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The rapid evolution of artificial intelligence (AI) is significantly impacting various industries and sectors, and retail and ecommerce are no exceptions.

According to a recent study by Juniper Research, AI spending by retailers globally reached a whopping $7.3 billion annually by 2022, growing from $2 billion in 2018. The numbers are only set to skyrocket, courtesy the pivotal shift from in-store to online experience, driven by the new technology disruption.

Owing to its internet penetration, India is currently the world’s second-largest internet market. Other key factors, including increased smartphone adoption, rising affluence, and affordable data prices, are also fuelling the e-retail and ecommerce boom.

To paint a picture of the future, India’s ecommerce sector is set to touch Rs 4,416.68 billion in 2024 and grow annually at 11.45% to reach Rs 7,591.94 billion by 2029, according to Statista. User penetration is projected to rise from 22.1% in 2024 to 34.0% by 2029.

Within the ever-evolving landscape of ecommerce, one demographic is poised to revolutionise the way we shop: Generation Z, also known as Gen Z. With their digital fluency and innate understanding of technology, Gen Z can take maximum advantage of generative AI’s (GenAI) game-changing role in shaping the future of online retail–from redefining customer recommendations to transforming product discovery.

Gen Z’s influence on ecommerce

Gen Z (those born between 1997 and 2012) is known to be a highly digital-savvy and value-conscious consumer segment. For them, online shopping is the preferred option, while offline retail is significant for their experiential purchases. This duality is reflected in their buying behaviour, as they fluctuate between a persistent pursuit of the newest trends and a steadfast loyalty to brands that resonate with their beliefs.

Reflecting their tech-driven nature, mobile wallets and UPI hold a special place as their payment mode. UPI transactions in India touched a staggering Rs 125.94 trillion in 2022, with a user base exceeding 800 million.

To further characterise their shopping and purchasing decisions, Gen Z consumers are driven by sustainability, authenticity, and individualism while craving novelty. They rely heavily on peer recommendations and user-generated content when making purchasing decisions. This has led to a steep rise in influencer marketing and user reviews as dominant tools for driving sales in ecommerce.

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With their digital fluency and innate understanding of technology, Gen Z consumers can take maximum advantage of generative AI’s game-changing role in shaping the future of online retail.

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With a collective purchasing power surpassing $143 billion and approximately 2.56 billion members globally, Gen Z presents a massive opportunity for businesses. While sharing similarities with millennials, Gen Z has distinct expectations regarding service and affordability. Gen Z is also attuned to ESG (environmental, social, and governance) goals; to them buying isn’t only about acquiring things, it’s about investing in their values and beliefs.

Role of GenAI in revolutionising ecommerce

In this scenario, GenAI is primed to elevate ecommerce innovation to new heights. The distinct areas where it could make waves are customer recommendations and product discovery.

Using AI algorithms, vast data sets are analysed to tailor product suggestions to individual tastes and browsing habits. This hyper-personalised approach not only enhances the shopping journey but also drives higher conversion rates for online retailers, which is what big brands envision for their growth.

How GenAI helps with product discovery

The emergence of GenAI has driven a shift towards immersive shopping experiences. Augmented reality and virtual reality technologies are incorporated into ecommerce platforms, allowing customers to visualise products in their own space before purchasing them. This enhances the online shopping experience by providing a more realistic portrayal of products and reducing returns.

Moreover, social commerce is rising as GenAI enables seamless integration between social media and ecommerce. Social media platforms such as Instagram offer shoppable posts and in-app purchasing features, further streamlining product discovery and aiding in buying directly from social media platforms.

Here, the influencing power of social media influencers is also massively put to the test.

Facebook has surpassed Instagram in terms of user volume. With 11.2 billion visits, 1.5 billion unique visitors, and an average visit duration of 31 minutes, Facebook ranks as the third most visited website globally. Consider this: 34% of Instagram users placed orders via the platform in 2023. This emphasises the pivotal role played by social media in retail.

Roadblocks ahead

While the ecommerce sector has been on a success boom trajectory, it grapples with some noteworthy bottlenecks, including critical data privacy and security matters, which are burgeoning challenges in various other sectors too. Thus, with ecommerce platforms gathering ever-expanding volumes of customer data, apprehensions mount regarding its utilisation and safeguarding.

More importantly, the digital divide or disparity is a bigger obstacle, especially in emerging markets with fluctuating access to high-speed internet and varying levels of digital literacy. Overcoming this gap and guaranteeing fair access to ecommerce platforms is imperative for sustaining the continued expansion of online retail.

Payment fraud escalating in recent times is also a matter of concern. A study from Juniper Research has found that the cumulative merchant losses to online payment fraud globally between 2023 and 2027 will exceed $343 billion.

Trends in 2024

Undoubtedly, 2024 will be dominated by mobile commerce (mcommerce) as smartphones become the main shopping tool worldwide. Additionally, sustainability and ethical consumption will gain prominence, driven by the preference of Gen Z for eco-conscious brands.

Ecommerce retailers that embrace sustainable practices and transparent supply chains stand to gain favour among environmentally-conscious consumers. Hence, we observe that marquee retail brands such as Amazon, Flipkart, Myntra, and Nykaa are going the green way. The same is true for fast fashion brands like Zara & H&M, which focus on investing heavily in sustainable fashion.

Ecommerce accounts for approximately 5% of India’s AI market share. As the sector is poised for exponential growth, it can potentially become a significant contributor to the country’s AI-driven market. AI-powered chatbots will play a key role in streamlining the customer experience, which would catalyse sectoral growth and create a seamless shopping experience.

The author is the co-founder and architect, [x]cube LABS, a digital transformation agency.