Kay Firth-Butterfield

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The Risks and Benefits Of Technologies Transforming Retail

When you deploy AI there are risks as well as benefits - companies must manage their innovations to reap the rewards.

Written by Kay Firth-Butterfield

This article was published on The Innovator and you can read the original copy here. It is content that would normally only be available to subscribers. Sign up for a four-week free trial to see what you have been missing.

During this week’s South by Southwest conference the Chief Strategy Officer of BioMADE showed the audience a T-shirt created out of captured carbon emissions. The company behind this revolutionary fabric is LanzaTech, a World Economic Forum Technology Pioneer and winner of a 2023 TIME 100 Climate award. It is among a growing group of companies using new technology to change manufacturing and retail.

LanzaTech captures carbon emissions from steel mills, traps them in bioreactors and converts them into the same building blocks used to make conventional polyester. The approach helps reduce pollution and limits the use of virgin fossil resources needed to make new products for retailers like Adidas and H&M.

By the end of the decade, synthetic biology could be used extensively in manufacturing industries  that account for more than a third of global output—representing nearly $30 trillion in terms of value—according to a study conducted by the BCG Henderson Institute (BHI), Boston Consulting Group’s think tank.  Due to real-time data collection,automation, and AI some industries are closer to feeling the impact than others. According to BHI’s projections, incumbents in sectors such as health and beauty will be increasingly challenged by synthetic biology rivals in the next five years. Other industries, such as textiles and fashion, will face cost-based competition from synthetic biology alternatives in the medium run. Like Lanzatech, other synthetic biology start-ups are engineering more sustainable products that consume fewer resources, such as land and water, and don’t use fossil fuels and their derivatives. These products are also more durable, generate less waste after use, meeting growing consumer demand for greener products.

AI can also help retailers reduce their environmental footprint. Globally, research in 2019 showed that 17 billion defective items were returned to source that year. This equals 4.7 million metric tons of CO2 emitted annually on items that no one wants. Just a 10% reduction in such waste could power about 57,000 U.S. homes for a year. This will show a year on year growth. A solution to this problem is the deployment of AI-powered computer vision in factories. AI is very good at pattern matching and therefore very good at catching defects in products. If these products aren’t shipped it not only saves on carbon emissions but also increases customer confidence.

Changes don’t stop with more sustainable manufacturing.  Going forward, artificial intelligence will be at the core of every future retail transformation, according to BCG. Retailers need to modernize their commercial, operational and supply chain functions to build for that future.

Indeed, many of today’s leading fast-fashion companies are turning to artificial intelligence to help track inventory levels, analyze historical data, understand what customer demand will look like in the future, understand sales data and cut down on operational costs.

AI is also increasingly being used in customer-facing applications. For example, Amazon One, a payment system offered by Amazon, offers an alternative to shoppers who want to buy things without carrying a wallet or credit card. AI technology reads a customer’s palm and compares it with a database. As all palms are different this is a potentially very secure method of payment, provided the data itself cannot be hacked. Initially used in just Wholefoods, Amazon has now started selling the technology to other retailers.

Amazon One’s approach sidesteps some of the ethical questions surrounding the use of AI-powered facial recognition to enable people to pay for items. Hotels and luxury brands may be interested in experimenting with the use of facial recognition to provide superior service to valued customers. One can imagine the technology being used to alert sales staff or reception when a valuable customer enters. This use case, in a private space, avoids violating regulations on facial recognition but companies should think carefully about consumer reaction. Consumers have had mixed reactions to the use of AI to monitor shopping habits or to offer deals on items which customers are ‘seen’ considering in-store.

See also: AI and Cancer – AI in Healthcare

Some retailers have adopted augmented reality (AR) technology to help consumers visualize how clothing would look on their own bodies. For example, Walmart introduced its Be Your Own Model experience that allows users to virtually try on clothing using their own photographs and AR tech. Others, such as Levi Strauss, have experimented with using AI to create models with diversity of race and body type so that its customers could see the clothes modelled by ‘people like them’, only to meet with a consumer backlash due to concerns that the use of the technology would enable the scaling back of its use of real models or replace the company’s diversity, equity, and inclusion commitments. It’s an example of how AI video manipulation is a real concern for consumers.

AI powered-chatbots are also being introduced to deal with customer service issues. This can backfire, as Air Canada found when a customer sued after being given wrong information by a hallucinating chatbot. The courts ruled in the customer’s favor. I highly recommend companies review The World Economic Forum report Chabots RESET ,which provides useful guidelines for good design of conversational AI. The advice in report, which focuses on the highly regulated healthcare sector, is applicable across sectors.

Risks Versus Benefits

No matter how you decide to use these technologies, customer trust is key so you should be very mindful of the risks they bring along with their benefits. For example, as the North American CEO of Accenture noted on one of my panels during the Forum’s annual meeting in Davos, we are increasingly seeing deployments of AI dismantled because the right Responsible AI measures were not put in place from the beginning. This is, of course, extremely costly. It used to be that companies didn’t know what governance measures would be applied to AI but with the EU AI Act, the Biden Executive Order, Chinese regulation, and burgeoning governance mechanisms required by other governments like Brazil and India, this is no longer a valid argument.

Not just retailers but all companies will need to create a set of principals against which their use of new tech, especially AI, is measured. Those principals should include customer privacy, fairness, accountability and explainability of use and more. With customers trust in AI and those who use it plummeting it would be foolhardy to not use Responsible AI foundations. Those principles need to be put into practice. Start by mapping where AI is being used in the company and then use a framework, such as NIST’s or the EU AI Act, to ensure you are  in compliance. It is also important to educate all employees. Many companies now require employees to take a 101 AI course which enables them to understand where their use of AI might be a risk to the company.

In the retail sector the use of facial recognition, chatbots, AR interactions with customers as well as customer privacy when handling data, all include risks. The 2024 Edelman Trust Barometer found that 43% of respondents will reject AI, avoiding products and services that incorporate it, if they believe innovation is being managed poorly. As the report rightly notes, mismanaged innovations are as likely to ignite backlash as advance society or for that matter, your business.

This article was published on The Innovator and you can read the original copy here. It is content that would normally only be available to subscribers. Sign up for a four-week free trial to see what you have been missing.

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