Can You Feel It?

Can you feel it? The sense that something has shifted, an uneasy feeling that the world is different than it was yesterday? That we’re moving faster, accelerating to… somewhere unknown.

What has shifted is artificial intelligence. AI has burst forth from the labs, quickly insinuating itself into our businesses and our lives. And not only is AI becoming more pervasive, it is accelerating in its capability.

If the growth of artificial intelligence had an inflection point, it was November 30, 2022. That was the day ChatGPT was released, just six months ago to the day that I’m writing this. Within ten days of launching, ChatGPT had over 1 million users, and over 100 million users by January (2023). Stop to think about that: Over 100 million users in less than 60 days. ChatGPT is the most quickly-adopted piece of software every written.

Long lurking in the periphery, AI has for some time been integrated to capabilities like demand forecasting, labor scheduling, and marketing personalization. What’s changed is that instead of operating within solutions, AI like ChatGPT is capable of generating content - text, images, or other types of media - in response to user prompts. Further, generative AI solutions like ChatGPT are incredibly easy for anyone to use; Just ask a question. It is this ease of use combined with generative capability that has awakened the world to the power of AI.

Generative AI has exploded across the globe as countless startups bring to market countless iterations, the tool being integrated to website after website, and companies creating their own generative AI solutions trained on their own data. The explosion of AI has powered Nvidia to a?$1 trillion valuation, as its specialized chips are used to power AI applications.

Every day we go forward, AI is becoming more powerful and more capable. ChatGPT-3.5, which was released November 30, 2022, passed the bar exam, but only scoring in the 10th percentile. Just a few months later, ChatGPT-4 had advanced enough to pass the bar exam with a score near the 90th percentile of test takers. No wonder a growing number of companies are taking down job postings as they realize that generative AI can do much of that work.?

But AI brings with it risks far greater than displacing jobs. A growing number of tech experts are warning that AI can quickly become an existential risk. Just look at how fast ChatGPT has grown and developed. “Tech executives and artificial-intelligence scientists are sounding the alarm about AI, saying in a joint statement Tuesday that the technology poses an extinction risk as great as pandemics and nuclear war.” (WSJ, May 30, 2023)

And trouble is already starting. In just six months, the world is awash in AI generated content, from marketing messages to artwork, to music, and fake videos; AI is creating an alternate reality. All those ‘fake’ materials flooding into our email, social media feeds, websites, videos, and even phone calls, are setting up the mother of all headaches; cognitive dissonance on steroids as we grapple with what’s real vs AI generated.

Businesses - retailers - need to be ready to defend against bad actors targeting them for some perceived transgression. Businesses also need to be thinking about how they can provide assurance to their shoppers that the communications being received are indeed accurate and truthful. And there is no time to waste as we have rounded AI’s growth curve, accelerating past the inflection point. We have stepped through the looking glass.

So can you feel it? That the world has noticeably sped up, that we have shifted into a higher gear? That uneasy feeling that the day ahead will be different than yesterday? ?

And retail is not ready for it.

While AI is creating an alternate reality, bringing with it challenges never before encountered, there’s more. AI is part of the ‘innovation flywheel’; AI, along with big data and ever-faster, cheaper processing power, is fueling exponential growth of new disruptive capabilities. In “Retail’s Wheels Are Coming Off” I wrote about the idea that retail as we know it was built for the world of yesterday and that the way retail is structured and operates is increasingly misaligned with the world of today, let alone the world of tomorrow.

And everyday I see more and more signs that retail is not ready.?

FMCG retail is riding high, coming off a couple years of pandemic-driven sales and, more recently, inflation fueled revenue and margin gains. Life is pretty good and there’s no driving reason to undertake significant change. The modern retail industry has been around nearly a century now and has withstood the occasional interloper and warnings of imminent disruption.

But the challenge wrought by the exponential growth of technology is more insidious. And we are seeing this in realtime as we experience artificial intelligence weaving itself into every aspect of our lives.?

Creating the Future of Retail

Retailers have a choice: They can either be proactive and create their future, or passively go along for the ride.?

What does this look like? Retailers intent on creating their future are proactive in searching out and learning about new innovation and new capabilities. They work to either create new solutions that provide them a competitive edge or, at the very least, look to combine or integrate third-party solutions to create something new and different.

Other retailers - sadly, the majority - are reactive, deploying some new capability only when they are forced to by competition, or its some new shiny object that one of the executives has become enamored with. There is no vision or blueprint for the future beyond surviving another day.

Look what Walmart is doing. They have invested in Symbotic and are deploying the distribution center automation system across a growing number of its warehouses; Walmart has publicly stated the capability will improve cost per unit by about 20%. The company acquired Alert Innovation and is deploying their micro fulfillment centers across their stores, making each store a local distribution center. They created Store No 8 to lead innovation for the company; public initiatives include augmented reality, text and voice shopping, in-home delivery, and, of course, artificial intelligence. Walmart has built a massive retail media network, diversifying the company’s revenue and adding billions to top line sales. And assuredly there are countless more initiatives underway across the retail behemoth that are not publicly known. Walmart is creating its future.

Or look at Kroger. The deal with Ocado calls for 17 automated distribution centers, 8 of which are now open. Kroger is using the automated fulfillment centers to move into new markets (like Florida) without a physical store network. Kroger’s use of data is unparalleled across the industry as its 84.51o subsidiary powers industry-leading strategic marketing personalization, data-driven merchandising, and far more. The company is leveraging its OptUP health & wellness app to expand into healthcare, bringing clinics into the stores and forming alliances with health insurance companies. And Kroger’s retail media network is powered by data on over 60 million US households and partnerships with companies like Roku and Disney. Kroger is creating its future.

Look at Amazon. And before you dismiss them as nobody to worry about I’d think twice. While the Just Walk Out technology has had growing pains, Amazon has scaled the tech from the original 1,800 square foot Amazon Go store to a 46,000 square foot Amazon Fresh store in just four years. FYI - the growing pains will be quickly resolved as computer processing grows ever-faster and AI becomes ever-smarter. Amazon built one of the first retail media networks, which accounts for tens of billions of dollars in revenue each year. They have deployed smart carts and the new Amazon One biometric payment system. Sure, Amazon is still figuring out grocery and fresh foods. But I’d be more worried about their technological capability. Amazon has consistently created its future from the day it was launched.

Now look at other retailers. One well known regional retailer’s IT resources are consumed with building a new distribution center, unable to handle any significant new projects for the next couple years. Or another retailer that has grown through acquisition - a viable path - but is so burdened by integrating basic systems that there is no room for innovation. Many retailers provide a disjointed digital user experience to their shoppers; at odds with the seamless experience provided by the troika mentioned earlier. And there are countless more examples telling the same story.?

Companies like Walmart, Kroger, and Amazon realize that they are operating in a new world that has never before existed, the world past the inflection point on technology’s exponential growth curve. And they realized that in this new world they must make a choice: Either purposefully create their future or acquiesce and try to keep up. Walmart, Kroger, and Amazon have made their choice. Sadly, by failing to make that proactive decision, too many other retailers have defaulted to being followers - an ever-weaker position as the leaders open a growing performance gap.

So do you feel it yet? That uneasy feeling that the world is somehow different than it was yesterday?