Key takeaways:

• Half of merchants plan to personalize online shopping this season, with large retailers (80%) leading the way
• Some retailers are using generative tools to predict customer demand, provide tailored product recommendations, and anticipate shopper intent
• Features like virtual try-ons and styling are helping brands replicate the in-store experience to deepen relationships
• Four in 10 consumers plan to use AI this holiday season
• Retailers using AI-powered ads report 10%–25% higher returns on spending

AI is transforming how consumers shop — and how brands interact with them. Retailers have been relying on technology to power search results, and now some are further tapping it to power relationships by delivering tailored customer experiences. From predictive product suggestions to chat-based purchasing, personalization is moving beyond convenience to help brands create genuine connections. 

As the holiday season gets underway, shoppers may find their favorite stores seem to know them a little better. More than 1 in 4 (26%) see the value of AI-driven hyper-personalization in financial services, and now the retail industry is taking notice, tapping into AI to help transform casual browsing into a curated, tailor-made experience for customers. A recent study reveals that 50% of merchants are seeking to personalize the online shopping experience this holiday season by using past customer behavior to make recommendations — with large businesses (80%) placing more emphasis on this than small (34%) and medium-sized businesses (35%).¹

Personalized shopping recommendations

Retailers are using algorithms that learn, adapt, and respond to individual tastes based on factors like past purchases, clicks, and other online behavior, as well as location and even quiz results. What once might have taken hours of browsing can potentially unfold in minutes for shoppers.

But it’s not only about faster recommendations — it’s about smarter ones too. Features like virtual try-ons, real-time chat styling assistants, and predictive suggestions that evolve with a shopper’s changing preferences are helping turn casual scrolling into a personalized online shopping experience that anticipates and serves ups items a consumer is most likely to love.² The result is an interaction that can feel less like a transaction and more like a conversation — and even a budding relationship.

Read more: AI advantage

Embracing opportunity with AI retail tools

Some retailers appear to be going all in. Sephora’s Virtual Artist feature uses facial recognition that enables users to test lipsticks, eyeshadows, blushes, and other items, and compare hundreds of color options via mobile or web.³ Another beauty company, L’Oreal Paris offers an AI personal beauty assistant to deliver tailored product recommendations and individualized personal care routines.⁴ At New York Fashion Week in September, brands including Ralph Lauren and LoveShackFancy showcased AI-powered designs, models, and personalization, including virtual try-ons straight from the runway.⁵

Amazon is using generative AI (GenAI) technology that goes beyond reacting to customer preferences to understand and anticipate their intent. Some 250 million consumers have tapped into the site’s AI shopping assistant “Rufus” this year to date, with the company reporting a 60% conversion rate for customers using the tool.⁶ Walmart is also focusing on the end-to-end experience. Through a new partnership with OpenAI, the retailer is bringing its 240 million customers to OpenAI's platform — and ChatGPT’s 800 million weekly users will have the ability to purchase Walmart products through conversations.^7,8

Read more: Getting personal with Artificial Intelligence

Using AI to build connections

Consumers seem to be responding. Nearly two in three (65%) say they’ll use Gen AI tools for holiday shopping this year, up from 40% in 2024.⁹ And measurable returns may extend beyond delighting customers, with the push toward personalization paying off for some brands: Retailers are reporting 10%–25% higher returns on ad spend when campaigns are hyper-targeted through AI engines.¹⁰

There are efficiency benefits too. Some companies are seeing GenAI tools help streamline content-creation time and volume behind the scenes — sometimes slashing production time from weeks to hours. Others are gaining efficiencies scaling data synthesis: L’Oreal reporting saving 120,000 hours of manual work and boosting search engine optimization using generative AI to automate tagging.¹¹

As brands continue to realize benefits, using GenAI to create relevant, personalized experiences may evolve to become a new baseline for earning loyalty and gaining market share.

Read more: Shopping with all senses: How brands build sales beyond looks