The Rise of AI in Retail Industry: Enhancing Customer Experience and Boosting Sales

The Rise of AI in Retail Industry: Enhancing Customer Experience and Boosting Sales

Dorota Owczarek - April 23, 2023

Are you ready for the future of retail? Artificial Intelligence (AI) is revolutionizing the industry, offering retailers powerful tools to enhance the customer experience and drive sales. From personalized shopping experiences and chatbots that provide customer service, to computer vision that optimizes brick-and-mortar store layouts and product placement, the potential applications of AI in retail are staggering.

In this article, we’ll explore how AI is transforming the retail industry, the technologies and solutions being used, and the emerging trends that will shape the future of retail. Whether you’re a retailer, consumer, or simply interested in the future of shopping, this is an exciting time to be part of the retail industry. So, let’s dive in and explore the rise of AI in retail!


AI is transforming the retail industry by enhancing customer experiences, streamlining processes, and boosting sales, resulting in a more customer-focused and data-driven approach to business operations.

Key AI technologies in retail include computer vision for virtual fitting rooms, recommendation engines for personalized suggestions, predictive analytics for better inventory management, dynamic pricing for optimized revenue, and natural language processing for improved customer service.

AI applications in retail cover a wide range of areas, such as personalized shopping experiences, chatbots and virtual assistants for customer service, AI-powered recommendation engines, predictive analytics for inventory management, AI-powered visual search and product discovery, smart shelves and product tracking, and augmented reality for in-store experiences.

Emerging AI technologies help retailers understand their customers better by processing valuable customer data, optimize processes using machine learning to identify inefficiencies, and provide opportunities for automation, allowing employees to focus on more demanding tasks.

Stay ahead of the competition and enhance your retail business with AI solutions tailored to your needs. Contact nexocode AI experts today for professional insights and innovative solutions.

The Potential of Artificial Intelligence to Transform the Retail Industry

Can you remember when you actually had to know what to buy and where? When the prices wouldn’t change for months, the items would be only available on the particular store’s website, and if you wanted a refund, you had to go to the physical store. These standard aspects of retail changed radically, mainly thanks to artificial intelligence. 

While fuelling the profit for retailers, AI also makes customer’s life easier, facilitating purchases and providing them with bargain options. It brought online shopping to a new level, allowing brands to gain worldwide recognition without opening up a physical store in various locations and reach different targets that would otherwise remain unreachable. At the same time, it permanently changed our habits, getting us accustomed to recommendations and online shopping procedures, including delivery. All while using these habits to maximize the probability of the purchase.

It’s just the beginning of that process, which accelerated during the pandemic and hasn’t stopped gaining momentum ever since. In the future, AI will continue shaping retail, not only in terms of online but also offline experiences. Here’s our recap of the most captivating applications of AI in both these areas.

Technologies & Solutions Used for AI in Retail

While you may associate AI in retail mainly with dynamic pricing, its innovative potential reaches various other areas. The technologies below transform the online and offline shopping experience, allowing users to buy whatever they like, wherever they like, at a favorable price and ensure the purchase matches their needs 100%.

Computer Vision

Apart from streamlining supply chain operations, which results in faster delivery, computer vision can also impact the way we shop and increase the expansion of the online retail sector. It is already revolutionizing the online customer experience in the clothing sector, removing the ultimate barrier for online shopping skeptics - how will I look wearing that? 

In the virtual fitting rooms, the customers can try on the clothes after the webcam scans their bodies to create the 3d 360 degrees models. That process involves computer-vision-based AR technology, a branch of AI providing immersive experiences. Similar computer-based solutions are used by hair and makeup companies, enabling customers to check virtually what’s their best fit. 

Recommendation Engines

Today, recommendation engines are everywhere, suggesting us all kinds of content - from music, through social media posts, to retail items - based on our personal data and behavioral patterns. While they make our life easier (or the opposite, depending on how you put it, as they may make you spend much more than you planned), for retailers, they are a true goldmine. Since the algorithms can understand what you like and recommend it to you, the probability of the purchase goes much higher. 

There’s more to it - the retailers can also feed the recommendation engines with data on your personal habits to maximize the probability of the purchase. For instance, if you show a pattern of purchasing things at a particular time, the algorithm will pick it up. Plus, if it notices some special event in your calendar is coming - like a birthday, vacation, or wedding - it will recommend fitting items.

Predictive Analytics

With predictive analytics that are often a part of retail solutions, retailers can understand how their decisions and market trends impact their business. This empowering tool serves them for various purposes, including: 

  • customer segmentation - by analyzing customer behavior and identifying the patterns with predictive analytics, the companies can divide the customers into groups and adjust the recommendations and communication on this basis;
  • inventory management - predictive analytics helps businesses to understand the real-time demand and availability of their items and predict the fluctuation of demand in the future, optimizing their inventory to predict those changes;
  • revenue forecasting - using real-time and historical data, they can combine such indicators as market trends and buying patterns to predict revenue and make informed business decisions on this basis.

How predictive analytics models are built and work on historical and current data to create predictions?

How predictive analytics models are built and work on historical and current data to create predictions?

Dynamic Pricing

The dynamic pricing strategies enable retailers to maximize their demand, using time opportunity and customers’ personal traits to find the highest price point they are willing to pay while keeping the probability of the purchase high. Retailers can construct their dynamic pricing strategy in various ways, focusing, for instance, on inventory, value, costs, competition, or demand. Retail marketplaces, which grew big in the last decade, have popularized dynamic pricing, allowing retailers to automate the pricing process and enjoy the opportunities flexible prices provide.

NLP (Natural Language Processing)

Natural language processing is a branch of artificial intelligence that enables machines to comprehend human language - in a written, but also a spoken form. It has become a foundation of various tools commonly used today, including generative models like ChatGPT or Bard. In retail, natural language processing finds its application mainly in customer service. 

Considering its specifics (purchase processes, delivery, returns), retail is customer request-intensive, and NLP can support the customer agents in solving various tasks, for instance, in the form of chatbots. NLP also enables retailers to carry out sentiment analysis in order to draw feedback from various channels and use it for optimization.

Applications of Artificial Intelligence in the Retail Industry

Having already discussed various branches of artificial intelligence in retail, let’s now move to real-life specific examples that can help you understand the potential of AI in this industry.

Personalized Shopping Experiences With AI

AI in retail is all about understanding you as a customer and using these insights to make you buy more. Personalized shopping experiences are designed based on your historical and real-time data, creating a funnel that will likely lead you to a finalized purchase. Various elements can constitute it, depending on the retailer’s choice - from personalized ads newsletters, and push notifications, through customized product categorization and recommendations to special offers tailored to customer preferences and tastes. It’s hard not to succumb to this personalized experience - the brand gains your confidence little by little, and before you know it, your purchase is finalized!

Chatbots and Virtual Assistants for Customer Service

As the development of NLP is gaining momentum, chatbots are becoming much better at understanding human questions and requests, but also the sentiment behind them. They can thus carry out the conversation in a more natural way, saving customers some frustration. Retailers rarely decide to replace the human customer service department with bots - and actually, many countries, like Spain, are introducing laws that provide the customer with the right to require a human consultant. However, chatbots can take over less complex or often repeating problems, saving consultants a lot of time and allowing them to focus on more demanding tickets. That, of course, results in better productivity.

AI-Powered Recommendation Engines

Good recommendations are the key to high margins, whether you run a marketplace or have your own shop. Based on what the customer viewed previously, the algorithms can identify the items they are most likely to purchase and recommend them to them, increasing the cart value. If they combine the viewing data with customer behaviors (what do you buy the most and when, what are the aspects that stop you from buying), the probability of purchase increases even more. Pair it with the price estimated based on your data and real-time factors, and the purchase probability skyrockets.

Predictive Analytics for Inventory Management

Retailers can use predictive analytics to understand the fluctuations in demand and adjust their supplies to the forecasts in order to prevent overselling or overstocking and optimize the usage of warehouse space. Many retail companies incorporate these insights into their pricing strategy, manipulating the prices to stimulate the sales of overstocked products or, on the contrary, decelerate the sales of these in the highest demand to refill the stocks.

AI-based replenishment software with forecasting options that automatically trigger restocking orders

AI-based replenishment software with forecasting options that automatically trigger restocking orders

AI-Powered Visual Search and Product Discovery

Visual search creates new awesome possibilities for retailers, making it much easier to gain recognition. In a nutshell, this rapidly developing technology makes it possible to point your phone camera at a specific object and identify it, moving directly to the retailer’s shop. Whether it is the dress in the film you are watching or the item you are seeing on the street market, within a few seconds you can get to know what the product is and how to purchase it. It’s possible with the marriage of computer vision and other AI methods. 

Smart Shelves and Product Tracking With AI

While artificial intelligence changes the online shopping experiences, it can also help retailers improve the offline one while providing them with more control over their inventory. Smart shelves rely on computer vision, which processes the captured image in search of missing, misplaced, or damaged products and verifies their availability. That provides the retailers with the big picture, making it easier to manage the stock in a way that reflects actual demand. 

With the smart shelves systems, which involve cameras and AI-powered algorithms that process the image, they can also keep the aesthetics of the store under control, making the shopping experience better. Product tracking works in a similar way, often involving camera-equipped drones, but it allows the employees to track products in the inventory, streamlining the restocking operations.

Augmented Reality for In-Store Experiences

Online shopping is the new normal, but that doesn’t mean you cannot have a real-life-like in-store experience anymore. Augmented reality allows you to feel like in a physical store without leaving the house, experiencing the products and the environment brand is willing to create. The aim of AR implementation is to remove the obstacles that traditional shopping created - above all, the inability to fully see the product and verify its properties. At the same time, the brand has much more opportunities to sneak its branding in augmented reality than they have in the regular online store, and that aspect also may impact sales positively.

Optimizing Store Layout, Product Placement, and Planograms With AI

Using computer vision, stores can easily identify elements of the layout that are not in line with their visual guidelines. They can collect the sales results and customer feedback after introducing the changes in the layout and draw data insights from them with the machine learning algorithms for optimization purposes. Planograms serve a similar purpose as the smart shelves, providing the store managers with a big picture of the store. As a digital reflection of retail space, it shows them how and where the product should be placed. With AI technology, retailers can automatize their updates so that they include all the requirements and automatically adjust them to the changes in the company’s policy.

AI-Powered Supply Chain Management

Artificial intelligence can be used throughout the whole supply chain to find the optimal delivery routes in terms of time and expenses, shorten the delivery time, and improve cost-efficiency (fuel use, etc.) With artificial intelligence tools using predictive analytics, companies can predict demand and adjust the supply to these estimations, optimizing their business operations in terms of costs and inventory management. AI helps avoid deficits and overstocking, leading to better customer satisfaction and higher margins.

AI in Online Advertising and Marketing

Artificial intelligence can also serve retailers to improve the efficiency of their marketing efforts. Personalized advertising campaigns are an integral part of a tailor-made, seamless shopping experience, making it much more likely for the customer to finalize their purchase. Personalized ads use customer data - from the search query and the visited sites to location and demographic information - to make the displayed content more accurate and increase the probability of purchase. Retailers can adjust the communication based on segmentation to align with customers’ expectations and combine it with a personalized price estimated with a value-based method.

Streamlining Returns and Exchanges With AI

Returns and exchanges are inherent to retail business, and both these processes often rely heavily on AI. Retailers can speed up the processing of claims by directing them to chatbots which collect basic information about the return or exchange and verify whether it’s valid and in line with the company’s guidelines. With the support of particular algorithms, they can evaluate if the claim could be potentially fraudulent and whether it contains all the necessary elements/documents. Then, it’s time to fill up the information required to process the return, which can be done with the help of NLP. 

Returns process - You can optimize reverse logistics, cut on storage and distribution costs, and increase customer satisfaction through different reverse logistics examples that create a closed loop system: product reuse, reCommerce, repair, refurbishment, remanufacturing, parts recovery and recycling

Returns process - You can optimize reverse logistics, cut on storage and distribution costs, and increase customer satisfaction through different reverse logistics examples that create a closed loop system: product reuse, reCommerce, repair, refurbishment, remanufacturing, parts recovery and recycling

After the product is returned via a reverse supply chain, the warehouse unit can engage computer vision to automatically verify its state and check whether all the elements are present. At the same time, retailers can track data on the returns and exchanges - how much time it took to finalize the deal, was the help of the human consultant was needed, etc. - to evaluate the efficiency of these processes, crucial in terms of retention rate. 

Emerging Technologies and Their Potential Impact on the Industry

Artificial intelligence has an immense potential to further transform the retail industry, making it more data-driven and customer-focused. Here’s how retail as we know it today can benefit from employing AI-based solutions.

AI Helps Retailers Understand Their Customers Better

In the end, the secret of good sales is a good understanding of your target, and that is difficult to achieve without valuable customer data. Artificial intelligence allows retailers to process it and draw insights from it. These insights can serve for personalization purposes at any stage of a customer journey and building tailored experiences but also for improving the processes, offer, and products in order to maximize margins and solve such issues as abandoned carts, low conversion or low customer engagement or customer loyalty.

AI Means Optimized Processes

Aside from customer data, companies also have operational data at their disposal, and they can use AI to draw insights from them. Machine learning can find the processes that are not efficient enough and suggest changes based on the observed patterns, leading to better productivity. Whether it’s the supply chain, the sales process, delivery, or returns, there’s always something to improve! Many of these issues would not be possible to identify without AI-based analytics, but they would still impact the financial safety of the company.  

AI Provides Opportunity for Automation

By employing artificial intelligence, retail companies can increase their cost-effectiveness and optimize their use of resources, automating repetitive and labor-intensive tasks while the employees can focus on more demanding ones. Automation can cover customer service, supply chain management, quality control, and various other areas relevant to retail.

The Future of Retail is Here: Are You Ready to Embrace AI?

Artificial intelligence will continue to change the face of retail, providing retailers with opportunities to optimize their operations and maximize margins. However, in order to benefit from it, you need to fully understand the mechanisms behind it, the data you need to feed your model with, and different approaches to developing your model. As an experienced AI company, we can help you with that! Reach out to us so that we can talk about your idea.

About the author

Dorota Owczarek

Dorota Owczarek

AI Product Lead & Design Thinking Facilitator

Linkedin profile Twitter

With over ten years of professional experience in designing and developing software, Dorota is quick to recognize the best ways to serve users and stakeholders by shaping strategies and ensuring their execution by working closely with engineering and design teams.
She acts as a Product Leader, covering the ongoing AI agile development processes and operationalizing AI throughout the business.

Would you like to discuss AI opportunities in your business?

Let us know and Dorota will arrange a call with our experts.

Dorota Owczarek
Dorota Owczarek
AI Product Lead

Thanks for the message!

We'll do our best to get back to you
as soon as possible.

This article is a part of

AI in Logistics
51 articles

AI in Logistics

Artificial Intelligence is becoming an essential element of Logistics and Supply Chain Management, where it offers many benefits to companies willing to adopt emerging technologies. AI can change how companies operate by providing applications that streamline planning, procurement, manufacturing, warehousing, distribution, transportation, and sales.

Follow our article series to find out the applications of AI in logistics and how this tech benefits the whole supply chain operations.

check it out


Insights on practical AI applications just one click away

Sign up for our newsletter and don't miss out on the latest insights, trends and innovations from this sector.


Thanks for joining the newsletter

Check your inbox for the confirmation email & enjoy the read!

This site uses cookies for analytical purposes.

Accept Privacy Policy

In the interests of your safety and to implement the principle of lawful, reliable and transparent processing of your personal data when using our services, we developed this document called the Privacy Policy. This document regulates the processing and protection of Users’ personal data in connection with their use of the Website and has been prepared by Nexocode.

To ensure the protection of Users' personal data, Nexocode applies appropriate organizational and technical solutions to prevent privacy breaches. Nexocode implements measures to ensure security at the level which ensures compliance with applicable Polish and European laws such as:

  1. Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (published in the Official Journal of the European Union L 119, p 1); Act of 10 May 2018 on personal data protection (published in the Journal of Laws of 2018, item 1000);
  2. Act of 18 July 2002 on providing services by electronic means;
  3. Telecommunications Law of 16 July 2004.

The Website is secured by the SSL protocol, which provides secure data transmission on the Internet.

1. Definitions

  1. User – a person that uses the Website, i.e. a natural person with full legal capacity, a legal person, or an organizational unit which is not a legal person to which specific provisions grant legal capacity.
  2. Nexocode – NEXOCODE sp. z o.o. with its registered office in Kraków, ul. Wadowicka 7, 30-347 Kraków, entered into the Register of Entrepreneurs of the National Court Register kept by the District Court for Kraków-Śródmieście in Kraków, 11th Commercial Department of the National Court Register, under the KRS number: 0000686992, NIP: 6762533324.
  3. Website – website run by Nexocode, at the URL: whose content is available to authorized persons.
  4. Cookies – small files saved by the server on the User's computer, which the server can read when when the website is accessed from the computer.
  5. SSL protocol – a special standard for transmitting data on the Internet which unlike ordinary methods of data transmission encrypts data transmission.
  6. System log – the information that the User's computer transmits to the server which may contain various data (e.g. the user’s IP number), allowing to determine the approximate location where the connection came from.
  7. IP address – individual number which is usually assigned to every computer connected to the Internet. The IP number can be permanently associated with the computer (static) or assigned to a given connection (dynamic).
  8. GDPR – Regulation 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of individuals regarding the processing of personal data and onthe free transmission of such data, repealing Directive 95/46 / EC (General Data Protection Regulation).
  9. Personal data – information about an identified or identifiable natural person ("data subject"). An identifiable natural person is a person who can be directly or indirectly identified, in particular on the basis of identifiers such as name, identification number, location data, online identifiers or one or more specific factors determining the physical, physiological, genetic, mental, economic, cultural or social identity of a natural person.
  10. Processing – any operations performed on personal data, such as collecting, recording, storing, developing, modifying, sharing, and deleting, especially when performed in IT systems.

2. Cookies

The Website is secured by the SSL protocol, which provides secure data transmission on the Internet. The Website, in accordance with art. 173 of the Telecommunications Act of 16 July 2004 of the Republic of Poland, uses Cookies, i.e. data, in particular text files, stored on the User's end device.
Cookies are used to:

  1. improve user experience and facilitate navigation on the site;
  2. help to identify returning Users who access the website using the device on which Cookies were saved;
  3. creating statistics which help to understand how the Users use websites, which allows to improve their structure and content;
  4. adjusting the content of the Website pages to specific User’s preferences and optimizing the websites website experience to the each User's individual needs.

Cookies usually contain the name of the website from which they originate, their storage time on the end device and a unique number. On our Website, we use the following types of Cookies:

  • "Session" – cookie files stored on the User's end device until the Uses logs out, leaves the website or turns off the web browser;
  • "Persistent" – cookie files stored on the User's end device for the time specified in the Cookie file parameters or until they are deleted by the User;
  • "Performance" – cookies used specifically for gathering data on how visitors use a website to measure the performance of a website;
  • "Strictly necessary" – essential for browsing the website and using its features, such as accessing secure areas of the site;
  • "Functional" – cookies enabling remembering the settings selected by the User and personalizing the User interface;
  • "First-party" – cookies stored by the Website;
  • "Third-party" – cookies derived from a website other than the Website;
  • "Facebook cookies" – You should read Facebook cookies policy:
  • "Other Google cookies" – Refer to Google cookie policy:

3. How System Logs work on the Website

User's activity on the Website, including the User’s Personal Data, is recorded in System Logs. The information collected in the Logs is processed primarily for purposes related to the provision of services, i.e. for the purposes of:

  • analytics – to improve the quality of services provided by us as part of the Website and adapt its functionalities to the needs of the Users. The legal basis for processing in this case is the legitimate interest of Nexocode consisting in analyzing Users' activities and their preferences;
  • fraud detection, identification and countering threats to stability and correct operation of the Website.

4. Cookie mechanism on the Website

Our site uses basic cookies that facilitate the use of its resources. Cookies contain useful information and are stored on the User's computer – our server can read them when connecting to this computer again. Most web browsers allow cookies to be stored on the User's end device by default. Each User can change their Cookie settings in the web browser settings menu: Google ChromeOpen the menu (click the three-dot icon in the upper right corner), Settings > Advanced. In the "Privacy and security" section, click the Content Settings button. In the "Cookies and site date" section you can change the following Cookie settings:

  • Deleting cookies,
  • Blocking cookies by default,
  • Default permission for cookies,
  • Saving Cookies and website data by default and clearing them when the browser is closed,
  • Specifying exceptions for Cookies for specific websites or domains

Internet Explorer 6.0 and 7.0
From the browser menu (upper right corner): Tools > Internet Options > Privacy, click the Sites button. Use the slider to set the desired level, confirm the change with the OK button.

Mozilla Firefox
browser menu: Tools > Options > Privacy and security. Activate the “Custom” field. From there, you can check a relevant field to decide whether or not to accept cookies.

Open the browser’s settings menu: Go to the Advanced section > Site Settings > Cookies and site data. From there, adjust the setting: Allow sites to save and read cookie data

In the Safari drop-down menu, select Preferences and click the Security icon.From there, select the desired security level in the "Accept cookies" area.

Disabling Cookies in your browser does not deprive you of access to the resources of the Website. Web browsers, by default, allow storing Cookies on the User's end device. Website Users can freely adjust cookie settings. The web browser allows you to delete cookies. It is also possible to automatically block cookies. Detailed information on this subject is provided in the help or documentation of the specific web browser used by the User. The User can decide not to receive Cookies by changing browser settings. However, disabling Cookies necessary for authentication, security or remembering User preferences may impact user experience, or even make the Website unusable.

5. Additional information

External links may be placed on the Website enabling Users to directly reach other website. Also, while using the Website, cookies may also be placed on the User’s device from other entities, in particular from third parties such as Google, in order to enable the use the functionalities of the Website integrated with these third parties. Each of such providers sets out the rules for the use of cookies in their privacy policy, so for security reasons we recommend that you read the privacy policy document before using these pages. We reserve the right to change this privacy policy at any time by publishing an updated version on our Website. After making the change, the privacy policy will be published on the page with a new date. For more information on the conditions of providing services, in particular the rules of using the Website, contracting, as well as the conditions of accessing content and using the Website, please refer to the the Website’s Terms and Conditions.

Nexocode Team