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Unlocking the Potential of Artificial Intelligence

How can Australian retailers focus on what matters in 2024? 

The retail industry in Australia is currently navigating a challenging landscape, facing pressure from declining consumer confidence and spending alongside rising operational costs. According to the Retail Health Index of December 2023, the industry experienced its first increase in activity since the third quarter of 2022 during the September 2023 quarter. However, consumer sentiment during this period dropped to levels last seen during the peak of the 2020-22 pandemic, even lower than those during the 2008 Global Financial Crisis. The Producer Price Index for the September 2023 quarter indicates a 3.8% year-on-year increase in production costs, exacerbated by a 5.1% devaluation of the Australian dollar against the US dollar from January to August 2023, and a strong annual wage growth of 4.2%. Moreover, the sector’s productivity growth has stagnated at just 0.1% for the fiscal year 2022, a significant drop from its 10-year average of 1.7% growth and below other sectors in the Australian market. Addressing these macroeconomic challenges requires retailers to focus on controllable aspects such as end-to-end cost reduction, revenue enhancement, and maximising operational and capital expenditure returns.

Cost reduction strategies should go beyond broad measures like market and product analysis, instead focusing on operational model, balance sheet, and supplier management optimization for immediate savings. Strategic supplier reviews can enhance product quality and demand, leading to better margins. As initial cost-saving measures show results, further enhancements in organizational design and operational efficiency should be explored.

Shrinkage, exacerbated by economic pressures, has emerged as a critical issue, with significant impacts on profitability. Innovative inventory management and process optimization can mitigate shrinkage without additional security expenses, improving the bottom line.

A comprehensive business strategy that assesses inventory management, process gaps, and technological improvements can uncover significant savings opportunities. Operational enhancements, though seemingly minor, can cumulatively lead to substantial financial benefits. Addressing shrinkage alone can significantly improve margins and sales, emphasising the importance of a holistic approach to cost management during economic uncertainties. This strategic focus not only yields immediate benefits but also positions retailers for long-term success.

Retail Media: What’s it about?

Recent projections indicate that retail media could represent a significant global opportunity worth $180 billion, with Australian retailers poised to generate approximately $1.2 billion in revenue over the next five years.

Retail media essentially involves leveraging a retailer’s physical, digital, and data assets to sell advertising space to both existing suppliers and adjacent categories, aiming to increase revenue opportunities.

The allure of retail media lies in its potential to create a mutually beneficial ecosystem for both retailers and their partner brands, offering them access to targeted, engaged audiences. This potential has led some to refer to retail media as the sector’s latest trend. Leading Australian retailers, such as David Jones and Woolworths, have already ventured into this space by either establishing dedicated retail media units or forming partnerships with specialists to facilitate these operations. While the prospect of additional revenue streams is enticing, it’s crucial for retailers to carefully evaluate this opportunity, ensuring it aligns with their business model and core operations before exploring possible applications.

Key considerations for retail media success include customer dwell time, audience reach, and frequency of engagement. These elements are vital in creating an environment where advertising is more likely to be effective, thereby providing value to potential advertisers. The scalability of retail media revenue also hinges on several factors, including the required investment to set up and operate a media network, the approach taken (whether conservative or ambitious), and the extent of integration into omnichannel strategies.

Establishing a retail media operation demands significant expertise and an overhaul of traditional retail operating models to function effectively like a publisher. Essential steps include enhancing reporting capabilities, auditing and digitizing assets, optimizing performance, considering partnerships for core operations, and developing comprehensive retail media and ad tech skills. Additionally, it’s important to refine trade marketing accounting practices to prevent revenue dilution.

A notable hurdle for traditional retailers is the rapid technological advancements in retail media, which may surpass their investment capabilities, potentially creating a gap between the concept and actual delivery capacity. This gap might be bridged through strategic partnerships, leveraging synergies across brands to achieve economies of scale. With the critical role of first-party data in retail media, retailers must stay abreast of regulatory changes in data management to safeguard their reputation and customer experience.

Retailers considering entering the retail media space should conduct thorough data compliance audits and seek early advice to ensure they meet ongoing regulatory requirements. It’s also wise to assess whether retail media could cannibalize existing marketing revenues or attract new suppliers and brands.

In summary, the decision to pursue retail media should be approached like any strategic business decision, weighing the potential risks and rewards. For retailers with a broad reach, substantial volume, and robust data protection measures, retail media offers a tangible opportunity, albeit one that requires careful consideration and strategic planning.


Unlocking the Potential of Artificial Intelligence

We’re entering the artificial intelligence (AI) era, transforming how we live and work. For retailers, the challenge is harnessing AI to excel in this new era.

The past challenges of 2020-2022 seem distant as retail and travel flourish again. The introduction of ChatGPT has been a game-changer, enabling us to explore its capabilities from creating greeting card messages to composing music and artwork.

AI’s potential in the consumer and retail sector is immense, enhancing customer experience, commercial effectiveness, operational efficiency, and cost optimization.

Retailers are leveraging AI chatbots for customer service, providing human-like interactions across multiple channels and supporting customer service teams.

AI improves operational efficiency by optimizing inventory based on customer preferences and automating ordering processes using data-driven insights.

Machine learning and data analytics enhance forecasting accuracy for site performance, product demand, and sales margins.

ChatGPT demonstrates the potential of AI in retail, automating tasks that require human judgment.

Despite AI’s early successes, many organisations are still exploring how to fully leverage it for business value.

A survey of 300 executives revealed that 77% believe generative AI will significantly impact their business in the next 3-5 years. In the consumer and retail sector, 66% plan to use AI for customer data analysis and personalised recommendations, while 64% for inventory management trends, and 40% for competitive pricing strategies.

However, only 23% of consumer and retail organisations have a dedicated team for generative AI, compared to 31% across all sectors, indicating a slow adoption rate.

The adoption of AI in retail is accelerating, and businesses need to prepare for its effective use.

AI applications in retail include:

  • Customer Service:
    • Agent assistance to reduce call times
    • Omni-channel support for seamless customer journeys
    • Proactive logistics support for delivery updates and adjustments
    • In-store monitoring for process efficiencies
  • Supply Chain:
    • Enhancing supply chain resilience and demand forecasting
    • Optimising freight routes and inventory allocation
  • Inventory Management:
    • Space and inventory optimisation
    • Automated restocking based on demand indicators
    • Dynamic price matching
  • Buying and Forecasting:
    • Accurate demand forecasting
    • New product introduction and sales analysis

Starting Your AI Journey:

  1. Organise your data to create a solid foundation for AI.
  2. Develop a responsible AI framework addressing ethical concerns.
  3. Prioritise use cases for quick experimentation and learning.
  4. Invest in the right mix of business and technical talent to drive your AI initiatives forward.

By focusing on these areas, retailers can unlock AI’s full potential to enhance operations, customer service, and business growth.

Did You Know …

Integrating your local products with Google is easy using a Shopify app.

Your in-store products can appear in free listings across Google properties, including Google Search, Google Images, the Shopping tab, Google Maps, and Google Lens.

We’re working with retailers who have local brick-and-mortar stores around Melbourne.

What do you need?
An automatic feed to Google via their Merchant Centre.

Brave can help you get this set-up via any ecommerce store.

Call Mike on 0419 810 727 to get the ball rolling.

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