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Discount warehouses often sell merchandise with lower profit margins than individual products in regular retail stores, making membership fees a key part of the strategy. At Sam’s Club, AI steps in to keep members engaged, helping to display prices and products that justify membership renewal.
“Even when we look at price optimization, we look at volume elasticity and renewal probability for the member, and then make those decisions for price optimization,” said Vinod Bidarkoppa, CTO at Sam’s Club. “And we’ve seen great, fantastic margin increases.”
Companies using AI at scale can use laser-like precision, aiming at areas of the organization where improvement is a top priority. But AI projects can have a far-reaching effect, impacting the entire business cycle – from supply chain to pricing to marketing.
AI helps Sam’s Club, which operates 600 discount warehouses in the United States, build member loyalty in several ways, Bidarkoppa said.
- Algorithms help customers set their preferred products on an automated replenishment cadence, which has resulted in an increase in basket size.
- Another AI-driven feature reminds shoppers to pick up their most frequently purchased items as they walk around the store.
- Check-out hostesses expedite the final checkout of the cart by checking three randomly selected items before customers leave.
AI is also creeping into the retail supply chain. Companies are exploring ways in which technology can improve supply chain and other functional areas of business, said Mark Baum, director of collaboration and senior vice president of industry relations at FMI, The Food Industry Association. On the demand side, businesses want to use technology to gain insights and better understand consumers.
IMF research shows that less than a third of food retailers use AI as part of their technology strategies, according to an IMF report. AI is used for pricing and promotions at 19% of food retailers, while 22% use technology to generate consumer data.
Infuse AI at scale
Whether it’s AI, software, or cloud computing, simply plugging in technology doesn’t immediately translate to efficiency.
Discount clubs generally have better access to capital, which facilitates their ability to invest in AI, robotics and other technology solutions, Baum said.
However, enabling AI at scale isn’t always easy. At the warehouse club, change management was a key part of the implementation.
“Helping the organization understand the benefit of using these new tools is part of change management,” Bidarkoppa said. Unlearning previous behaviors allows teammates to understand how new tools can help them increase their work and improve their performance.
Sam’s Club has seen a surge in sales as consumers look for bargains in their usual basic groceries. Offset sales, a key metric in the retail industry, increased 9.5% year-over-year in the second quarter of fiscal 2023, for the period ending 29 July.
Although no specific numbers have been released, membership has reached an all-time high, the company said. Earlier this month, Sam’s Club raised membership prices for the first time in nine years.
Data supports leaders looking to infuse more AI into their businesses. According to data from McKinsey, nearly a third of tech-savvy companies’ revenue is generated by AI-enabled capabilities.
AI-based recommendations and predictions help Sam’s Club operate at scale, Bidarkoppa said. And it continues to happen in many parts of the business.
“It’s a journey,” Bidarkoppa said. “It depends on the different parts of the business. But we have many successes in several parts of the business that we use as case studies to demonstrate the benefits of AI.”