Retail's quest to improve the customer experience

The retail industry is working to catch up on generative AI as the technology evolves at a rapid pace. While plenty of companies are using it to drive efficiency, it’s also presented a change to how consumers discover new products.

The challenge has pushed retailers to use generative AI against itself to better understand the technology.

“Generative AI has a huge amount of application for any industry, but maybe retailing more than most,” said Stefano Puntoni, marketing professor at the Wharton School of the University of Pennsylvania. 

Part of the reason for that is retail companies, compared to other industries, need to generate a lot of content and information in a consumer-facing manner, Puntoni added. 

Almost a quarter of consumers are likely to use chatbots and AI tools to shop this holiday season, per an Epsilon Pulse report.

Website content and product listings are being scraped by various AI chatbots, which populate query results when shoppers ask for recommendations. Retailers are now attempting to alter their product pages by updating everything from listing descriptions to imagery with the goal of improving their chance of showing up in those chats.

But content scraping from AI models isn’t clear-cut, leaving many companies to experiment. The result is sometimes a type of loop: Retailers are utilizing AI to better understand and adapt to AI.

GEO takes on SEO

As consumers turn to AI for search, retailers are trying to ensure they show up in results. But there's no clear answer on how to do that, due to the newness of the technology and its lack of algorithmic transparency.

Some industry players, from big companies and startups to advertisers, are experimenting in sandbox environments to figure out how altering product information can impact AI chatbot results, Puntoni said.

In an ironic twist, generative AI can help retailers rewrite their product pages in a more efficient manner.

“You see a lot of interest in using Gen AI for product descriptions,” Puntoni said. “A lot of websites have very poor information … and entering those descriptors requires someone to sit there thinking about the product and write the main attractive features and characteristics. And now you could easily do that at scale with much higher level of quality than an average person would.”

The way consumers speak to AI chatbots and receive product recommendations isn’t straightforward. Retailers, such as Target, have spoken about needing to retool their e-commerce sites to accommodate more complex, nuanced product queries.

Where some shoppers previously searched using simple keywords, such as “black coffee mug,” they might now search for products by talking about a feeling they hope to achieve or an event they’re preparing for.

Across Target’s properties, almost 25% of search requests are now considered descriptive queries, Chief Information and Product Officer Prat Vemana told Retail Dive in October. Providing quality content consistently for searches done both externally and on the retailer’s website is the solution.

“They're describing the moment, the occasion that they're in,” Vemana said. “Whether it's the search engine that's sitting on our own properties, or if the crawlers are coming in, or agents are coming in to get content from us so that our products are relevant, it's the same underlying content and intelligence that we need to actually have.”

Being a mass retailer with a well-known, content-rich brand portfolio is a big advantage in this moment with generative AI, Vemana added.

The fundamental consumer behavior shift this technology poses goes even deeper than changes to search terms, though.

Search turned upside down

The previously known decision funnel that customers would go through has been changed, Barbara Kahn, a professor of marketing at Wharton, said on a podcast in September. Generative AI has changed that process.

“You no longer search for yourself,” Kahn said. “The search process is almost gone. You go to ChatGPT, and it tells you something, and then you respond to that. You're not even responding to your own memory and your own cues. You're responding to what ChatGPT is telling you. Some of our consumer behavior researchers are looking at, how does that change customer decision-making when it's stimulus-based like that, as opposed to memory-based?”

In reality, the consumer experience when speaking to a generative AI chatbot can be extremely unique and personal.

A study from OpenAI released in September found that almost half of messages in ChatGPT are an “Asking” pattern of use, a category that the tech company views as a sign people value the chatbot “most as an advisor rather than only for task completion.”

Meanwhile, the “Expressing” pattern accounted for about 11% of usage. This demonstrates that users are on ChatGPT for personal reflection, exploration and play, per OpenAI.

So how can retailers better understand the consumer and AI chatbot relationship? By more of the same — using technology to better understand the same technology.

Digital twins have existed in retail for a few years, mostly to create digital versions of stores or facilities. Now, retailers can create digital twins or personas of consumers using AI.

At a Columbia University AI Summit earlier in 2025, Tianyi Peng, assistant professor of business at Columbia Business School, spoke about research generating consumer personas using large language models, leveraging e-commerce product descriptions to identify and create a likely shopper for that item.

Creating digital personas can also be a use case for AI in retail, according to Wharton’s Puntoni, who noted that they can be utilized to do a synthetic form of consumer market research — something that companies usually need to spend a lot of money on.

But such usage is complex: Bias continued to show up in the personas generated, according to Peng.

Not only do consumers have their own biases impacting their — sometimes personal — conversations with chatbots, but AI chatbot algorithms themselves are not necessarily bias-free.

“One of the things that I've seen is that there are biases built into these algorithms,” Kahn also said on the podcast. “When a customer made their own decisions, they had their own personal biases, right? We did a lot of research. Danny Kahneman won a Nobel Prize for heuristics and biases and all the things that we understood about the way the consumers were making decisions. Now, we have to understand how the algorithms are making decisions, and it's different from the way the consumers do.”

Completing the first phase of a larger remodel, Target opened its new design-focused SoHo store in New York City in December, per a company press release. The retailer initially announced the phased redesign plan in September. 

The store concept features a rotating showcase of seasonal styles on the first floor called “The Drop,” a “Broadway Beauty Bar” with changing selections curated by beauty influencers and a “Gifting Gondola” for the holidays with exclusive Target-branded merchandise.

Target’s updated space also includes a seasonal edit called “Curated By” which features selections in partnership with influential people, starting with comedian and actress Megan Stalter. The store also has a “Selfie Checkout” spot encouraging customers to take photos with their haul. 

Target’s updated location in New York City will continue to evolve throughout 2026 and beyond. The SoHo spot will eventually debut experiential areas, as well as cafe and event programming.

"Style and design are part of Target's DNA, and there's no better place for us to showcase what's next for our brand than in one of the style capitals of the world," Cara Sylvester, chief guest experience officer at Target, said in a statement. "This store is a bold reflection of our commitment to style, and it's just one part of our larger investment in Target's design-driven future that grows our roots even deeper in New York City."

The new store format — which went from concept to completion in just four months — debuts under the leadership of incoming CEO and current COO Michael Fiddelke. While Fiddelke will officially take on the chief role in February, he’s quickly becoming the leading voice for the company during earnings calls and for any company announcements. 

Fiddelke has set out to recapture Target’s “design-led merchandising authority,” as he described it when recapping his core priorities on a Q3 earnings call in November.

“We are a design-led company. And that starts with our authority and merchandising,” Fiddelke told analysts. “Our ability to build a unique assortment of the right, stylish, on-trend products at incredible value — that's so central to who we are and key to our differentiation and future growth.”

Winning back the dollars of consumers through such initiatives is how Target hopes to turn around the business.

Its third quarter earnings added to a pattern of declines across net sales, comps and earnings. The company in November announced it would invest an additional $1 billion into the business in 2026, using a total of $5 billion in capital expenditure to “support new stores and remodels, enhancements to the store experience and advancements in technology and digital fulfillment capabilities.”

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Retail is entering a “phase of continuance”, a moment where underlying shopper habits have stabilized, and brands can no longer point to volatility as the sole explanation for performance swings. In this environment, customer experience becomes the differentiator: shoppers reward retailers that reduce friction, stay relevant and deliver consistency across every trip and channel.

But here’s the catch: you can’t improve what you can’t see. When retailers and their brand partners operate with an incomplete view of shopper behavior, they risk investing in the wrong fixes—creating more friction instead of less. The path to better customer experience isn’t “more data.” It’s the right combination of data, integrated in a way that turns insight into action.

Customer experience is a precision problem and a context problem

Most experience breakdowns look simple on the surface: shoppers don’t convert, baskets shrink, repeat buyers drop, or a category softens. But the “why” is more complex. Some issues are local—assortment gaps in specific stores, pricing, or promotions that didn’t land. Other issues are external—shoppers reallocating spend, switching retailers, or shifting channels.

That’s why two datasets matter so much, especially when the goal is to improve customer experience.

Two lenses, one goal: removing friction for shoppers

First-party loyalty data reveals what’s happening inside a retailer. It’s detailed and based on real transactions—down to items, baskets and trips. For instance, it can reveal how a single SKU performs in a specific store or time of day. Ultimately, loyalty data helps retailers decide what to stock, price, promote, or fix to improve the customer experience.

Panel data shows how shoppers behave across retailers. It tracks a representative group of households to reveal market share, switching behavior and where shoppers go when they don’t buy from you. This context from panel data is essential because customer experience doesn’t exist in a vacuum; shoppers constantly compare retailer experiences across stores.

What goes wrong when you use only one

Each of these data types provides valuable insights on shopper behavior but is incomplete on its own. If a business only relies on panel data to understand performance inside a specific retailer, it loses precision. There is no visibility into item-level performance or how promotions actually performed at that retailer.

Meanwhile, companies that only use loyalty data operate in a closed loop. They can see what shoppers are doing within one retailer, but not what they’re doing everywhere else. It’s hard to tell if customers are leaving that retailer’s aisle or just shifting across stores.

In short: one dataset tells you what’s happening here. The other tells you what’s happening elsewhere. Customer experience improvement requires both.

A powerful combination

By pairing panel and loyalty data, retailers get both the big picture and the surgical view needed to act.

Think of it like a driverless navigation system. Driverless cars need both GPS and sensors to operate effectively. One can think of panel data as the GPS, telling a driver where to go and first-party loyalty data as a sensor that precisely navigates the road. If those features are not in sync, an autonomous vehicle might head in the right direction, but it will miss lanes, drift off course, or fail to reach the exact destination.

In an increasingly fragmented marketplace, a combined view helps retailers act faster and more accurately. For example, if a brand’s sales are down at a store, loyalty data might show fewer trips, smaller baskets and fewer repeat buyers. Panel data may reveal that the category is actually growing elsewhere, meaning shoppers are leaving for competitors. Taken together, retailers can determine that the real problem is customer leakage. From there, they can swiftly decide how and where to address the issue.

A simple rule for building better customer experiences

Retail analytics doesn’t have to be complicated.

• Improving experience inside one retailer?
  Lead with first-party loyalty data. It shows exactly how shoppers behave so you can personalize, target effectively and improve in-store and digital experiences.
• Improving experience across multiple retailers or channels?
  Lead with panel data. It shows where shoppers are spending, where you’re losing them and how they move across channels.
• Want the biggest impact?
  Integrate both. Loyalty data gives you depth; panel data gives you breadth. Together, they unlock full-funnel, omnichannel growth.

This is how teams move beyond “insights” and into experience outcomes: fewer misdiagnoses, fewer wasted interventions and more confidence that the changes being made actually match shopper reality.

The bottom line: CX leaders connect the dots

Companies that get ahead are those that integrate data most effectively, turning precision and context into decisions that shoppers can feel. In a market where expectations are steady and competition is relentless, improving customer experience becomes a daily discipline. And it starts with seeing the whole story.

Almost a year into David Boone’s tenure as CEO, the executive is giving a glimpse into Michaels’ future in a post-Party City and Joann world.

“When [CFO Perry Pericleous] and I got here, as we worked on the strategy, the first thing that we concluded was there was tremendous disruption in the marketplace with the exit of Joann Fabric and the exit of Party City — and that job one was to go after that,” Boone said at the ICR Conference in January. “In the last six-seven months, we have introduced a Party Shop by Michaels in every single store in our fleet, and we've introduced the Knit & Sew Shop in every single store in our fleet.”

To capitalize on share opportunities in the party space, Michaels built balloon bars, introduced nearly 500 SKUs and aims to double that product assortment in 2026. Boone said Michaels is the only retailer in the space where customers can customize balloons online, order ahead and pick them up days later.

In fabrics and yarn, Michaels is benefiting from the use of Joann’s IP and private labels, which it acquired in June 2025. The retailer grew its yarn assortment by 50%, added fabric to 850 stores (with plans to reach 1,100 stores this quarter) and has over 100,000 fabric SKUs online.

“We're ahead of our competition in the space, and we intend to stay that way,” Boone said of the party business. He added that competing in both party and fabrics has “powered the business this year” and that there is still room for growth for Michaels.

As of a few months ago, 60% of Joann’s customers still didn’t have a replacement for where they buy those products, according to Boone. And in party supplies, there’s only 50% awareness that Michaels is a part of this business, though that is up from 20% when they first rolled it out.

The retailer isn’t only relying on disruption to drive growth. Michaels is adding “patch bars” to stores to take advantage of a growing trend of adding patches to clothing and other items, and has plans to roll out 20 other similar programs in different categories. These will be part of a new store model debuting in the first half of 2026, which Michaels intends to build out at a pace of about 10 stores per year.

“We're going to take the best elements of that and bring it back to our existing fleet,” Boone said, adding that the retailer will prioritize updating its biggest and most productive stores.

Private labels, which make up 70% of Michaels assortment, are also getting a refresh, starting with Celebrate It and Artist Loft. Those two brands will get updated design and packaging, as well as a refreshed value and innovation strategy. Also coming to the assortment this spring, an exclusive partnership with designer Jonathan Adler will add products to all of Michaels’ categories.

The company has its eye on events as well, which are the fastest-growing part of the business. Michaels lowered prices on birthday parties in 2025 after rolling them out in 2024 and has since seen those events quintuple year over year.

“While we're capitalizing on the market disruption, we have an ambitious merchandise optimization and transformation agenda,” Boone said. “Services and events not only drive traffic, they drive profitability, but they connect us within a community in a way that this business has not been connected. Nobody does what Michaels does … Michaels is in a category of one in the retail space.”

To connect with shoppers and reach new customers, retailers have been increasingly launching store concepts, aiming to differentiate themselves from the competition.

Some concepts, like The Vitamin Shoppe’s “Hometown” fixture, aim to bring more localized merchandise to consumers. Launched in March, the concept is featured in stores across Los Angeles; Frisco, Texas; Paramus, New Jersey; and more, and spotlights products from brand partners, including Gorilla Mind, Bucked Up and EHPlabs.

Similarly, Coach has been expanding its “Play” concept, which is localized to the cities in which it operates. The concept was an attempt to win over Gen Z shoppers, which previously viewed the company more as “their mother’s brand,” Giovanni Zaccariello, Coach’s senior vice president of global visual experience and store design, said in March.

Other retailers have also leveraged store concepts to target the demographic, including Bath & Body Works and Urban Outfitters.

“Retailers and brands must continue to adapt to evolving demographics, shopping behaviors, tendencies and trends in how we work, live and play,” Michael Brown, a partner and Americas retail leader in the consumer practice of Kearney, said in an email.

A number of retailers have also forged partnerships with popular brands to create store-within-a-store fixtures to showcase products from the brand and attract a new customer set.

Shop-in-shops certainly aren’t new. Department stores have been leasing space to other companies — like brands, restaurants and hair salons — for decades in an effort to offer a more holistic shopping experience.

These partnerships often serve both parties involved. Some tie-ups “will provide convenience [and] awareness for customers and a ‘bump’ in add-on revenue for the retailers,” Brown said.

The best store concepts, however, need to serve a purpose: to reach new and existing customers and make the space a destination, according to Brown.

Here’s a look back at some of the store concepts that launched in 2025.

1. Warby Parker’s shop-in-shops at Target

Warby Parker has been working to expand its presence offline by opening dozens of new stores per year. Now, the brand is taking those efforts further by bringing its products to the stores of one of the biggest household names: Target.

The two companies in February announced a partnership in which Warby Parker would open shop-in-shop locations within select Target stores. The first stores to add the concept were located in Illinois, Minnesota, New Jersey, Ohio and Pennsylvania, with more locations set to open throughout 2026.

Warby’s own employees will run the shop-in-shop concepts, and customers can access the brand’s selection of glasses, sunglasses and contacts, as well as vision screenings and eye exams.

Co-CEO and co-founder Neil Blumenthal said the concepts will intentionally mirror the experience of its stand-alone stores.

“When you’re shopping in Target, you’ll see a Warby Parker store. You’ll literally cross that threshold and these stores look like any other Warby Parker store,” Blumenthal said earlier in 2025.

Target has offered a number of shop-in-shops before — some more successful than others. Target’s partnership with Ulta Beauty will come to an end in August 2026 about five years after launching.

“Shop-in-shops like Warby Parker in Target provide customers convenience and Warby Parker lower cost, high traffic locations to expand their footprint as every digital business has ever had to do for long-term success,” Brown said. “Warby Parker gets a deal on the space and Target gets one more reason for customers to shop them over a competitor.”

Entering Target also lends the potential to introduce new customers to the Warby brand, expanding its reach further, Brown added.

2. Urban Outfitters’ On Rotation 

Urban Outfitters’ new store concept is designed specifically for Gen Z.

Dubbed “On Rotation,” the space features lounge-style installations and highlights a revolving roster of brand partners. The concept launched in May with Nike as its first partner and included over 150 apparel and footwear products.

On Rotation debuted in cities such as New York, Washington, D.C. and San Diego.

“Urban Outfitters has always been a destination for discovery, especially for Gen Z, who are expressive, engaged, and intentional in how they shop and show up,” Cyntia Leo, head of brand marketing and communications at Urban Outfitters, said in a statement when the concept launched.

In August, the retailer introduced its second iteration of the concept, tapping Levi’s as its partner. The space, the company said, is intended to possess “the energy of a vintage flea market,” featuring both new styles from the brand as well as vintage pieces.

Gen Z has increasingly become a focus area for Urban Outfitters. In addition to the On Rotation concept, the retailer has launched a separate localized concept targeting the demographic. The concept debuted in Houston and California, and the company in November announced plans to expand further.

3. Ikea’s shop-in-shops at Best Buy

In a first for Ikea’s U.S. business, the Swedish furniture company teamed up with electronics retailer Best Buy to bring its products and services to more consumers.

Over the summer, the retailers announced Ikea would bring its kitchen and storage planning services to select Best Buy stores.

“By bringing together our home furnishing expertise, products, and services with Best Buy’s leadership in appliances and technology, we’re creating a one-stop destination where customers can design their dream kitchen, storage solutions or laundry space with ease,” Ikea U.S. Chief Operations Officer Rob Olson said in July.

The shop-in-shops span about 1,000 square feet and feature kitchen and laundry room settings from Ikea.

Employees from both retailers will connect to serve customers: Ikea employees will help shoppers plan and order home furnishings, while Best Buy team members will offer assistance with electronics.

“This partnership brings together the best of Ikea and Best Buy to create a truly unique experience that we know customers will love and where they can seamlessly imagine, design and shop for their kitchens and laundry rooms like never before,” Patrick McGinnis, chief merchandising officer at Best Buy, said in a statement.

The concept officially debuted in November in some stores in Texas and Florida. Select Best Buy stores will also serve as pick-up points for Ikea.

4. Bath & Body Works’ Gingham+ concept

Bath & Body Works also cooked up a store design specifically targeted for Gen Z customers.

Gingham+, which debuted in March, features a scent bar, tech features, larger aisles and a new layout. 

“We’ve heard from this demographic that many of their purchase decisions are rooted in their ability to try a product first, and while we’ve previously offered this, our new design is more intentional with specific destinations in store to test and learn,” Eduardo Tonietto, group vice president of store design, said in a statement at the time of its launch. 

The concept initially rolled out to 15 of the retailer’s stores with plans to expand to the majority of new stores in its U.S. fleet in 2025. The space caters to Gen Z customers, who are “looking for a more relaxing and toned down in-store experience” by bringing in a softer, more neutral color palette, according to Tonietto.

The demographic is a focus for the retailer. Aside from the Gingham+ store concept, Bath & Body Works brought its products to 600 college campuses across the U.S. in 2025.

5. David’s Bridal’s Diamonds & Pearls tech concept

David’s Bridal debuted what it deemed a “store of the future” concept.

The high-touch, tech-powered concept called Diamonds & Pearls launched in the spring. The concept features a curated selection of couture and designer gowns, shoes, accessories and dresses for bridal parties. The store also has a selection of exclusive products not available at other David’s Bridal locations, including gowns from Marchesa Couture and Marchesa Notte.

“With Diamonds & Pearls, we’re taking this promise to the next level. This is where trend meets tradition, where high fashion meets high touch and high tech, and where we bring the full power of David’s and all of our offerings into a modern, elevated setting,” CEO Kelly Cook said in a statement.

The space includes AI-powered shopping tools, personal styling services, Shopify point-of-sale integration for both in-store and online shoppers, alterations and more.

“By hand selecting the products, brands and partners highlighted in our Diamonds & Pearls stores, plus the ability to digitally shop in store with our ‘endless aisle’ technology, we’re bringing sophisticated curation with a seamless, modern in-store experience today’s brides want and expect,” Cook added.

The concept initially debuted in Delray Beach, Florida, with another location opening in Burlington, Massachusetts, in November.

Amazon plans to construct a nearly 225,000-square-foot retail store in Orland Park, a village in Cook County, Illinois, located near Chicago, according to local planning documents. The proposed store marks Amazon’s first retail store that is on par with Walmart’s supercenter format, which averages around 179,000 square feet. 

An Amazon spokesperson said the planned store is “a new concept that we think customers will be excited about.” The company noted that the store will offer a broad selection and low prices across fresh groceries, household essentials and general merchandise.

With its new big-box store concept, Amazon is taking another crack at brick-and-mortar retail, with groceries as one of the draws for consumers. 

The “first-of-its-kind” retail store will be located at 9600 1569th St. and sit right next to a Costco, according to Orland Park. Plans for the 35-acre parcel include parking dedicated for pickup orders and multiple commercial outlets for smaller businesses. The site plans, which were recently approved by Orland Park’s Planning Commission, still need approval from the village’s board that meets later in January, Patch reported. 

The Amazon spokesperson noted that the e-tail giant regularly tests new shopping experiences. In 2025, a Whole Foods Market in Plymouth Meeting, Pennsylvania, started piloting a new concept that lets shoppers scan in-aisle QR codes to order an expanded selection of groceries from an in-store microfulfillment center. Whole Foods Market has also been expanding its small-format Daily Shop concept, which it launched in September 2024, and has operated its Amazon Go convenience store chain for the past several years. 

Amazon has struggled to gain traction with its physical retail locations. The company’s attempts at running apparel stores, bookstores and 4-star — a format that only sold items with a 4-star rating or better — have fizzled. The Amazon Fresh chain has seen stop-and-go growth since the first store debuted in 2020. 

The new big-box store concept further blends groceries with general merchandise — a strategy that Amazon has been pushing lately and one that Walmart has been doing for decades. In 2025, Amazon rolled out same-day delivery of perishable groceries, which lets customers order groceries alongside millions of products from Amazon.com, to roughly 2,300 cities and towns.

Amazon noted that over 150 million people in the U.S. turn to the company for grocery shopping and said that its grocery business rang up more than $100 billion in gross sales in 2024. Rival Walmart, which has told investors for several consecutive quarters that its grocery sales continue to improve in the U.S., brought in $276 billion in net sales of food and beverage items during its 2025 fiscal year.  

Dick’s Sporting Goods is testing the reach of its private label brands this summer with a pop-up in New York’s iconic Hamptons. The location, which opened May 14 and won’t close until Oct. 18, cycles through three iterations and highlights four of the company’s owned brands.

This is the first time Dick’s has done a rotating pop-up with its in-house brands, according to Aimee Watters, vice president of Vertical Brand Marketing at Dick’s.

“We are always looking here for ways to experiment and to showcase our in-house brands in new and exciting ways that gets us outside of that traditional big-box footprint,” Watters told Retail Dive in an interview. “So, going to the Hamptons this summer allows us to really experiment in that way and bring these brands to life in a very cool and exciting way that allows us to show their character a little bit more and their personality by having a store that's dedicated to them.”

The first iteration of the pop-up has already opened and focuses on the retailer’s golf-oriented Walter Hagen and Maxfli Golf brands. 

Timed to coincide with the 126th U.S. Open Championship, the store will host relevant events until it closes on June 28. That includes ball customization by Maxfli, an upcoming podcast taping and a screening of golf comedy “Finnegan’s Foursome.” The location hosted a meet and greet with golf instructor Sean Foley earlier in June.

Select products from other Dick’s private labels will also make an appearance, from men’s brand VRST to women’s brand Calia. 

The timing of all three iterations of the pop-up are intentional: The store will transition to a coastal offering from July 2 to Aug. 23, centered on swimwear and resortwear from the Calia brand, and will finish out with a back-to-school theme from Aug. 27 to Oct. 18 centered on the DSG family private label. Event programming for the latter two pop-ups will be rolled out closer to the time.

“For us the Hamptons was a no-brainer, because Hamptons in the summer is the place to be, and it brings a highly engaged community of both residents, but as well as an influx of visitors,” Watters said. “We believe that this shopper is looking for new experiences and new opportunities to learn about new brands and also shop some brands that you know and love.”

Asked if Dick’s plans to open permanent stand-alone stores for its private brands, Watters said the company is “always looking to learn and grow and try new experiences” and would see how the community responds to the format to inform its go-forward strategy. For the moment, the retailer’s main goal is to create a fun customer experience and integrate itself “really genuinely into the community.”

“We want to see how consumers engage with each of those brand chapters and that in-store experience for us,” Watters said. “That's really what we're looking for this summer.”

Adopters of artificial intelligence tools like OpenAI’s ChatGPT and Google Gemini are starting to set more of their brand preferences within chatbots. In the grand vision of technology developers, agentic AI will eventually identify relevant products, seek them out online and even shop, all with relatively little direct user input. That poses significant challenges to building and maintaining brand loyalty, according to new findings from the Gale agency.

The AI shift means marketers need to keep a closer ear to the ground with their communities while delivering experiences that have as little friction as possible to avoid putting off fickle customers. Over half, 56%, of surveyed consumers are now comfortable delegating the entirety of their communications with a brand through AI while nearly one-third have instructed an assistant to prioritize certain brands over others. 

“That’s pretty alarming,” said Gale CEO Andrew Noel. “They’re saying, ‘I will trust the [large-language model] to be my filter between me and a brand.” 

The agency’s report, titled “The Preference Economy,” envisions a world where a growing cohort of AI-savvy consumers architect the entirety of their commercial reality through a reliance on AI, raising existential questions around the role both marketing and loyalty play. Roughly a quarter of respondents indicated they will regularly set brand preferences with AI within the next year, but the potential addressable market for what Gale calls AI-native loyalty could balloon quickly as the technology becomes more ubiquitous.   

“You’re looking at 60% to 70%, in the next two to three years, [who] are going to instruct the LLMs to set their preferences, meaning I only want to really talk to these four or five [brands] because I prefer them,” said Noel. “If you’re brand side and you think about the technical implications of that, I think you’ve got a lot to think about.”

Great expectations

The AI disintermediation problem compounds an already volatile market for loyalty, including widespread feelings of indifference. The average consumer is enlisted in four to six loyalty programs, per Gale, but a meaningful chunk do not actively participate, making them “ghost members.” Gale surveyed 3,000 consumers in the U.S. and U.K. for its research.

Millennials and Gen Z represent the most meaningfully engaged loyalty cohorts, but are also some of the pickiest. Younger consumers put a premium on seamless experiences and are quick to abandon brands that don’t deliver on this front. Among those aged 25 to 34, 61% dumped a brand for a competitor because of a superior loyalty experience, even though the actual rewards from the competitor’s program were worse.

“The expectations that millennials and Gen Z have, in particular when they interact with brands, is really high,” said Noel. 

Gen Z and millennials also happen to be leading the charge on AI adoption, but the AI conundrum isn’t contained to a certain age demographic. Across all respondents to Gale, including non-AI users, 47% trusted AI as a method for starting brand and product research while 16% expressed willingness to act on an AI’s recommendation without further debate. About a quarter of those surveyed were comfortable with AI learning about their brand preferences versus 20% who said the same for cookies and 17% for social media. Privacy concerns were more prevalent with older consumers while 27% of 25 to 34 year olds were not worried about the subject at all. 

“[A]mong the youngest consumers surveyed, the most common response wasn’t hesitation or resistance; it was that they simply hadn’t thought about it yet,” the Gale report reads. 

Breaking through 

The need to break through an increasingly automated world may lead marketers to again double down on first-party data following the cookie deprecation push of the early 2020s. A more direct understanding of customers’ behavioral patterns means brands will be able to better feed AI systems, according to Gale.   

“You’ll hear most [chief marketers] today say we sit on a treasure trove of data, but not a lot of insights from it,” said Noel.

Strategies to adapt to the AI economy vary by category — a QSR will require a different approach than a big-box retailer — but Noel pointed to understanding community as a key differentiator. That could entail closer social listening on platforms like the chat app Discord to identify trends bubbling up in a community, or investing more in traditional tactics like surveying shoppers in the aisle for businesses with a large brick-and-mortar footprint. 

Harnessing those insights to inform personalization efforts will help maintain brand relevance as control of other aspects of the loyalty pipeline are taken over by AI. Prior Gale studies reveal that nearly 70% of consumers are more likely to join a loyalty program with an active community while 30% feel a stronger connection to a brand due to the social aspects of its loyalty offering. 

“You’ve got to be really dialed in on … the community management side of it. How do you really make people feel that they’re known and special to the brand?” said Noel.

At a time when marketing budgets are broadly under pressure due to macroeconomic volatility, and with more consumers trading down, another consideration is maintaining spend on loyalty programs. Too many marketers treat loyalty as a one-off discount program when AI is reinforcing the need for dynamism.      

“Just like you would with your media budget, the ongoing investment into the experience, into the mechanics and into the technology often that supports [loyalty] is a line item that I would encourage brands to think hard about more,” said Noel. 

As retail’s AI race heats up, Puma is embedding the technology into an in-store interactive display.

Puma has created its first AI Store Concierge, a multilingual AI assistant that provides advice to Puma’s customers, the shoe brand said in a press release shared with Retail Dive. At launch, the tool is focused on performance running products.

Stored within a large digital display, the concierge tool can detect the language a customer speaks, including French, Arabic, Spanish, Mandarin and English. Through a conversation in that language, the tool can then provide information about product fit, performance insights and whether an item is in stock.

The company will debut the AI concierge at its Las Vegas flagship store this spring. Puma intends for the tool to work in concert with store associates, who can use the information the concierge gathered to offer customers more personalized advice.  

The company teamed up with Google Cloud and LiveX.AI, a holographic AI agent provider, to create the device.

“Puma will be one of the first companies to introduce an AI Concierge in a store,” Rui Pedro Silva, vice president of direct-to-consumer technology at Puma, said in a press release. “By integrating this technology directly into the store environment, we’re making product exploration faster, more intuitive, and more accessible. With this first example of the AI Concierge, we will gather feedback and explore how to further scale this technology on our direct-to-consumer channels.”

Puma is launching its concierge tool in Las Vegas almost a year and a half after opening its flagship store in the city. The 25,000-square-foot store features an F1 racing simulator, an interactive arcade and a customization studio where shoppers can personalize their clothing and shoes, according to a 2024 press release. 

Alongside changes to its store experience, Puma has been trying to refresh its brand. About a year ago, the company revealed its largest global campaign to date across digital, social, TV, retail and other channels, as it looked to evolve its brand identity and attain long-term growth. Earlier in 2026, Puma appointed Nadia Kokni as vice president of global brand marketing, bringing prior experience at brands such as Adidas, JD Sports, Tommy Hilfiger, Hugo Boss and H&M.

The turnaround efforts come as the retailer continues to struggle financially. After cutting 500 roles in 2025, Puma said last October that it planned to reduce its global corporate workforce by more than 900 positions by the end of 2026. In its Q4 earnings report in February, the footwear and apparel brand reported a 27% year-over-year drop in net sales. The company’s 2025 net sales fell 13% from a year prior. 

Interested in helping restore the brand is Anta Sports, which in January acquired a stake of more than 29% in Puma for 1.5 billion euros (about $1.8 billion at the time) in cash. Anta Sports said it isn’t attempting a takeover of Puma but will consider deepening the partnership in the future. 

Ulta Beauty and Target in August took the Gwyneth Paltrow approach to breaking up — consciously uncoupling through a joint press release.

Both companies agreed to end the Ulta Beauty at Target shop-in-shops in August of 2026, about five years since the deal debuted. Customers and employees need not worry, however, as the companies “remain committed to delivering a seamless shopping experience and product availability” during this time and vow to support everyone through the transition.

The companies, which are each slated to report earnings this month, shared few details behind the mutual decision and did not respond to requests for comment.

“Staffing needs, loyalty program synergies, shrink, and [return on invested capital] were likely key considerations,” TD Cowen analysts said in a note shared with Retail Dive, which also referenced “conscious uncoupling.”

Target has been tackling out-of-stock issues more generally since the Ulta partnership debuted in 2021. Similar to other mass retailers dealing with theft, Target also increased its use of locked merchandise, including beauty products, since the partnership began. The locking up of merchandise to prevent shrink had become a point of frustration for Target shoppers, per comments from GlobalData Managing Director Neil Saunders in 2025.

However, Ulta CEO Kecia Steelman, while serving as COO in 2023, noted that the rollout of locked fragrance cabinets at the company’s own stores was improving sales.

Both retailers are steadfast on improving themselves for the time being, emphasizing the need to master retail fundamentals.

“It starts with retail fundamentals,” Target CEO Brian Cornell told analysts on an earnings call in May when asked about a turnaround plan moving forward. “We know we've got to be reliable. We've got to be consistent. We've got to make sure we are managing inventory effectively in this environment. We've got to continue to make progress with shrink. Those are fundamentals each and every day that are embedded in our business.”

Steelman echoed a similar perspective during an earnings call in March.

“It’s clear to me that how we’ve operated must change,” Steelman said of the Ulta stores, noting specifically a need to improve presentation and inventory levels across its fleet.

In the immediate term, industry analysts foresee minimal impact to revenue from the partnership dissolution. 

“Target shop-in-shops contribute to Ulta’s other revenue line, which also includes credit card income and loyalty point redemptions,” William Blair analysts said in a note. “Target pays Ulta a royalty on product sold, taking ownership of the inventory and staffing responsibility ... Given the agreement extends beyond 2025, this announcement should not impact the company’s fiscal 2025 results or guide.”

However, Target was downgraded from a neutral rating to underperform by Bank of America Research Analyst Robert Ohmes. 

Instead, Ohmes cited increasing longer-term sales and margin risks “given slowing digital sales growth, a lack of scale in digital advertising and 3P marketplace, elevated tariff, pricing and merchandising headwinds, and increasing competitive threats from [Walmart] and [Amazon].”

The decision to end the Ulta partnership could exacerbate risks to merchandise given the dynamic sourcing environment in play right now, Ohmes added. 

Looking at Target’s counterpart, the deal was beneficial to Ulta’s margins, but not a significant contributor to its larger performance, Jefferies analysts noted.

“We think both companies have respective longer & tastier fish to fry,” TD Cowen analysts said. “Ulta needs to focus on acquiring new exclusive brands, competing against Sephora – Amazon – TikTok, rethinking the store and format, and going global.” 

“Going forward, our take is that the burden is on [Target] to now find the appropriate way to acquire masstige, fragrance, and prestige beauty brands,” the TD Cowen analysts continued. “We do see this as an opportunity for [Target] to strategically leverage the Target + 3rd party marketplace in a more connected manner.”

Ultimately, the retailers have grown since the 2021 launch of the shop-in-shops — perhaps to a point where they’re now able to compete more directly with each other in the beauty category. Ulta and Target have a 74% store overlap and Target could leverage its experience from the partnership to enhance its offerings across its full fleet, per Jefferies. 

Best Buy is rolling out a Meta shop-in-shop concept — dubbed Meta Lab @ Best Buy — to 50 stores this summer. The first locations to feature the spaces include San Carlos, California; Woodland Park, New Jersey; Greenville, South Carolina; and Columbus, Ohio.

The news was first mentioned by incoming Best Buy CEO Jason Bonfig during an earnings call in May. Meta Lab @ Best Buy shop-in-shops are about 900 square feet, intended to provide space for customers to test out Meta’s full product lineup of AI glasses and VR headsets, per a press release. The spaces provide for interactive demos, smart mirrors, personalized fittings and more.

“Our customers are passionate about experiencing what’s next and they turn to Best Buy to bring it to life,” Patrick McGinnis, chief merchandising officer at Best Buy, said in a statement. “Meta Lab @ Best Buy is an experience customers can’t find at any other retailer and sets a new standard for how our customers will explore, play with and discover the latest cutting-edge tech.”

The debut comes amid a broader strategy shift at Best Buy in which the company is broadening its footprint with the opening of more medium- and small-format locations, and optimizing empty spaces at larger store formats. In addition to the Meta Lab shop-in-shops, the retailer plans to open an outdoor experience at 20 locations led by its Yardbird subsidiary.

Meta Lab @ Best Buy is the latest shop-in-shop initiative from Best Buy, which has also embarked on a partnership with home retailer Ikea’s U.S. business.

Best Buy in 2025 announced it would debut Ikea shop-in-shops focused on kitchen and storage planning at 10 locations. Building on that partnership, Best Buy in May revealed it would also open consultation spaces within select Ikea stores in the U.S.

Best Buy’s first quarter enterprise revenue increased 2% to $8.9 billion and comps grew 2%. The company’s net earnings grew nearly 37% to $276 million.