Retailers Turn to AI for Holiday Shopping Season Success

The 2024 holiday shopping season won’t be the best for retailers. Not only is the Thanksgiving to Christmas window narrower than usual, but market watchers are predicting limp sales growth for the period.

Salesforce, for example, predicts year-over-year global sales growth of 2% for November and December, totaling US$1.19 trillion, and 2% growth in the United States, reaching $277 billion. In 2023, YOY global sales growth was 3%, totaling $1.17 trillion.

One change that could be for the better, though, is the emergence of artificial intelligence as a means to optimize retail performance and consumer satisfaction during the hectic holiday shopping season.

“With Thanksgiving falling on November 28, the 2024 holiday shopping season will be shorter than usual, affecting assortment, pricing, and promotion strategies. The last time the season was so short was in 2019, pre-Covid. Those historic demand patterns are no longer reliable to predict this year’s,” said Martin Ryan, vice president of retail at EPAM Systems, a software engineering services, digital platform engineering, and digital product design company, hadquartered in Newtown, Pa.

“Retailers need to adapt their strategies for demand forecasting to avoid under- or overstocking,” he told the E-Commerce Times. “AI tools can be used to provide accurate and dynamic predictions based on data analysis from historical and current data from multiple sources.”

“Social listening tools can gather real-time data about consumer preferences, which typically convert much faster into buying behavior during the holiday season when consideration time is compressed,” he added.

How AI Gift Suggestions Improve Holiday Shopping

However, Keri McGhee, CMO of Attentive, a global customer relations management company, pointed out that over the last few years holiday shopping has started earlier and earlier. “This year is no different,” she told E-Commerce Times.

McGhee cited research by Forrester that found nearly 25% of U.S. online adults started shopping for the 2023 holiday season in October or earlier. “This year, we’re expecting the holiday season to start early again largely because of the shorter window between Thanksgiving and Christmas,” she said.

“Brands that utilize AI tools early can quickly and effectively reach these customers for more conversions versus waiting until the traditional rush of Black Friday-Cyber Monday weekend,” she continued. “AI can bring BFCM promotions and news straight to customers early to see more sales throughout the season with exclusive or limited offers delivered via SMS or email.”

One way retailers use AI to reach shoppers is through gift recommendations. For example, Amazon offers “Rufus,” a generative AI-powered conversational shopping assistant that helps shoppers with everything from finding deals to selecting gifts to answering shopping questions.

“Intelligent virtual assistants can help guide shoppers to find just the right gift by analyzing the recipient’s preferences — whether it’s for clothing, tech, or hobbies,” said Gopi Polavarapu, CSO of Kore.ai, a generative AI solutions provider, in Orlando, Fla.

“This takes the guesswork out of gift-giving, saving time and reducing stress, especially during the holidays,” he told the E-Commerce Times. “For retailers, this means happier customers who are more likely to return, as the shopping experience feels more tailored to them.”

Gifts That Resonate

The average person wastes $71 on gifts that aren’t appreciated, observed Tina Wung, global vice president of marketing at Nisum, a technology consulting firm based in Silicon Valley. “Retailers must help their shoppers address this gap,” she told the E-Commerce Times.

“With vast data on customer behavior, AI is able to predict more accurately which products are suitable for specific characteristics,” she said. “This information can fine-tune large language models where customers can talk to AI and ask it for gift advice. AI chatbot ‘gift assistants’ can ask the shopper unique prompts to capture the necessary details about the giftee to help them choose the perfect gift.”

“AI and relying on consumer data to predict and entice demand have never been more critical for retailers,” she added. “AI’s ability to understand customers intricately allows for successfully targeted shopping assistance. Consumers are 91% more likely to shop with brands that recognize and provide relevant recommendations, while 80% are more inclined to purchase when offered personalized experiences.”

Purchase Confidence With AI Personalization

Jorge Argota, a digital marketing and SEO expert in Miami, said that AI has changed the shopping experience for his customers when it comes to gift buying.

“Personalized recommendations are now part of our online store,” he told the E-Commerce Times. “By analyzing individual preferences and shopping behavior, AI suggests gifts that resonate with each customer. Personalization makes shopping more fun and helps customers find meaningful gifts without the stress.”

He added that features like visual search and augmented reality have made gift buying more interactive. “Customers can upload a picture and find similar products in our inventory or use AR to see how a product would look in their home or on themselves,” he noted. “These tools not only make the shopping experience more fun but also reduce uncertainty so customers are more confident in their purchase.”

Artificial intelligence can personalize gifts in another way, too. “By using natural language processing, AI can even consider the sentimental or emotional value of gifts based on conversations or social media activity. This level of personalization could make the process more efficient and meaningful, helping people choose thoughtful gifts with minimal effort,” Mark N. Vena, president and principal analyst at SmartTech Research in Las Vegas, told the E-Commerce Times.

Challenges Implementing AI in Retail Gift Shopping

AI now knows a lot about a customer’s browsing history, purchase patterns, and even their social media activity, so it could suggest personalized gift ideas that hit the mark every time, noted Blake Ellis, CTO of CommerceV3, an e-commerce platform and service company, headquartered in Minneola, Fla. “We’re not quite there yet,” he told the E-Commerce Times, “but the potential is huge. It could revolutionize how people shop for others, making the whole gift-giving process smoother and more meaningful.”

As powerful as AI-assisted gift-giving can be for retailers, it won’t be a slam dunk for them. “AI can increase consideration and close rates on sales significantly, but only if it is implemented well, and too few companies know how to implement it well this early in its young life,” warned Rob Enderle, president and principal analyst of the Enderle Group, an advisory services firm, in Bend, Ore.

“Where it works, it will pull people to the products they wouldn’t have otherwise considered and away from products they otherwise would have bought,” he told the E-Commerce Times. “Once it reaches scale, it will have a significant adverse impact on firms that haven’t figured out how to use it properly and a massive benefit to firms that do.”

Kassi Socha, a consumer and culture analyst with Gartner, a research and advisory company based in Stamford, Conn., also warned brands against deploying gimmicky AI-powered tools. “Brands who roll out gen AI-powered gift generators or digital holiday card makers that don’t have a clear connection to making the gift-giving process easier or more efficient may see low user adoption and engagement,” she told the E-Commerce Times.

“Furthermore,” she added, “tools that are spun up as part of a marketing campaign versus integrated into the core shopping experience may have been rushed to production and more likely to hallucinate or produce results that don’t align with the shopper’s need nor intent. This could damage brand reputation.”

AI Demand Forecasting for Holiday Sales

Another area where AI will impact holiday sales is forecasting demand. For example, Amazon, which has been baking AI into its operations since 2020, has a collection of AI, machine learning, and other systems known as SCOT — Supply Chain Optimization Technologies — to make countless predictions, recommendations, and decisions every day.

“Deploying novel predictive and generative techniques, the SCOT team has already produced a 10% improvement in our long-term forecasts,” Amazon spokesperson Maxine Tagay told the E-Commerce Times.

AI and demand forecasting are game-changers, maintained CommerceV3’s Ellis. “We’re talking next-level accuracy in predicting what products will fly off the shelves,” he said. “Machine learning algorithms can crunch massive amounts of data, past sales figures, social media trends, and even weather patterns, to give retailers a crystal ball for inventory planning. No more guesswork or overstocking. It’s all about getting the right products in the right place at the right time.”

Dynamic Inventory Management

“As an agency owner, I have seen firsthand how AI has changed our demand forecasting,” added Argota. “In the past, we would make educated guesses and use last year’s sales data to predict which products would be hot sellers during the holiday season. Now, AI algorithms look at our historical sales and market trends, economic indicators, and even seasonal patterns. We get super accurate forecasts so we can make informed decisions on inventory and resource allocation.”

He also touted the real-time data processing capabilities of AI. “Consumer behavior during the holidays can change in an instant due to promotions or viral trends,” he explained. “With AI, we can adjust our strategies on the fly to match those changes. We don’t get caught off guard by demand spikes or drops, which is key to customer satisfaction and operational efficiency.”

In addition, he noted that AI has almost eliminated overstocking and stockouts. “By predicting demand exactly, we can have just the right amount of inventory on hand,” he said. “This reduces holding costs and means popular items are available when our customers want them. It’s a delicate balance, but AI has made it much easier to achieve.”

“AI also helps us get ahead of the curve by identifying emerging trends,” he added. “By analyzing social media posts, search queries, and sales data, AI tools tell us what’s trending. This gives us the insight to stock up on trendy items that will be in high demand so we can meet customer expectations during the holiday rush.”

Balancing AI Innovation with Consumer Trust

In their rush to embrace AI, retailers need to be careful, cautioned Lija Hogan, an experience research strategy principal at UserTesting, a customer experience research and insights company. “Retailers must understand how to balance personalizing the shopping experience without having it veer into being perceived as showing that the brand ‘knows too much’ about their customers,” she told the E-Commerce Times.

“Successful AI integration will depend on retailers’ ability to prioritize customer trust and transparency,” she continued. “Integrating AI requires continual evaluation of the consumer/retail experience while addressing consumer privacy concerns, keeping customers informed on how their data is being used and understanding consumer attitudes towards AI tools.”

She added, “Retail leaders who continuously refine their shopping experience based on customer feedback will be the most successful in today’s dynamic landscape.”