Introduction to AI in retail and SMB
Defining AI and its relevance
The retail industry's digital transformation has significantly boosted speed, efficiency, and accuracy, with artificial intelligence (AI) playing a pivotal role. AI can enhance retail accuracy by optimizing inventory management, customer insights, operational efficiency, and price optimization.
These improvements can lead to reduced stockouts, increased sales conversion, decreased operational costs, and improved customer satisfaction. Companies are working to find ways that they can be more efficient and improve operations through the use of AI.
This effort is reflected in the fact that nine out of 10 companies now utilize AI or are assessing the possibility for use of AI, often fueled by advanced data and predictive analytics.
Jeff Vagg, Chief Data and Analytics Officer at North says, “AI isn’t just about automation. It is about enabling real-time intelligence across the business. But it only works if the data is there to support it. For retailers and small-to-medium businesses (SMBs), quality data is the engine, and AI is what turns it into faster decisions, sharper customer insight, and the agility to compete in a dynamic market.”
Advances in POS systems, often powered by the Internet of Things (IoT) and AI, can now provide retailers with invaluable insights, leading to operational improvements and the creation of new revenue streams—an estimated $40 billion over just four years.
Challenges and opportunities
For SMBs and larger retailers alike, AI presents both significant opportunities and real challenges.
While adoption can seem daunting due to perceived costs and complexity, the potential benefits—like enhanced customer experiences, streamlined operations, and increased competitiveness—are substantial.
However, it's important to recognize that AI, particularly Generative AI, is still very much in development and not yet always reliable. There is a wide range of accuracy levels across generative AI tools, and recent studies have highlighted notable shortcomings. A 2025 study found that among queries made of eight major generative search engines, the average error rate was as high as 60%.
For example, Perplexity answered 37% of queries incorrectly, while Grok 3 had an error rate of 94%. Chatbots across the board were often “confidently wrong,” sometimes failing to retrieve the correct information or citations.
Not every AI tool lives up to its promise, therefore, businesses should carefully weigh the opportunities and risks of using AI to determine if it's a good fit.
Overall benefits of AI
AI can offer many benefits for the retail and SMB sectors, such as:
- Improving the customer experience: Through personalized interactions and marketing.
- Streamlining operations: By automating routine tasks and optimizing inventory.
- Driving sales: Via targeted advertising and dynamic pricing.
- Enhancing decision-making: With data analysis and business intelligence.
According to NVIDIA, 82% of retailers are either utilizing or evaluating generative AI, and over half have already integrated it into their production processes. Retailers can significantly improve inventory management by using AI to assess historical sales trends along with external variables like weather conditions, local events, and global trade rules.
This evaluation allows businesses to make strategic decisions about product stocking, so they can effectively meet customer demand and optimize inventory levels.
Key areas to leverage AI
Personalized customer experiences
AI is reshaping how retailers interact with customers by creating tailored experiences that drive engagement and loyalty.
Let's take a closer look at how personalization is transforming the retail landscape.
Personal recommendations
AI analyzes customer data, including browsing and purchase history, to provide personalized product suggestions and tailored offers. This level of personalization enhances cross-selling and upselling opportunities, making the shopping experience more engaging and relevant for each customer.
By understanding individual preferences and behaviors, businesses can craft offers that resonate with consumers, ultimately driving higher sales and customer satisfaction.
AI-powered customer service
In today's competitive market, exceptional customer service is a key differentiator. AI-driven solutions can offer innovative ways to enhance service delivery and facilitate customer satisfaction.
Optimized operations and efficiency
The 2025 NVIDIA report states the evaluation and adoption of AI in retail continues to grow, with 89% of respondents in 2024 reporting that their company either actively uses or is in the process of assessing AI for potential use. This is an increase from 82% in 2023.
aPotential benefits of AI include streamlining processes and optimizing resource allocation. For example, AI-driven demand forecasting and supply chain management could lead to reduced waste, increased product availability, and significant cost savings.
Inventory management
AI-driven demand forecasting could predict future demand, optimize inventory levels and reduce waste. Automated systems may alert staff to restock, improving operational efficiency.
By accurately anticipating demand fluctuations, businesses can avoid overstock situations that tie up capital and understock scenarios that lead to missed sales opportunities.
Supply chain and logistics
AI can play a crucial role in optimizing delivery routes and using predictive analytics to anticipate supply chain disruptions, which enhances operational efficiency—a top priority for 58% of retailers and consumer packaged goods manufacturers. By analyzing a vast array of data points, such as traffic patterns, weather conditions, and historical delivery times, AI can devise the most efficient routes, thereby reducing fuel consumption and delivery times.
Workforce management
AI can automate staff scheduling and routine tasks, such as data entry and invoicing, empowering employees with AI-powered knowledge bases for enhanced performance. This automation frees up valuable time for staff, allowing them to focus on more strategic and customer-facing activities that can drive business growth.
By reducing the administrative burden, employees can engage more creatively and effectively in their roles, contributing to a more dynamic and innovative workplace.
Intelligent marketing and sales
Marketing and sales strategies are undergoing a transformation, thanks to AI's ability to deliver targeted and effective campaigns.
AI can enable small businesses to segment their audiences with unprecedented precision, to support the creation of marketing messages that are not only relevant but also resonate deeply with each target group.
This level of customization increases engagement and conversion rates, maximizing return on investment.
Targeted advertising
Generative AI is rapidly gaining traction in the retail industry, proving particularly valuable for creating marketing and advertising content, as well as refining customer analytics.
This technology can enable hyper-targeted campaigns, optimizing ad spending and maximizing return on investment.
By leveraging detailed consumer insights, businesses can tailor ads to specific demographics, interests, and behaviors, resulting in more effective and efficient marketing strategies.
Content creation and optimization
AI generates product descriptions, email copy, and social media posts, alongside enabling A/B testing and performance analysis to refine marketing strategies.
This automation not only accelerates the content creation process but also promotes consistency and relevance in messaging across platforms.
By utilizing AI's analytical capabilities, businesses may optimize their marketing content based on performance data, leading to more effective engagement with their audience.
Dynamic pricing
AI facilitates real-time price adjustments based on demand, competitor pricing, and inventory levels, maximizing sales potential and profitability.
By analyzing market conditions, AI can dynamically set prices that are competitive yet profitable, helping businesses capture the maximum possible value from each transaction.
Lead scoring and sales forecasting
AI identifies high-potential leads and provides more accurate revenue predictions, aiding in strategic planning and decision-making. By analyzing patterns in customer data and market trends, AI can pinpoint prospects with the highest likelihood of conversion, allowing sales teams to focus their efforts more effectively.
This targeted approach not only improves sales efficiency but also enhances forecasting accuracy, enabling businesses, particularly small businesses with less money at their disposal, to make informed decisions about resource allocation and growth strategies.
Data analysis and business intelligence
In an era of information overload, AI can help retailers make sense of complex data to inform strategy and drive growth.
By processing vast datasets, AI can extract actionable insights, allowing business owners to understand consumer behavior, market trends, and operational efficiencies in real-time.
This capability not only aids in strategic planning but can also enhance business intelligence by providing a clearer view of the competitive landscape.
Uncovering insights from data
AI can analyze sales data, customer behavior, and social media trends, identifying patterns and trends to inform business decisions and optimize strategies.
By leveraging this data, businesses owners can gain a comprehensive understanding of what drives consumer preferences and how market dynamics are shifting.
This insight enables retailers to tailor their offerings and marketing campaign strategies to better meet customer needs and expectations.
Competitive analysis
AI can monitor competitor pricing, product launches, and customer sentiment, keeping small business owners informed and competitive in the market.
By continuously analyzing these external factors, AI provides retailers with a strategic advantage, allowing them to swiftly adjust their pricing strategies and product offerings in response to market changes.
This real-time intelligence helps small businesses stay ahead of the curve, enabling them to adapt to shifts in consumer preferences and competitive pressures.
Overcoming barriers to AI adoption for SMBs
Perceived cost and complexity
SMBs can leverage cloud-based, scalable AI solutions to ease the transition into advanced technologies without hefty upfront investments. These solutions offer the flexibility to grow alongside the business, adapting to increasing demands and complexities over time.
By starting small with pilot projects and utilizing AI features in existing tools, SMBs may be able to more effectively mitigate cost and complexity concerns while gaining valuable insights into AI's potential benefits.
Lack of technical expertise
User-friendly, "no-code" AI platforms and partnerships with AI solution providers can sometimes bridge the expertise gap, making advanced technology accessible without extensive technical skills.
These platforms enable businesses to implement AI solutions easily, allowing them to focus on strategic goals rather than technical hurdles.
Data privacy and security concerns
Compliance with data protection regulations and choosing reputable AI providers with strong security measures are essential steps for safe AI adoption.
This approach not only protects sensitive customer information but also builds trust with clients, who are increasingly aware and concerned about data privacy.
By prioritizing these aspects, businesses can help mitigate risks associated with data breaches and demonstrate their commitment to ethical AI practices.
5 practical steps for SMBs to consider to integrate AI
1.Identify a business problem that you hope to solve with AI
Begin by conducting a thorough analysis to determine which areas of your business could benefit most from AI integration.
This might include identifying repetitive tasks that could be automated, customer service bottlenecks that might be alleviated, or areas where data-driven insights could significantly enhance decision-making.
2.Research and select tools
Once you've identified the business problem(s) that you hope to improve with AI, then explore various AI solutions that are specifically tailored to address these needs. It's crucial to evaluate tools based on their functionality, compliance, scalability, and ease of integration with your existing systems.
This helps you choose solutions that are more likely to both meet your current requirements and also grow with your business.
3. Start small
Implement AI in a specific area of your business to test its effectiveness on a specific business problem and gather insights.
By starting with a pilot project, you can manage risks and make necessary adjustments before scaling AI solutions across the organization.
4. Measure and iterate
Track key performance indicators (KPIs) to assess the impact of AI on your operations. Regularly reviewing these metrics will help you understand the effectiveness of your AI initiatives and identify areas for improvement.
By iterating on your approach, you can fine-tune AI applications to better align with your business goals.
5. Foster a culture of learning
Consider providing employees with training and resources to enhance their understanding of AI technologies.
Cultivating a culture of continuous learning will empower your team to leverage AI effectively, driving innovation and improving overall business performance.
Future outlook for AI in retail and SMB
The future of AI in retail is promising, with tools becoming more accessible and affordable, allowing businesses of all sizes to leverage their potential.
Not every AI tool lives up to its promise so businesses should critically evaluate opportunities and associated risks from the use of AI within their businesses to decide if it is a good investment for them.
As AI technologies evolve, they will integrate more deeply across business functions such as customer service, marketing, sales campaigns, logistics, and inventory management, streamlining operations and enhancing customer experiences.
The growth in AI adoption can create exciting opportunities for employees to enhance their skills, as AI improves and amplifies human creativity, empathy, and judgment. Retailers can build customer trust through transparent data practices and responsible AI implementation, fostering sustainable growth.
By investing in employee development and exploring innovative AI applications, retailers are well-positioned to lead in an AI-enhanced marketplace.
Sources:
- NVIDIA, State of AI in Retail and CPG: 2025 Trends Retrieved June 19, 2025
- Forrester, AI Insights Retrieved June 19 2025
- American Public University, Artificial Intelligence in Retail Management (March 04, 2024) Retrieved June 19, 2025
- Forbes, Artificial Intelligence In Retail: 6 Use Cases And Examples, (April 19, 2024) Retrieved June 19, 2025
North is a leading financial technology company that builds innovative, frictionless end-to-end payment solutions designed to simplify and grow businesses of all sizes. From the front door, to the back office, the developer world, and partnerships that expand the payments landscape, North offers proactive, comprehensive merchant services, in-house processing, and more.
