From Pressure To Performance: How AI Is Reshaping Australian Retail

2025 proved to be a year of contrasts for Australia’s retail and FMCG sectors. Some brands, particularly in non-discretionary categories, managed to grow, while many others struggled under persistent supply-chain disruptions and rising costs. As 2026 unfolds, businesses face an even tougher mix of pressures: stretched household budgets, intensifying competition and shifting ideas of what constitutes “value.” Those that move ahead will be the ones that rethink how they create and deliver value, build deeper connections with customers and innovate with purpose.

Complicating matters further is the rapid pace of technological change, especially in artificial intelligence. AI brings significant opportunity, but also real risk – its impact will depend less on the technology itself and more on how thoughtfully organisations choose to adopt it.

Australian retail is already moving in the right direction

The sector ranks among the leading adopters of AI, with data showing that 46 per cent of small and medium-sized retail businesses are using the technology. AI has the potential of reshaping operations end to end, helping retailers automate routine tasks, sharpen analysis and make faster, better-informed decisions.

Machine learning models, for instance, are improving demand forecasting by analysing historical sales, seasonal patterns and external signals such as weather and promotions. Virtual agents are pushing personalisation further, tailoring product recommendations and even marketing campaigns, to individual shoppers. Meanwhile, generative AI tools scan the competitive landscape in real time, flagging emerging threats and opportunities and enabling retailers to respond more quickly as market conditions shift.

Here are some ways in which Australian retailers are leveraging the above capabilities to reshape their value chains:

Building intelligent and resilient supply chains

Businesses are adopting AI solutions to gain end-to-end visibility across their supply chains. Real-time data views allow quick response to market changes to reduce stockouts and misallocation, while accurate AI-powered forecasts ensure products are replenished at the right time and in the right quantities. Further, the integration of AI platforms with point-of-sale systems and online storefronts allows seamless data sharing to automate routine supply chain activities, enhancing efficiency. It is reported that leading Australian fashion and footwear stores that switched to AI-powered inventory management platforms cut holding costs by up to 25 per cent, achieved faster stock transfers and substantially reduced loss of sales due to stockouts.

Optimising logistics and warehouse management

Monitoring inventory in real-time across fulfilment centres and retail stores, automating routine tasks such as picking, packing and sorting and deciding whether to replenish stocks or mark down inventory, AI is taking old-world warehousing operations into the digital age. AI-enabled logistics solutions analyse traffic flow, weather conditions and vehicle capacity to suggest the best delivery routes to lower fuel consumption, save transportation cost and shorten delivery times. Coles’ $2bn investment in AI-powered automated distribution centres has transformed its supply chain, enabling faster replenishment, better product availability and a structurally lower cost to serve through smarter order sequencing, labour optimisation and rapid disruption response.

Fine-tuning pricing, if need be, dynamically

Algorithms continuously monitor the market for discount offers, demand signals and other factors influencing pricing and if required, dynamically adjust product prices to drive competitiveness and profitability. A good example here is technology, entertainment and appliance discount retailer JB Hi-Fi, which uses AI to drive its price match policy – tracking market prices and dynamically revising its own to equal or beat those offered by competitors.

Personalising experiences to engage customers

Based on insights extracted from historical sales, customer preferences, browsing patterns, etc., AI tools offer highly personalised recommendations to customers to drive sales and loyalty. By using AI and machine learning to enhance product recommendations in online and direct interactions, Australian footwear and clothing retailer R.M. Williams improved revenue and online conversion rates by 34 per cent and 20 per cent respectively.

As market pressures rise, Australian retailers that embed AI across their operations will be better positioned to outperform. But technology alone is not enough. The real differentiator will be leadership. Senior Executives must drive the agenda from the top by adopting AI themselves to inform strategic decisions and signalling that it is integral to how the organisation operates.

Leaders also need to set a clear, long-term vision for AI that goes beyond efficiency and margin improvement, to include priorities such as sustainability and business resilience. It is equally important to address workforce concerns head-on. By clearly positioning AI as a tool that augments, rather than replaces people, leadership can build trust – enabling employees to grow their capabilities while delivering stronger outcomes for the business.

The clear message emerging is that AI is no longer optional, but the advantage is not automatic. Those who lead with intent by combining technology, leadership and trust will redefine value in a tougher market.

In 2026, the winners won’t just adopt AI; they’ll use it thoughtfully to build stronger, more resilient businesses.

Maloy Patnaik is Associate Vice President, Consumer, Retail and Logistics at Infosys.

Last Updated on June 16, 2026 by Maloy Patnaik