How AI is changing the way we shop

AI is rapidly becoming a lifeline for businesses around the world, helping them to streamline operations, serve their customers better. Many retailers, in particular, are deploying generative AI this holiday shopping season in an effort to connect shoppers with the items they want and expedite the buying process. Joining us now, Eric Fish, HSBC Head of Retail and Apparel, U.S. Commercial Banking. We were just talking during the break about how my husband asked ChatGBT what we should buy for our son, and it was a very long list. How are retailers using this? How are they investing in it right now? There are definitely some real practical applications, some defensive. So there's been a lot of talk around theft. And so AI triggering cameras and finding suspicious activity, identifying things to look at. If you think about a regular retail store, six, eight to 20 cameras, no one can monitor all those at the same time. So that's one element. On the other side, on the sales side, there's AI that's tracking and heat mapping the way people flow through a store, where you actually glance, where you're reaching out for product. And so helping retailers better position products. And then certainly on the conversational customer service side. So when you chat, that chatbot is getting better and better at sounding like a real person. What is the ROI of all that AI looking like at this point? Yeah, so for the retail side, different than the broader industry, not a lot of retailers are spending a lot building out their own models. These are mainly plug and play solutions. So the ROI is pretty quick because it's just paying for a service, integrating it into your formula, and just continuing. And so the part about theft is really interesting to me. So basically the AI can analyze in real time while it's happening, oh, this person is doing something that would be suspicious given all the data we fed into the model. What is happening with shrink, as the industry calls it generally? We have seen an improvement, right? Is that part of the reason why? Yeah, it would be great if that was already making a massive impact. I'm not sure. I think it's early days for that element. But a whole host of reasons. There's been a lot more press around it and therefore a lot more scrutiny. I think stores are repositioning product, moving more valuable product to the back. Unfortunately, some of the product is harder to reach, even for shoppers who are genuine. And then enforcement has certainly increased. But shrink as a historical average only ticked up very slightly, even when we all saw all those stories. It was really some of those extreme cases of entire stores being looted that we all sort of touched on, but generally not as big an issue as I think we all sort of saw. So then what is the big risk for retailers? When you're talking with clients, what is the big worry that's making their eyebrows come together right now? Yeah. You know, heading into the election, it was just uncertainty and anxiety among shoppers. Will they be out there? Will they be shopping? And so all the clients I spoke to leading into holiday, they really took a very defensive approach. Didn't buy over by inventory, didn't overspend on social media advertising, didn't overspend on new stores and hiring. And so they came in in a position where maybe they couldn't necessarily hit a home run, but at the same time wouldn't get hurt. So I think the discounts we're seeing, the markdowns are strategic. They were all built into the model. And I know I personally have already seen some sold out items on websites. I think those are going to stay sold out because people kept their inventory shallow. They don't want to get stuck with too much product and they're just going to take it as a win if they could get through the season in a healthy way. Really interesting that you mentioned that because we've been talking with a lot of folks today about tariffs and the effect that they might have on the industry, the anticipation that retailers have of the tariffs. So lean inventory is the current state. Are we starting to see any buildup at all in anticipation that items will be tariffed? Yeah, I think there's an element to that. I think that the important thing to remember is that there is such a broad range of categories, some of which are in countries that have not been mentioned for tariffs necessarily. And there's other products that are very difficult to move just because of the infrastructure, the amount of the elaborate process of manufacturing them. And so I do think we're going to start seeing that buildup. I heard Natalie mention it earlier in the hour. I think people are going to stick to core products, right? It's styles and items that sell year in, year out. It's not going to suddenly be a risk on. Okay, so just fewer risks being taken on newer stuff. Interesting. Yeah. What risk does that present to not kind of go in on newer products that can be enticing for shoppers? Yeah, I think you put it perfectly that the risk is if you sort of deviate towards your classic styles, you risk not expanding your universe of shoppers, right? You're sort of selling the same item day in and day out. You need to refresh the assortment. And so to the extent you're not taking risk on style, you're not necessarily attracting that new shopper. Just sort of big picture here. You talk to retailers all day long. That's what you do. How are they feeling this holiday shopping season compared to recent years past? Yeah, cautiously optimistic, I'd say. People really post-election, the numbers were up. November has been a strong month for nearly everyone. I think going into December, they expect that to hold. Next year, again, I think cautiously optimistic is the right phrase. It's approaching it for steady growth, single-digit growth, good margins, right? If you're not discounting, then your margins are strong and being very disciplined around expenses. A lot of companies sort of taking an approach to marketing that's, let's do A-B testing, let's remove this item, and if that doesn't make an impact, we could save that money. That's also important in the context of this idea of increased corporate spending. That's going to be a rally for the S&P. It sounds like you're not seeing that in retail at least. Not in this sector. All right. Eric, thank you so much. Thanks for coming in studio with us on the holiday week. Really appreciate it. Absolutely. Thank you. Take care.