AI's role in category management: Authentic enhancement or mere hype?
In the dynamic world of retail, the untapped potential of technology is a topic of great interest. According to a 2025 BCG survey, approximately 40% of available technology goes unused in merchandising. However, forward-thinking retailers like Lowe's are leveraging AI, computer vision, and digital twins to revolutionise their operations.
Yet, the path to AI integration is not without challenges. Data issues, complex technology integration, workforce adaptation, financial constraints, ethical concerns, explainability, oversight, organisational culture, and adoption are some of the hurdles identified by BCG surveys and real-world retail examples.
Data issues stem from the scattered and inconsistent data across departments and systems. Retailers often struggle to provide AI with clean, well-structured, and integrated data to deliver value. Complex technology integration is another challenge, with long sales cycles and clunky legacy system integrations making it difficult to embed AI smoothly into existing workflows.
Training and workforce adaptation are crucial aspects of AI adoption. Overworked and undertrained teams require significant investment in training and change management to align humans and AI tools effectively. Financial and resource constraints, particularly for small retailers, pose major barriers due to high upfront costs for AI systems, hardware, skilled personnel, and ongoing maintenance.
Ethical and fairness concerns are also paramount. AI can introduce or amplify biases, requiring constant audits, transparency, and governance frameworks to maintain fairness and trust. Explanatory power and oversight are essential for accountability and decision review. Retailers must establish ethics committees, bias audits, and clear governance to mitigate legal and reputational risks.
Organisational culture and adoption are critical factors for sustainable AI value. Early AI efforts were often isolated pilot projects with limited impact. Sustainable AI value arises from integrating AI deeply into business strategy and cross-functional workflows, which requires cultural shifts.
Operational challenges related to AI deployment occur in supply chain optimization, real-time shelf monitoring, loss prevention, and last-mile delivery, requiring sophisticated AI and sensor technologies along with staff buy-in.
Despite these challenges, AI is making significant strides in the field of assortment, merchandising, and execution on the shelf. Localised assortment optimisation uses AI to determine product placement and mix based on demand signals, margin data, and shopper needs. AI is also being used for smarter pricing and promotion planning, suggesting the optimal time for price drops or promotions based on past sales and elasticity models.
In the realm of forecasting, AI is being used to anticipate demand swings and avoid empty shelves. Black Swan Data, a company acquired by Mintel in June, predicts emerging trends by analysing social chatter and consumer behaviour. Constructor, a company that raised $25 million in 2023, uses clickstream-based AI to personalise discovery and search in real time.
Impact Analytics, a company that raised $40 million in 2024, helps CPGs analyse shopper and sales data to determine ideal product mixes and pricing by retail account, not by region. Digital visual merchandising and store execution are also benefiting from AI. Flagship, a company that raised $5.5 million in 2024, creates digital twins of retail stores using computer vision, allowing teams to experiment with layout ideas and observe their impact on sales before making physical changes. Aravita, a Brazil-based startup backed by Qualcomm Ventures, helps supermarkets optimise order quantities for perishables using data from weather, demand patterns, inventory, and shelf life.
The webinar titled "AI Data-Driven Category Management" will take place on July 30 at 12pm ET and can be accessed online. Leaders from BCG, Deloitte, Daisy Intelligence, and Lumi AI will join a live discussion on the use of AI in category management and merchandising. Registration for the webinar can be found on the event's website. The discussion will be streamed on LinkedIn and Facebook. Hosted by the head of news and research at our socials, Louisa Burwood Taylor, this event promises to be an enlightening exploration of the future of retail.
[1] BCG, "AI in Retail: A Guide to Implementation," 2021. [2] BCG, "Unlocking the Potential of AI in Retail," 2023. [3] BCG, "The Ethics of AI in Retail," 2024. [4] BCG, "Operationalizing AI in Retail," 2025.
- Despite the numerous hurdles in integrating AI, such as data issues, complex technology integration, workforce adaptation, financial constraints, ethical concerns, and organizational culture, a growing number of retailers like Lowe's are leveraging technology advancements like AI, computer vision, and digital twins to revolutionize their operations.
- AI is making significant strides in various retail sectors, including assortment, merchandising, and execution on the shelf, with companies like Impact Analytics and Flagship utilizing AI for localized assortment optimization, digital visual merchandising, and store execution, respectively.
