(Pictured from left to right: Kathryn Deal, Courtney York, Emily Fuller Opp)
The retail industry is at the forefront of innovative uses of artificial intelligence (AI) and augmented, virtual and extended reality (XR). Not only can AI and XR tools increase business efficiency and opportunity, but they also enable retailers to provide the customized interactions and convenience that their customers desire.
Below we explore current operational and legal trends impacting retail AI and XR.
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AI And XR Technology Adoption Is Increasing As Retail AI And XR Use Cases Expand
To meet consumer demand, drive business and remain competitive in a challenging environment, retailers continue to embrace cutting-edge developments in AI and XR, including in each of the following areas:
- Predictive Analytics. The power of data is no surprise in the retail context. Robust data analytics incorporating AI allow companies to bolster customer engagement, manage inventory, predict and reduce churn, and improve targeted promotional activity. Analyzing information about consumers — including browsing patterns, purchase history, movement through the store and product preferences — enables retailers to make informed decisions that can drive revenue and improve consumer satisfaction and loyalty.
- Digital Assistance. AI-powered robotic and digital assistance tools are increasingly prevalent in the retail industry. One growing use of those technologies is to increase accuracy and efficiency in supply chain and inventory processes, for example, by using robots to track inventory and provide customers with detailed information about particular products. In addition, digital assistants (e.g., chatbots) using AI allow companies to track and respond to product popularity data, customer questions or dissatisfaction, and shopping activity.
- Biometrics. Another growing trend in the retail industry is the use of biometrics in AI and XR applications. Retailers are employing facial recognition technology to identify loyal customers in stores so that they can then send personalized communications during their shopping experience. They are also using facial recognition as an asset protection tool to reduce shrink by identifying known shoplifters. In addition, scans of biometric data allow retailers to secure financial transactions and to provide virtual experiences that foster customized and convenient shopping experiences, for example, by creating a virtual experience where individuals can see what make-up products look like on their faces without actually applying any tester products.
- Wearables. With a booming market for health and wellness products, the rise of wearable AI technology continues to expand and evolve in retail products in ways that both drive business for retailers and improve customer experience. By including such technology in wearables, businesses can gain incredible insight into the users’ frequency of product use, location, and other health or activity-related data.
- Employee-Related Uses. Retailers’ use of AI and XR increasingly extends to employment practices as well. Retailers are using AI tools to track employee patterns and activity throughout the store to maximize staffing, as well as to improve retail hiring and training practices, by identifying the best candidates in an efficient and data-driven way. XR is being used to train employees in a virtual environment to improve real world customer experience. Finally, many retailers use biometric data to track employee hours and to maintain physically secure locations in a store setting.
Investment In Retail-Specific AI And XR Is Increasing
Given the proliferation of AI and XR in retail, it is not surprising that significant investment dollars have been deployed with respect to retail-specific applications of these technologies in recent years, a trend which is expected to continue and grow. Investment in AI and XR by retailers has taken numerous forms, including licensing from (or partnering with) technology companies with innovative offerings, making equity investments in early-stage AI and XR companies through corporate venturing arms, acquiring AI and XR companies, and developing these capabilities in-house.
While the strategy adopted appears to be driven by the retailer’s size and the nature of the retailer’s underlying business, each of these scenarios presents unique legal issues that should be taken into consideration. For example, when licensing the technology, retailers should be mindful of the allocation of risk between the parties, particularly in light of the increased regulatory scrutiny described below, as well as protection against infringement liability.
When investing in or acquiring emerging technologies, ownership of and the ability to integrate, the underlying software is often the primary concern. For retailers that can develop these technologies for proprietary use, management and protection of their intellectual property portfolio is key.
Evolving Regulation Will Significantly Impact Retail AI And XR
While advances in AI and XR are creating incredible growth and efficiency opportunities in the retail industry, they also are accompanied by a legal trend toward more regulation and oversight. Because consumer and employee data are at the heart of so many developing AI and AR trends, retailers should remain mindful of privacy compliance and litigation risk.
In the U.S., a variety of state and federal laws require notification and consent, among other things, before certain data can be collected or used. There is also a global trend, under laws like the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in the U.S., to give consumers expansive rights to and control over their own information in ways that require many retailers to better understand what data they have, where it comes from, how it is managed and stored, and whether and to what extent it is shared or sold.
Regulating the use of AI and XR is also increasingly viewed as critical to protecting national security, given that these technologies can have military, security and national defense applications. For example, data related to these applications may be classified as “technical data” and a release or disclosure of technical data to a foreign person — even foreign employees or contractors of the business lawfully holding the technology — may be deemed to be an export subject to export controls requirements and restrictions.
Therefore, even if a retailer’s business does not seem related to any of the industries that typically face scrutiny under U.S. export controls laws, the retailer should consider reviewing whether its use of this technology may subject it to the export controls legal regime, which is highly technical and can carry significant criminal penalties if not followed.
As both the technology and the law develop, however, retailers can take practical steps to comply with legal requirements, while still taking advantage of the promising developments in AI and XR that are driving business and meeting consumer demand throughout the industry. Whether it is undertaking thoughtful data mapping exercises or updating privacy policies, consumer contracts, vendor arrangements and licensing agreements, the retail industry can remain proactive in maximizing the growth opportunities inherent in new AI and XR technologies, while minimizing the evolving legal risks as much as possible.
Kathryn E. Deal is a Partner at Akin Gump. Deal is a tactical litigator who designs and implements successful strategies to defeat complex cases and minimize litigation risk for her clients. Deal focuses her practice on defending clients in aggregate litigation, including putative class actions, collective or mass proceedings, multidistrict litigation and state attorney general actions.
Courtney S. York is a Partner at Akin Gump. York has provided legal counsel to public and private corporate clients for nearly two decades, including clients in the technology, telecommunications, media, retail and consulting industries. She regularly advises clients regarding securities compliance and general corporate governance issues, and she represents private equity funds in a variety of transactions.
Emily Fuller Opp is counsel in the international trade practice at Akin Gump. Fuller Opp counsels clients on U.S. law and policy affecting international trade and business, including export control laws, sanction programs, custom laws, anticorruption laws and foreign investment in the U.S.
