The Stage is set for Algorithmic Merchandising

By 2020, merchant leaders will be algorithms, prompting the top 10 retailers to cut up to one-third of headquarters merchandising staff. Predicts 2016: Digital Business Uproots Traditional Retail Revenue Generation

Analysis by Robert Hetu

Key Findings:

• An explosion of digital business opportunities will cause retailers to increasingly rely on algorithms to manage complex business opportunities that will exist for as little as a single moment
• Smart machines using algorithms will make complex decisions, such as merchandise assortment and distribution, product pricing and marketing messages.

The algorithmic economy is coming alive for multichannel retailers as they continue to seek better ways to drive decisions through advanced analytics. Some algorithms will be ubiquitous, and shared for the betterment of the industry. Others will be more directly aligned with the interests of the retailer, “the secret sauce,” and, as such, kept confidential. As the number of algorithms grows, and the quality variations expand, retailers will find that the management of algorithms will require an expert to oversee how they are cared for (which ones can be shared), and which ones provide even momentary competitive advantage.

Retailers will be confronted with significant change management challenges as smart machines take on an increasingly meaningful role in those functions that are fundamental to the success of the organizations. For example, a team of category managers replaced by a smart machine that can use a multitude of algorithms to dynamically manage each category. By taking into account vast amounts of data and evaluating each algorithm for effectiveness, these smart machines will maintain a fine-tuned level of maximum performance for a category. Automation on such a scale will displace large quantities of current knowledge workers while creating different types of employment opportunities.

Recommendations:

• Be aware of the advancements in smart machines, and understand how they will impact your job, your company and your industry.
• Leverage Gartner’s cross-industry research to look for opportunities from other industry segments.
• Don’t underestimate the impact on human beings related to the continued automation of increasingly complex work. 
• Participate in digital humanization efforts, and think about the use of ethics as part of the development of smart machines.
• Be prepared to defend the option of smart machines and to illustrate their benefits to a skeptical audience.
• Build a management process to inventory, classify and assign ownership of algorithms in preparation for the algorithmic economy.

Gartner clients read more on this and other retail predictions on the Gartner portal.