand, there was a 21% increase in overstocking of inventory, with the fiscal figures sitting at a record of 732 billion USD [10].

Now that the market is slowly recovering, holiday customers will expect drastic improvements in those two aspects. For small retailers, this is the perfect time to cash in on the opportunity. With AI and automation, they can enhance inventory planning and supply chain management. AI technology can deliver crucial insights on industry demand forecasts while ensuring maximum supply chain visibility to eliminate stockouts and overstocking.

How can AI-powered inventory planning and supply chain management help retailers:

One of the largest department stores in the US used an AI tool to reinforce inventory management and create a world-class supply chain network. With the tool, the company achieved higher profit margins while ensuring a seamless customer experience [11].
A renowned US clothing company has developed a proprietary AI engine to overcome problems impacting its supply chain and distribution networks, thereby streamlining e-commerce fulfillment [12].

Can Small Retailers Afford AI?

According to Statista, the global AI market will reach over half a trillion US dollars by 2024 [13]. The AI paradigm has shifted. From a futuristic technology, AI has become a must-have capability. But how plausible is it for small retailers operating on a limited budget to adopt high-cost AI technology?

Instead of performing every process manually, segregate tasks or elements with the most evident impact for the holiday season. It could be anything from delivering a personalized user experience to building dynamic pricing models or preventing overstocking and stockouts. Small retailers can rely on the power of data and analytics to achieve greater efficiencies, fewer errors, and maximum profits.

Small retailers frequently make the mistake of taking a top-down approach and attempting to improve every aspect of their business all at once. They must instead look at their business objectives closely and scope out the individual elements that AI solutions can significantly improve. By starting with specific elements and scaling periodically, small retailers can achieve organizational-level AI integration eventually. And this holiday season is the perfect time to get started.

Bibliography:

[1] Vaughan, Don. “Why Is It Called Black Friday?” Encyclopædia Britannica, 2020. https://www.britannica.com/story/why-is-it-called-black-friday.

[2] “Holiday Season E-Commerce in the United States.” Statista, December 2022. https://www.statista.com/study/11860/us-holiday-season-e-commerce-statista-dossier/.

[3] Group, World Bank. “Risk of Global Recession in 2023 Rises amid Simultaneous Rate Hikes, World Bank.” World Bank, September 16, 2022. https://www.worldbank.org/en/news/press-release/2022/09/15/risk-of-global-recession-in-2023-rises-amid-simultaneous-rate-hikes.

[4] Grothaus, Michael. “Black Friday and Cyber Monday Are Coming: These Are the Hottest Gifts for 2022.” fastcompany.com, October 10, 2022. https://www.fastcompany.com/90794176/black-friday-and-cyber-monday-are-coming-these-are-the-hottest-gifts-for-2022.

[5] Cloud, Google. “3 Technology Tips to Help Retailers Triumph This Holiday Season.” Retail Dive, October 17, 2022. https://www.retaildive.com/spons/3-technology-tips-to-help-retailers-triumph-this-holiday-season/633238/.

[6] Jaekel, Brielle. “Don’t Miss Tomorrow’s Retail Industry News.” Retail Dive, 2017. https://www.retaildive.com/ex/mobilecommercedaily/very-co-uk-rolls-out-unique-weather-data-driven-ad-campaign.

[7] Insights, WBR. “Sephora’s Ecommerce Strategy from AR, AI to Email and Mobile.” eTail Canada 2024, 2019. https://etailcanada.wbresearch.com/blog/sephora-ecommerce-strategy-ar-ai-email-mobile.

[8] Patel, Neil. “How 7 Companies Are Using Push Notifications to Boost Engagement.” Neil Patel, July 15, 2021. https://neilpatel.com/blog/push-notifications-to-boost-engagement/.

[9] Team, Adobe Communications. “Shoppers Have Seen over 2 Billion Out-of-Stock Messages Online (October 2021).” Adobe, September 11, 2021. https://blog.adobe.com/en/publish/2021/11/09/adobe-shoppers-have-seen-over-2-billion-out-of-stock-messages-online-october-2021#gs.jdtygx.

[10] “Retailers’ Stockpiles Mean Deep Holiday Discounts Starting Now.” The Washington Post, October 11, 2022. https://www.washingtonpost.com/business/2022/10/10/discounts-inventory-excess-retailers-economy/.

[11] Chou, Zachariah. “Kohl’s CTO on Empowering People and Optimizing Supply Chain with AI.” venturebeat.com, July 21, 2021. https://venturebeat.com/business/kohls-cto-on-empowering-people-and-optimizing-supply-chain-with-ai/.

[12] Berthiaume, Dan. “Levi’s Optimizes e-Commerce Fulfillment with Ai.” Chain Store Age, August 22, 2022. https://chainstoreage.com/levis-optimizes-e-commerce-fulfillment-ai.

[13] Thormundsson, Bergur. “Artificial Intelligence Market Size/Revenue Comparisons 2022.” Statista, October 26, 2023. https://www.statista.com/statistics/941835/artificial-intelligence-market-size-revenue-comparisons/.