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Embracing Disruption

DIY goes AI: Home improvement retailers tap AI for a competitive edge

In the competitive home improvement industry, the biggest players are using AI to get ahead. We’ve uncovered how the top retailers are using AI-powered apps, digital twins and even robots to improve customer experience and drive growth.

  • According to McKinsey, generative AI may generate USD 400 bn in added value for the retail and consumer goods sector – and “big box” home improvement retailers are already using this new tech in innovative ways.
  • One major US retailer uses AI-powered recommendation engines, digital twins and robots to make the shopping experience smoother – and move their customer relationship from transaction-based to one of ongoing engagement.

The do-it-yourself (DIY) industry is a large and growing global business. In the US alone, the USD 545 billion home improvement industry grew at a 6% compound annual growth rate (CAGR) over the last decade. 1 In this environment, the biggest brands are battling to grow their market share by using new technology – particularly artificial intelligence (AI) – to improve the customer experience and manage costs.

There’s good reason to make big investments in AI. McKinsey estimates that generative AI will generate USD 400 billion in added value to the retail and consumer goods sector2, with the lowest hanging fruit found within marketing functions. With that in mind, our research team looked into the AI initiatives underway at the top two home improvement US retailers, which hold a combined market share just shy of 40%3 :

  • Retailer A has approximately 1,700 locations in the United States
  • Retailer B has approximately 2,400 locations across North America
AI-powered websites and custom apps

Retailer A’s website and app use AI-powered recommendation engines to suggest relevant products based on browsing history and past purchases, helping customers quickly find what they need. The company is betting that leveraging AI in this way will help change its customers’ perceptions about its brand – from a store that sells products to a place that solves customers’ problems. This approach also allows Retailer A to engage in post-purchase follow-ups, and helps them remind customers of maintenance schedules and replacements. The aim is to move the retailer-customer relationship from a single transaction to one of ongoing engagement.

Digital twins

Retailer A leverages a major chipmaker’s 3D simulation software platform to create a virtual replica of a store – known in the tech world as a “digital twin”. These AI avatars simulate customer in-store journeys, helping to optimise product placement and train sales associates for a smoother shopping experience.

Inventory management

AI also has the opportunity to improve inventory management for big box stores like these. Much of their inventory is big, heavy and bulky, making transportation and storage complex and costly. Here’s where AI can step in with supply chain and inventory optimisation.

  • Retailer B developed a proprietary technology solution for their employees, combining a mobile device and custom app. Store associates take pictures across the store, and the app uses machine vision and AI to help identify shelves that need restocking and locate products quickly. This removes friction from the shopping experience for customers, and improves inventory management for the store. 4 5
  • Retailer A’s approach takes it one step further. The company is testing a robot that roams store aisles, using AI and 3D mapping to identify stock discrepancies and ensure accurate inventory information – no human input required. This robot is currently being tested in eleven stores in San Francisco’s Bay Area.6
  • Retailer A is also using AI algorithms to analyse sales data and market trends to predict future demand for specific products, helping optimise inventory levels and avoid stockouts. TD Cowen estimates that this technology (combined with labour savings) may help can increase gross margins by 20-60 basis points and reduce selling, general and administrative (SG&A) expenses as a percentage of revenue by 30-90 bps.7
The bottom line

Within AI-enabled Industries, the home improvement is an area where industry players are actively integrating AI into their businesses. Our research has shown that major DIY retailers are putting significant investments behind AI initiatives to improve the customer experience improve the back-end operations of their business. It is clear that the AI investment cycle in retail has just begun.

1 Source: Statista, as at March 2024
2 Source: McKinsey, as at December 2023
3 Source: North American Hardware & Paint Association, as at January 2024.
4 Source: Chain Store Age, as at January 2023
5 Source: ZDNET, as at December 2023
6 Source: WBResearch.com, as at August 2016.
7 Source: TD Cowen, as at December 2023

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