Retailers Harnessing the Power of AI

AI-driven technology offers retailers a plethora of opportunities, according to UBS analysts.

Artificial intelligence (AI) is revolutionizing the retail industry, with the potential to transform various aspects of the business, including marketing campaigns and customer service. UBS analyst Jay Sole explores these innovative possibilities in a note to clients, highlighting the positive impact these initiatives could have on soft line companies.

A Glimpse into the Future

One of the most intriguing applications of AI in the retail sector is generative AI. This form of artificial intelligence can produce original content, ranging from text and images to audio. Additionally, it can synthesize data and engage in human-like interactions, all by leveraging its comprehensive knowledge base.

Boosting Margins through AI

Sole predicts that soft line companies, which specialize in clothing and bedding, could witness a substantial increase of up to nine percentage points in earnings before interest and taxes. For example, AI-powered marketing campaigns have been proven to be more cost-effective than traditional methods. Furthermore, integrating personalized AI-generated messages during online checkouts has shown to reduce cart abandonment rates, ultimately improving conversion rates.

A Paradigm Shift in Retail

A recent KPMG survey reveals that 70% of consumer and retail executives anticipate the most significant impact of AI to occur in marketing and sales departments. Additionally, retail executives are eager to explore AI's transformative potential in various key areas, such as pricing strategies, consumer trend analysis, inventory management, and pricing optimization.

As retailers jump on the artificial intelligence bandwagon, they are poised to unlock a world of opportunities. With generative AI at their disposal, retailers can refine their marketing efforts and enhance customer experiences. The future of retail is about to be revolutionized, thanks to the power of AI.

AI Integration in Fashion Business

According to industry expert Sole, companies like Ralph Lauren and Revolve Group have the ideal conditions to successfully integrate artificial intelligence (AI) into their business models. With ample financial resources, a robust customer data set, advanced IT infrastructure, and a company culture that embraces new technology, these fashion companies are well-positioned to harness the power of AI.

Sole specifically highlights Ralph Lauren (ticker: RL) as a prime candidate for AI integration. Sole rates Ralph Lauren stock as a Buy with a target price of $162. Meanwhile, Revolve Group (RVLV) also shows promise in this regard, although Sole rates its stock as Neutral with a $20 price target.

While some skeptics argue that the excitement surrounding AI is exaggerated, particularly in the retail sector, there is evidence to suggest otherwise. A KPMG survey conducted in March 2023 reveals that only 23% of consumer and retail companies have dedicated personnel or teams focusing on AI implementation. In comparison, the average across all industry sectors is 31%.

Acknowledging that AI initiatives in the retail industry are still in their infancy, Sole concedes that the current gains are relatively modest. However, he stresses that the transformative potential of AI in the next decade is vastly underestimated.

Sole believes that leveraging AI effectively will become crucial for companies, giving rise to what he calls "Gen AI." Those businesses that can best harness AI technology are likely to experience significant financial growth and stock performance.

As AI continues to evolve and shape the fashion industry, it is clear that companies like Ralph Lauren and Revolve Group are at the forefront of this digital transformation.