AI is reshaping retail downsizing and restructuring

Across all industries, Challenger found AI was the second-most-cited factor by executives for layoffs in October. Challenger estimated that AI led to 31,039 job cuts last month alone as companies continue to restructure and automate.

Even though AI hasn’t been the driving force behind all of the retail layoffs this year, many top executives are expressing the desire for their workforces to move faster — which is related to the technological shifts looming over the industry. And for corporate retail roles, retail executives are beginning to rethink their labor needs with artificial intelligence in mind, desiring efficiency and being ahead of the crowd in their use of the rapidly evolving technology.

“This generation of AI is the most transformative technology we’ve seen since the internet, and it’s enabling companies to innovate much faster than ever before,” Beth Galetti, svp of people experience and technology at Amazon, said in a memo to employees on Oct. 28 when announcing the company’s reduction of 14,000 jobs. “We’re convinced that we need to be organized more leanly, with fewer layers and more ownership, to move as quickly as possible for our customers and business.”

That doesn’t necessarily mean slashing jobs just to replace them with AI agents, however. An Amazon spokesperson told Modern Retail that AI is not the reason behind the vast majority of its reductions and that it is a continuation of work to reduce layers in the organization, increase ownership and reduce bureaucracy.

Target chief operating officer and incoming CEO Michael Fiddelke did not mention AI in his announcement on cutting 1,800 positions in October. However, he similarly discussed how the company wants to reduce organizational layers and overlapping work to make decisions faster. He also cited one of his goals for when he becomes CEO, which is to more fully use technology to improve speed, guest experience and efficiency.

“AI did not play any role in these decisions,” a Target spokesperson told Modern Retail. “Adjusting our global HQ structure was the first step in reshaping our organization to be agile and make faster decisions.”

Will Auchincloss, retail sector leader for EY-Parthenon, the strategy and transactions consulting arm of Ernst & Young, said most retail layoffs right now are more in response to macroeconomic trends than to AI, pointing to a desire for efficiency but not necessarily replacing workers with agents.

However, Auchincloss said firms are slowing hiring because of uncertainty about how AI will affect their hiring needs moving forward, as well as macroeconomic conditions.

“They don’t know what this is going to look like exactly,” he said. “You’ve got this new technology, and there’s just a lot of promise with it, but also a lot of uncertainty about how it impacts the organization.”

Retailers are preparing for a future where any repetitive corporate tasks are going to be at least influenced by AI, said Pano Anthos, founder and managing partner of XRC Ventures, a venture capital firm that focuses on technology that affects consumer behavior, such as e-commerce platforms, payment infrastructure, and supply chain or demand planning software. The firm often works with retailers that join as investment partners or participate in pilot programs.

Anthos said retail CEOs are going through their processes with a fine-tooth comb to see where they can use AI technology to make things faster or more efficient. Those areas could include customer support, monitoring and forecasting the supply chain, and analyzing legal documents. Boards have started to demand this from them, Anthos said.

“The mandate to the CEO is, ‘Are you on this AI bandwagon or not? Are you drilling into your business processes with a lens toward hyperefficiency and not so much cost-cutting?” Anthos said. “It’s really about being efficient with the labor you have, and it may result in job losses. It may also result in reassignments into more important tasks.”

Still, Anthos said that mandates to use AI could turn into disaster, if retailers don’t have the right guardrails. AI could hallucinate and cause problems or open up security breaches. And trying to create complex AI systems in-house — instead of turning to a vendor — may not be successful if retailers don’t have the right budget. He said he doesn’t think there’s a lot of appetite to expand IT budgets to create AI tools that would work effectively and be secure.

“That is not a trivial undertaking,” Anthos said. “It is a lot of work, it’s a lot of moving parts, it’s a lot of third-party services.”

Companies may also need to make cuts to afford higher salaries for talented AI engineers. Auchincloss said retailers are already struggling to recruit such talent over Silicon Valley tech companies that have bigger budgets. In addition to higher salaries, he said, those workers are also looking for companies with good career paths, the right culture, enough support and clean enough datasets where they can make an impact using them.

“A lot of these [retail] organizations were built up on multiple, often cloud-based systems with different bespoke applications for each function,” Auchincloss said, adding that each of those may have a database that doesn’t connect with others.

Auchincloss said that, while the technology is not fully there to automate all the functions retail CEOs want to automate, they are still trying to figure out how to incorporate some AI capabilities into their processes. That could include models for forecasting and targeting, supply chain planning, personalization, or software development.

“We’re starting to see a really dramatic uptick in the frequency of the conversations and the amount of budget that’s getting put toward AI in retail. The better firms are focusing on a set of use cases that align with their strategy,” Auchincloss said. “They are interested in automation and augmentation, but the capabilities of AI haven’t quite gotten there yet, where you can just plug and play. You have to reimagine the work that’s being done and the processes around the AI. … That takes a little bit more time to ingest this technology into the organization to make it work.”

For example, Auchincloss said he worked with a quick-service restaurant company — which he declined to name — on AI work for its mobile app. His team found opportunities for the company to use AI to segment their customers better, predict what kind of offers they should offer and run simulations about how those offers would perform. But an executive at that company said it didn’t have the people or processes to run the software in its organization. It would need a team to repeatedly run the models, connect them to existing applications it has in its marketing stack, run tests and capture feedback.

“How do I monitor a pool of millions of customers now with these new predictive tools and think about reactivating them, driving their loyalty, getting to try new menu items, offer the right promotions — that’s a completely new set of activities they’ve never done before,” Auchincloss said.

The better retailers, in Auchincloss’s view, are taking a long-term approach to thinking about what AI could look like over the next three to five years, and adjusting their workforce’s shape, size and skillsets. That, he said, could mean giving repetitive tasks to agents and changing junior-level positions that had done them previously or replacing offshore work with AI agents in the hands of domestic talent.

“You’ve got all these things in the loop happening right now,” Auchincloss said. “It’s not just one size fits all.”