A I I N D U S T RY S E R I E S

Top Retail AI
Trends To Watch
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AI vs. super fakes. The future of shoplifting.
Robots in your supermarket. We look at the
top artificial intelligence trends reshaping
the retail industry.
Many of the AI trends emerging in retail are the result of a
wake up call from Amazon, as the tech giant forces retailers
to reconsider their e-commerce strategies and innovate in
the brick-and-motor space to stay competitive.

In our second industry deep dive, we use the CB Insights

database to unearth the top AI trends transforming the
retail industry.

(Check out our first report in the AI Industry Series:

Top Healthcare AI Trends To Watch.)

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Why now for AI in retail?
Amazon has driven many of the leading trends in retail AI.

The company’s expansion into grocery and promises of

1-hour grocery delivery have pushed supermarkets to
experiment with AI-run “micro-fulfillment” solutions to
stay profitable.

Amazon’s introduction of grab-and-go cashierless stores

has spurred an unmanned store frenzy in China, and smaller
startups are emerging in the US to service other retailers who
want in on the cashierless trend.

Other emerging applications of AI have been driven by

a desire for more visibility and transparency — such as
computer vision for in-store inventory monitoring, or neural
networks for tracking goods through the supply chain.

But retailers hoping to capitalize on these technologies to

keep up with tech giants like Amazon still have a ways to go.

In an analysis of 1,600+ earnings calls from more than

50 publicly traded US retailers, only 9 retailers had begun
discussing AI-related strategies for their websites or physical
stores as of January this year.

However, we are seeing increased investment in retail AI.

Retail AI startups raised $1.8B across 374 deals from
Q1’13 — Q3’18. (This excludes sales, marketing, and
advertising startups providing AI solutions for clients across
different industries.)

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Competition from Amazon, demands for transparency, and
increasing investment are all transforming the retail AI landscape.

Here are the top retail AI trends to watch as the industry takes shape.

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 Table of 1 Brands pay big to be on supermarket shelves —
AI is making sure they’re visible

Contents 4 AI vs. ‘super fake’ goods

11 AR & computer vision make beauty brands data rich

14 Micro-fulfillment centers help grocers connect

with online shoppers

18 The voice shopping revolution that never was

20 Walmart goes all in on robotics R&D

23 Shoplifting in the age of ‘grab-and-go’

26 China’s unmanned retail frenzy

29 Food space goes driverless

31 Rise of the AI stylist

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“We use CB Insights to
find emerging trends and
interesting companies
that might signal a shift in
technology or require us
to reallocate resources.”
Beti Cung,
CORPORATE STRATEGY, MICROSOFT

T R U S T E D BY T H E W O R L D ’ S L E A D I N G C O M PA N I E S

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1 Brands pay big to be on
supermarket shelves — AI is
making sure they’re visible
Shelf space is limited, and brands pay thousands of dollars to
compete for it. Beyond that, they have little visibility into what
goes on in the store. AI is changing that.

“Slotting fees” are not a new concept in retail.

Apple & Eve spent around $150,000 to secure freezer space for
their fruit punch product in a few stores, while Frito-Lay paid an
average $100,000 per supermarket chain to introduce a new
product, according to a 2001 study published in the Journal of
Law and Commerce.

Earlier this year, Whole Foods considered charging its top vendors
around $300,000 for several weeks of prime shelf space.

But once brands sign a contract with the supermarket, they have
little visibility into what happens on the supermarket shelf and
whether their products are displayed as promised.

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Startups are capitalizing on this by selling real-time store data.

Computer vision platform Trax Retail, for instance, uses images

captured by in-store cameras, robots, or mobile phones to stitch
together a digital version of the physical store.

Trax said 95% of its business is with manufacturers (like Coca-

Cola and Henkel), in an interview with Computer Business Review.

Traditionally, brands send salespeople or auditors to manually

check product placement in stores. While Trax’s product still
requires people to visit the supermarket, it is attempting to auto-
mate the tracking of metrics like share-of-shelf and distribution.

Supermarkets like Walmart are looking into selling this data

directly to manufacturers. Below is an excerpt from Walmart’s
recent patent application.

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Retailers need in-store data to track items and manage inventory,
among other things.

Walmart partnered with Bossa Nova Robotics to monitor misplaced

price tags and missing items on shelves in 50 of its stores.

But the above patent hints at a more futuristic plan, where

in-store retail robots receive requests for real-time data from an
external vendor (or a CPG company like Coca-Cola).

The system then charges the vendor for the task before the
autonomous robots complete it.

Startups could also potentially partner with both brands and

supermarkets — as Trax has already begun to do — and monetize
by selling the same computer vision application for different
use cases.

But the retail store environment still poses unique challenges

for computer vision algorithms. Two CPG brands may have very
similar packaging, items stacked behind one another may not be
visible, or items thought to be missing could be tucked away or
in a different aisle.

Startups are acquiring other startups to improve their technology

and add additional datasets.

In July 2018, Bossa Nova Robotics acquired Hawxeye, an AI

company developing face detection and object recognition
technology. Trax acquired retail intelligence company Quri in
January, and Nielsen’s Store Observation unit last year.

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2 AI vs. ‘super fake’ goods
Fakes are getting harder to spot. Online shopping is making it
easier than ever to buy fake goods — from luxury handbags to
watches and cosmetics — on the internet, forcing brands and
pawnbrokers to experiment with AI.

From drugs to handbags to smartphones, counterfeiting is a

problem that affects all types of retail.

Some product imitations look so authentic that they are

classified as “super fakes.”

A simple keyword search on the CB Insights platform shows that

discussions on counterfeits are trending up.

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China’s rapidly growing e-commerce platform Pinduoduo
mentioned “counterfeit” 11 times in last quarter’s earnings call,
describing “a very hard fight against counterfeit goods and …
problematic merchants.”

“In 2017, we…proactively removed a total

of 10.7 million problematic products
and blocked 40 million links that…raised
infringement issues…We have also
partnered with over 400 brands to work
together on combating counterfeit.”

— COLIN HUANG, CEO OF PINDUODUO

Patent applications, including those for anti-counterfeit tech and

developing products that are difficult to counterfeit, have been on
the rise in the last 5 years.

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Top patent applicants here include SICPA (which develops
security inks and anti-counterfeiting solutions for pharma,
banking, and oil & gas clients), Amazon, Merck, and Samsung
Electronics.

BATTLING COUNTERFEIT GOODS

Brands are fighting the war against fakes on two fronts:

1 In the online world, identifying and removing online listings

that infringe on brand trademarks like brand name, logo,
and slogans.
2 In the physical world, identifying fake goods like luxury
handbags that are rip offs.

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Online counterfeiting is vast and complex in
scope and scale.
E-commerce giant Alibaba, which has been under some fire for
not doing enough to counter fake goods on its sites, reported
that it’s using deep learning to continuously scan its platform for
IP infringements. It uses image recognition to identify characters
in images, coupled with semantic recognition, possibly to
monitor brand names or slogans in images of products listed
on its sites.

Counterfeiters use keywords and images very similar to the

original brand listing to sell fake goods on fake websites, fake
goods on legitimate marketplaces, and promote fake goods on
social media sites like Instagram.

When one listing is taken down, counterfeiters may repost the

same fake product with a different string of keywords.

Barcelona-based startup Red Points is using machine learning

to scan websites for potential infringements and find patterns
in the choice of keywords counterfeiters use. It boasts clients in
the cosmetics, luxury watch, home goods, and apparel industries,
including MVMT, DOPE, and Paul Hewitt.

Spotting fakes is trickier and more manual in

the physical world.
For instance, when a seller posts a second-hand luxury
handbag for sale, or goes to a pawnbroker to trade it, the verifica-
tion process usually involves an authentication expert physically
examining the bag, including the make, material,
and stitching pattern.

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Here’s how much eBay charges to authenticate one luxury
handbag using identification experts:

But with the rise of “super fakes” or “triple-A fakes,” it’s becom-
ing nearly impossible to tell the difference with the naked eye.

Building a database of fake and authentic goods, extracting their

features, and training an AI algorithm to tell the difference is a
cumbersome process.

For instance, startup Entrupy had to buy handbags, including

from family and friends who owned luxury products. They
shopped for genuine and counterfeit handbags, and worked
with authentication experts to build a database for training the
algorithms for 2 years.

The process is harder for rare vintage luxury goods.

Entrupy developed a portable microscope that attaches to a

smartphone. When users take and upload a picture of the prod-
uct (handbag, watch, etc), AI algorithms analyze microscopic
signatures that are unique to each product, and verify it against a
database of known and authentic products.

After a one-time fee of $299 for device set up, Entrupy offers dif-
ferent packages, ranging from $99/month for 5 authentications
to $999/month for 100 authentications.

The database is growing, but there isn’t a complete set products

out in the market.

A paper published by Entrupty highlights some other operating

assumptions and limitations.

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The key idea is that objects manufactured using standard or
prescribed methods will have visually similar characteristics,
compared to the manufacturing process a counterfeiter would
use (non-standardized, inexpensive mass production).

Secondly, the tech may not work for things like electronic chips
that are nano-fabricated (variations at a scale that Entrupy’s
microscope cannot detect).

Cypheme is taking a different approach.

Its ink-based technology can be used as a sticker on the product,

or directly printed onto labels and packaging.

Nikkei Asian Review

detailed the tech in an
interview with the CEO
— a random pattern is
generated from a drop
of ink, the pattern is
surrounded by another
circle of orange
ink that Cypheme
claims is proprietary
to the company and
impossible to replicate, then each unique pattern is associated
with a specific product on a database.

It uses a smartphone camera and neural networks for pattern

recognition to verify the ink pattern for the specific product
against its database.

This means Cypheme has to work directly with brand manufac-

turers to make sure products are shipped with the tracing ink.

It recently entered into a partnership with AR Packaging, a

leading packaging company in Europe working with food brands
like Unilever and Nestle.

While printing ink on packaging is efficient for tracking an item

from the manufacturing plant and along the distribution chain,
the tech doesn’t work for secondhand purchase authentication.

For instance, a buyer may remove Cypheme’s sticker from the

packaging of a luxury watch, and decide to resell it at a broker
shop or online. In this case, verifying authenticity is not possible
unless the printing is part of the product itself.

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Cypheme claims the entire ink print is around 12mm, making it a
viable solution for printing directly on products, like the inside of
handbags or shoes.

The solution for luxury brands and other high-stake retailers,

moving forward, may be to identify or add unique fingerprints to
physical goods at the site of manufacturing and track it through
the supply chain.

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3 AR & computer vision make
beauty brands data rich
Virtual try-ons serve a dual purpose in beauty retail: to solve
beauty shoppers’ pain points and, more importantly, to collect
data on consumer and product preferences for retailers.

Beauty is one industry where augmented reality applications

have already seen success.

Augmented reality became mainstream across the space in

2017. Perfect Corp and Modiface, which both offer virtual try-on
technology for beauty brands, established themselves as the
go-to providers of augmented reality for the beauty industry and
have worked with major corporates including Sephora, Estee
Lauder, L’Oréal, and others.

Both Perfect Corp and Modiface combine augmented reality and

computer vision to let shoppers virtually try on different looks,
while simultaneously collecting behavioral data for brands.

Modiface’s tech collects a variety of data points around facial

characteristics, including face shape, skin tone, wrinkles, and more.

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This can help retailers determine how people with specific
facial characteristics may be more likely to purchase certain
types of products, thereby potentially predicting inventory with
greater accuracy.

Initially, the technology was used to solve the beauty shopper

pain point of trying on makeup easily, without the mess.

L’Oréal’s acquisition of Modiface earlier this year has helped the

company launch a variety of AR-powered beauty experiences for
L’Oréal’s beauty brands.

It recently launched a long-term partnership with Facebook to

create AR beauty experiences for its portfolio brands on the
social network’s platform. Within Facebook, users can virtually
try-on products using a smartphone camera, and then be
seamlessly redirected to parent sites to make a purchase.

L’Oréal is also rolling out Modiface-powered web-based try-ons,

as seen with the L’Oréal Paris brand.

There was some question of whether Sephora and other beauty

brands would cease working with Modiface after its acquisition
by L’Oréal, according to WWD. However, Sephora still plans to
use Modiface’s technology to power the Sephora Virtual Artist
program in its app.

The company has even claimed that due to increased awareness

of AI and AR technologies from the Modiface acquisition,
Sephora’s app has seen greater engagement.

AR-powered shopper tracking technologies can also increase

mobile sales and conversion rates.

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For example, Estée Lauder-owned Smashbox partnered with
Modiface to use customer eye tracking insights to heat map the
areas on a screen receiving more attention by users. This helps
Smashbox understand which features are the most interesting
and iterate on its website to make the beauty shopping
experience more relevant for consumers.

Such alternative use cases claim to increase conversions,

reduce product return rates, and improve brand recognition.

For example, L’Oréal recently worked with Modiface to add an

augmented reality feature to its “Style My Hair” app that helps
consumers visualize what their hair will look like after a
coloring treatment.

And some are taking it a step further.

Benefit Cosmetics (owned by LVMH) partnered with Modiface to

launch an augmented reality tool to help users try on different
eyebrow types before getting waxed or plucked.

Even nail color is getting the AR treatment: Wanna Nails (owned

by Wannaby, which has raised $2M in total funding) specializes
in augmented reality for nail polish try-on and has worked with
brands such as OPI, Essie, and others.

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4 Micro-fulfillment centers
help grocers connect with
online shoppers
Whether shoppers choose 1-hour delivery or to order online and
pick up in store within the hour, AI-run micro-fulfillment centers
promise to make e-grocery profitable for supermarkets while
helping them engage directly with customers.

Amazon’s Whole Foods acquisition last year and its continued

online grocery expansion is driving other grocers toward an
e-commerce strategy.

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Instacart has stepped in as a middleman between supermarkets
and consumers in the United States.

This is particularly appealing for food retailers that haven’t

scaled their e-commerce operations and don’t want to lose
market share to retail giants like Amazon and Walmart.

Take Aldi, for instance. The German company is one of the top
supermarket chains in the United States, and is betting big on
brick-and-mortar. But its e-commerce efforts go only as far as a
recent and limited-time Instacart partnership. (Clients can read
our Aldi teardown here.)

Instacart added another major grocer, Kroger, as a client last

November. Publix, which partnered with Instacart in 2016, wants
to offer same-day delivery through Instacart in all its markets
by 2020.

However, customers shop from local grocery stores using

Instacart’s app, and grocers lose their relationship with shoppers.
In contrast, Amazon’s Whole Foods acquisition was a data move
as much as a brick-and-mortar expansion.

Micro-fulfillment centers are providing supermarkets with an

alternative: mini, vertically stacked warehouses that can fit
within an existing supermarket, with the option to run their own
e-commerce interface or take advantage of end-to-end solutions
from startups developing the tech.

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The entire “mini warehouse” is less than 10K square feet (in
some cases around 3,000 sq. ft) compared to traditional
warehouses that can be the size of a football field.

Shelves are vertically stacked to save on real estate space, and

can be installed inside an existing supermarket, the basement of
a building, or even inside parking garages.

Ground robots move between aisles to fetch the items in an order

and hand it to a human worker for final packaging.

AI software is used to decide

placement of goods in the shelves,
prioritize tasks, and send navigation
instructions to ground robots.

Click-and-collect (where consumers

order online and pick up in store) is
gaining momentum, according to a
recent report from Nielsen and Food Marketing Institute.
Micro-fulfillment centers in densely populated areas provide
efficient pickup solutions.

Secondly, retail shelf space is limited. These vertically stacked

micro centers will allow supermarkets to hold more inventory
than they typically can at the store.

It’s too early to calculate ROI on micro-fulfillment centers

for retailers, but some major public-private partnerships are
emerging with different business models.

CommonSense robotics is offering retailers a

pay-as-you-go option.

Israel’s 3rd largest supermarket chain, Rami Levy, is partnering

with CommonSense Robotics to build 12 distribution sites in
Israel by July 2021, with 2 centers scheduled to begin operations
by end of next year.

It appears that CommonSense will own and operate the

micro-fulfillment site, receiving inventory and orders from
the retailer.

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 Sedano’s Supermarket
is partnering with
startup Takeoff
Technologies to build
its first micro-fulfill-
ment center in Miami.

Takeoff Technologies is
offering an end-to-end
solution, including
inventory management and an online ordering interface, which
is appealing for retailers like Sedano’s that don’t have an
online presence.

It is not clear where the fulfillment center will be located, but the
co-founders discussed a “hub and spoke” model in an interview,
where 1 hub supports 8-10 sister stores within a 2-hour drive
from the hub.

(Above is a Google Map view of Sedano’s supermarket

distribution across Miami.)

Walmart is partnering with Alert Innovation for a superstore in

New Hampshire. The warehouse will be an extension of the store,
with a curbside pick up option.

The cost of setting up and running these centers in partnership

with startups is undisclosed. But an operating assumption is
that, since these fulfillment centers will be in high-density urban
pockets, last-mile delivery would cost less — or nothing at all, if
consumers choose to order online and pick up in-store.

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5 The voice shopping revolution
that never was
Voice shopping is not taking off. With the exception of reordering
specific items, it fails to provide key customer experiences that
drive online commerce.

Even Jeff Bezos was bearish on voice shopping in an interview

with Billboard last year, when he said “voice interface is only
going to take you so far on shopping.”

But that didn’t stop analysts and CPG brands, from Sephora and
Nestle to Capegemini, from sounding off on what they said was
the next big thing in retail: voice shopping.

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“The use of voice assistants … has
turned out to be more than just a fad.
It’s paving the way to a minor digital
revolution, of which Sephora wants to
be a pioneer.”
— ANNE-VÉRONIQUE BAYLAC,
CHIEF DIGITAL OFFICER,
SEPHORA EUROPE AND MIDDLE EAST

Today, very few consumers are using Amazon Alexa for shopping,
and voice commerce hasn’t yet gone mainstream.

A report from The Information found that only 2% of Amazon

Alexa users have shopped for products in 2018 using the voice
interface, and only 10% of those were return shoppers.

In fact, no one is discussing using Amazon Alexa or Google

Assistant for voice shopping on earnings calls except Amazon
and Google.

Voice is not a convenient interface for online shoppers who want

to view items, compare products and prices, or read the fine print
on product features.

This is a trend we’ll be putting to rest for the near future.

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6 Walmart goes all in on
robotics R&D
The ROI on retail and delivery robots may be unclear. But
Walmart’s patents reveal ambitious plans, from voice-controlled
UAVs to coordinated drone delivery.

Walmart has applied for at least 37 patents related to drones and

ground robots since January 2017, compared to just 8 in 2016.

The chart below shows Walmart’s patent applications in

comparison to Amazon, which is known for its ambitious
robotics patents.

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(Note: there may be a 12-18 month lag between when companies
apply for patents and when the USPTO publishes the information
online. More patent applications may become available for both
companies for the 2017-18 time period)

The majority of Walmart’s patents are related to unmanned aerial

vehicles (UAVs), or drones, for last mile delivery.

Here’s a 2018 patent application for automated package hand-off

between a UAV and an autonomous ground vehicle (AGV).

Another patent discusses a system using autonomous robots to

detect missing items in one facility (for instance, out-of-stock
products on store shelves) and replenishing it with items from
another facility.

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Other patents highlight using temperature-controlled drones for
delivery, and voice and gesture-controlled drones for in-store
navigation, like directing shoppers to the right aisle.

The majority of its last-mile logistics patents, however, are

unlikely to pay off in the short/mid term.

One of Walmart’s drone delivery patents acknowledges the

shortcoming:

“For example, federal regulators in the United States (and state-

based authorities elsewhere in the world) impose numerous
restrictions and conditions upon the commercial use of airborne
drones. As another example, airborne drones are typically
powered by batteries and hence often have a very limited flight
range. As yet another example, it can be challenging to safely
and reliably navigate a product-bearing airborne drone over a
lengthy distance.”

The patent highlights dispatching a drone from a terrestrial

vehicle to deliver a package to the consumer in the final leg.

Despite challenges, Walmart appears to be preparing for a

disruption in logistics, specifically in the last mile — a major
focus area for rival Amazon.

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7 Shoplifting in the age of
‘grab-and-go’
Entering a store, picking what you want, and walking out
almost “feels” like shoplifting. We look at the promises and
implementation challenges of the tech that could make actual
theft a thing of the past.

Amazon Go did away with the entire checkout process, allowing

shoppers to grab items and walk out.

Amazon has no public plans to sell its tech-as-a-service to other

retailers yet, and has been tight lipped about the operations,
success, and pain points — only revealing that it uses sensors,
cameras, computer vision, and deep learning algorithms. It has
denied using facial recognition algorithms.

Startups like Standard Cognition and AiFi have seized the

opportunity, stepping in to democratize Amazon Go for
other retailers.

A challenge grab-and-go stores face is how good they can be

at charging the right amount to the right shopper.

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Loss of inventory due to shoplifting and paperwork error, among
other things, cost US retailers around $47B in 2017, according to
the National Retail Federation.

“Stealing is buying,” Steve Gu, CEO of startup AiFi, said in an inter-

view with The AI Podcast recently, discussing the technology
behind grab-and-go stores.

So far, Amazon Go is the only successful commercial deployment,

but the the parameters of success are tightly controlled.

The chances of someone shoplifting is minimized when you

control who enters the store, and automatically charge them.

Amazon already has an established base of Prime members. All

the Go stores so far have been restricted to members, with other
retail operations like the Kindle store, which is open to general
public, still relying on a manual checkout process.

Smaller bodegas, convenience stores, and even several

established supermarkets have to build that membership base
from scratch.

Steve Gu hinted in the aforementioned podcast that there could

be a “grab-and-go” section for people willing to download the
app, and a separate checkout line for those who don’t want to.

It’s not clear how a store’s infrastructure would support both,

but potentially, app users could scan once to enter, and once to
exit — unlike current process where you only scan your phone
once, while entering — ensuring non-app users leave through a
separate check-out line.

That still leaves the issue of point-of-sale inventory shrinkage

like incorrectly billed items or POS theft. China’s Yitu Technology
and Toshiba, with its intelligent camera for checkout, are some
companies separately working on POS shrinkage.

The complexity of preventing theft depends on the size and scale

of operations, and type of products on the shelves.

Amazon Go stores are only about 1,800 to 3,000 sq. ft, and use
hundreds of cameras covering nearly every inch of ceiling space.
In comparison, traditional supermarkets can be 40,000 sq. ft.
or more.

Go, which uses weight sensors on shelves in addition to cameras

for visual recognition, currently only offers a limited selection of
items, like prepared and packaged meal kits.

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Some things to consider are how floor space will be utilized,
especially in densely packed supermarkets, to ensure cameras
are optimally placed to track people and items. Loose vegetables
and other produce that are billed per pound would presumably
rely on sensor tech, but multiple shoppers picking items
simultaneously from the same carton would not work with
sensors alone. Even pre-packaged or diced vegetables have
slight variations in price from one package to another.

Apparel too is particularly hard for computer vision systems to

track. Identifying the size (S/M/L) and tracking clothes that are
easily folded and tucked away are some of the pain points.

While startup AiFi promises to utilize existing store infrastructure

and a combination of sensors and cameras, Standard Cognition
claims to completely do away with sensors, relying solely on
machine vision.

Standard Cognition announced a partnership with Paltac

Corporation, Japan’s largest CPG wholesaler, to outfit 3,000
Japanese stores ahead of the Tokyo Olympics in 2020. AiFi, on
the other hand, reportedly has around 20 retail clients in the
pipeline, including a contract with a major retailer in New York.

In the near term, it comes down to what the cost of deployment

and cost of inventory loss due to potential tech glitches would
be for smaller retailers, compared to a trillion dollar tech giant
like Amazon.

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8 China’s unmanned retail frenzy
Deals to companies marketing themselves as “cashierless” or
“unmanned” have soared in China. Over 10 companies have
raised funds for “unmanned” vending machines.

Soon after Amazon announced plans for Amazon Go, China’s

unmanned retail deals surged.

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 These include “unmanned stores,” “unmanned shelves,” and even
“unmanned vending machines.”

However, not all of the cashierless startups that have sprung up

in China use AI.

One of the earliest deals went to F5 Future Store, which has

raised over $7M and appears to operate on a self pay and check
out system.

BingoBox raised $80M in Q1’18, bringing its total funding to

$94M. Its unmanned stores relied on RFID tags, with customers
still having to scan the products to complete the checkout
process. But BingoBox has since announced that it is moving
towards AI-based image recognition solutions at its stores.

Over 10 companies have raised around 15 deals for for

unmanned vending machines — machines that were never
manned to begin with.

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Some “unmanned retail” companies like Meiweishenghuo, which
has raised over $9M in equity, simply allows users to scan a QR
code to open the vending machine door to collect the item they
paid for — with the added convenience of microwaving the food.

Others like hgo BOX, which received ~$1M in corporate minority

from China UCF Group, claim to use computer vision to identify
which products are picked from the shelves and automatically
charge the customer, apart from “monitoring” customers so that
they don’t vandalize the machine.

The space is already seeing some major failures.

Guoxiaomei, which raised over $64M to put “unmanned snacking

shelves” in offices, reportedly laid off staff and changed its busi-
ness model to e-commerce due to “theft and mismanagement.”

JD.com, China’s second largest e-commerce platform, opened its

first human-free convenience store in Shandong, China in Jan’18.
It claimed the title of first unmanned convenience store to fully
open to the public, but it’s tech is different from Amazon’s.

To recap, customers at Amazon Go stores have to scan their

Go app to enter. After that, a series of cameras reportedly track
customer movement throughout the store, bypassing the need to
deploy facial recognition algorithms (this explains how Amazon
Go was able to detect thieves in Pokemon costumes).

In contrast, users scan a QR code while entering JD stores. A

camera runs facial recognition algorithms to identify the shopper
during entry. Every item in JD’s physical store carries an RFID
tag. While exiting, customers stand at a “stand here” sign marked
on the floor, where all the RFID tags are scanned at once, and
cameras run facial recognition algorithms again to charge your
account.

Today, JD.com operates 20+ unmanned stores in China, and

in Aug’18 it opened one store in Jakarta, Indonesia, its largest
at ~2,900 square feet. Its Jakarta location sells apparel and
accessories along with packaged goods.

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9 Food delivery goes driverless
Despite regulatory uncertainties and deployment challenges,
brick-and-mortar food businesses are partnering with major
OEMs and autonomous vehicle startups to cut down on last-mile
delivery costs.

Brick-and-mortar food businesses are partnering with AV

startups and major OEMs to improve last-mile delivery logistics.

In June, robotics startup Nuro partnered with Kroger, one of the

largest brick-and-mortar grocers in the US.

Nuro has developed its own fully-electric autonomous delivery

vehicle, called the R1, designed for transporting goods rather
than people. The vehicle is half the width of a passenger car
and is designed to drive on neighborhood roads, not just
sidewalks like other delivery robot and vehicle prototypes that
have been developed.

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For its partnership with Kroger, which launched in Scottsdale,
Arizona in August, Nuro is using its fleet of Toyota Prius and
Nissan Leaf vehicles that are equipped with the company’s
self-driving technology. These vehicles collect data that
ultimately feeds into the R1, which the company plans to
bring into public testing this fall to replace the traditional
passenger vehicles.

In the restaurant space, pizza companies like Domino’s and

Pizza Hut have been at the forefront of testing out autonomous
vehicle technology.

Ford is piloting autonomous delivery in Miami with pizza,

groceries, and other goods. The OEM partnered with over 70
businesses, including Domino’s, in early 2018.

Currently, there are no federal laws governing testing and

deployment of autonomous vehicles. Regulations vary from
state-to-state. Arizona, where Kroger is running its tests, has
been particularly liberal with testing driverless cars, despite
the controversy surrounding a driverless pedestrian death in
the state.

Food retailers are not in it for near-term profitability or overnight

widespread deployment. Last-mile logistics are a challenge even
for tech-enabled players like Amazon, and an early involvement
in autonomous ground delivery offers a promising solution for
grocery retailers and restaurants looking to win out on affordable
last-mile delivery in the long run.

(Clients can read our entire deep dive on the topic here.)

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10 Rise of the AI stylist
AI is helping retailers personalize the shopping experience for
consumers. It is also helping them prepare for the next big trend
in fashion.

Personalized styling is offering shoppers a better experience

than filtering and searching through thousands of product
listings online.

Shoppers fill out a quick questionnaire on their style preferences

online. Using that as a starting point, AI algorithms get better
over time in finding items that are likely to appeal to each
individual shopper, learning not just from purchase history, but
also from users’ browsing behavior.

That is exactly what UK-based Thread — an e-commerce startup

that offers a personal shopper service — is building. It reportedly
has over a million users.

Recently, H&M’s venture arm backed Thread in a $22M Series

B round.

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StitchFix does something similar, but is integrating AI not just
for style recommendations, but also for demand forecasting,
inventory management, and even helping designers to create
new styles.

The company is at the forefront of AI-driven fashion with its

“Hybrid Design” garments, which are created by algorithms
that identify trends and styles missing from the Stitch Fix
inventory and suggest new designs — based on combinations of
consumers’ favorite colors, patterns, and textiles — for human
designers’ approval.

“…we also have a lot of photographic

and textual data to consider: inventory
style photos, Pinterest boards, and the
vast amount of written feedback and
request notes we receive from clients…
Natural language processing is used
to score items based on the client’s
request note and textual feedback from
other clients about the same item.”
— STITCHFIX

Earlier this year, Tommy Hilfiger announced a partnership with

IBM and the Fashion Institute of Technology.

The project uses IBM AI tools to decipher real-time fashion industry

trends, customer sentiment around Tommy Hilfiger products &
runway images, and resurfaces themes in trending styles.

Results from the algorithms are then served back to human

designers, who can use them to make informed design decisions
for their next collection.

The next era of fashion is all about personalization and

prediction. With more and more data, algorithms will become
trend hunters — predicting (and designing) what’s next in ways
that have never been possible.

(Read our entire deep dive into the Future of Fashion here.)

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