Retailers in Europe could unlock a massive economic windfall if they reimagine their workflows and integrate AI at every stage of the business in the next five years, according to a report from McKinsey & Company.
Calling this an end-to-end AI transformation, the consulting company estimated this could lift operating profits, ranging from 240 billion euros ($276.5 billion) and 320 billion euros ($368.7 billion). The company grouped retail into three categories: groceries, softline (such as fashion and beauty), and hardline (such as electronics).
Retailers in “soft” businesses like apparel and shoes would have the biggest boost in their operating profits if they achieve this transformation, which McKinsey estimated would yield 100 billion euros ($115.2 billion) to 130 billion euros ($149.8 billion). This, it said, is “driven by greater pricing attractiveness and better matching of assortment with constantly changing consumer preferences.”
This is followed by groceries, which, despite their low margins, could yield 90 billion euros ($103.7 billion) to 130 billion euros ($149.8 billion) largely because of improvements such as supply chain efficiency, waste reduction, and more-targeted promotions. Hardline retail, like electronics, could have 50 billion euros ($57.6 billion) to 60 billion euros ($69.1 billion).
Across value chains, McKinsey said AI is already reshaping how decisions are made, from analytical use cases to autonomous applications. But unlocking the economic value requires going beyond the pilot phase; a hurdle, because not every business is ready for AI. A previous McKinsey report noted that 86 percent of leaders feel that their organizations are not “very prepared” to adopt AI into their daily operations.
“While many retailers have begun deploying AI in isolated instances, its full value potential emerges only when these capabilities are scaled end to end across the enterprise,” the report said.
“The primary barrier to implementing AI at scale is talent readiness,” McKinsey said. It underscored the importance of reskilling the workforce to prepare for AI adoption, especially since two-thirds of required retail skills may change within five years. For example, the work of a merchandiser might change as AI automates data consolidation, forecasting and promotional planning.
“AI may not replace retail leaders. And the sector is still in the relatively early stages of deployment and scalability, which remains uneven across Europe. Yet the technology’s potential to accelerate operational impact when combined with human expertise and judgment means that retail leaders who move quickly to rewire their enterprises around AI are likely to gain a competitive advantage,” it said.
