Retail Pulse Report: Everything Retail Is Disrupted All At Once
Economic uncertainty, consumer behavior shifts, and agentic AI aren't waiting for each other — and neither can retailers.
Source: Adobe Stock. “Agentic Commerce”
At the rate we’re going, the economic future really sucks. Consumers are more disrupted than ever – we’ve moved from a K-shaped economy to K-shaped personal spending. And retailers cannot afford to sit out until things settle down.
I used to think the retail tech world was moving fast. Ha! That was just the warm-up. What’s coming is a magnitude of change I don’t think anyone alive has ever seen.
Take a deep breath (and maybe a Xanax?) before jumping into this one.
Retail Economic Indicators
If consumer sentiment and consumer spending tracked together the way they used to, then it would seem insane that NRF is predicting a 4.4% increase in US retail spending in 2026. Analysts would point to consumer sentiment – the University of Michigan’s latest numbers put it at 55.5, a 2% drop month over month – as a clear indication that consumers are not feeling it. Current conditions sentiment was up slightly, but everything else took a nosedive in the wake of the first actions in Iran at the end of February.
NRF’s note that there are still geopolitical and trade “wildcards” to consider that could change their forecast seems quaint considering one big gigantic wildcard was played before the ink had dried on their forecast. They emphasize “strong economic fundamentals” like income growth, a “robust” labor market, and stable household balance sheets as the basis for their forecast, but there’s a quote from the series Landman going around that economists are saying is not made up at all: “[Oil] hits $100 [per barrel], every product in America has to adjust its price.” While the US may be relatively insulated from energy shortages (which is not the case in much of the rest of the world), we are not insulated from energy prices.
Unless this “action” against Iran gets shut down soon, the ripple effects of the blockade of the Strait of Hormuz becomes something everyone in the whole world will feel, from farmers in Indonesia to plumbers in Indiana. In that light, 4.4% seems wildly optimistic.
If I had to rate the economic uncertainty that the whole world is now facing, I would put that at an 8 or 9 out of 10.
Research & Surveys: Consumer Behavior & AI
McKinsey recently released a big piece on the state of the US consumer, aptly named “The State of the US Consumer.” They found that AI tools are moving from early adopter to the mainstream, with a heavy focus on the front half of the customer journey: discover, explore, select. They also found that the early adopters are accelerating their overall spending: Gen Z spending is growing at 2x the rate that other generations’ spending grew during the same age period. Gen Z spending is expected to eclipse Boomer spending globally by 2029. That happens to be a tradeoff in spending leadership between those who use AI the least, in favor of those who use it the most.
If you need a story line that helps explain how spending continues in the face of consumer pessimism, this study offers one. They found that globally, 79% of consumers are “trading down” (defined as seeking deals or delaying purchases), though they are simultaneously splurging on specific categories like travel or beauty. We’ve apparently entered a phase where it’s not just a K-shaped economy. Even personal spending, no matter your economic status, is going K-shaped.
The study calls out food delivery as an example, and I’m seeing that in my own kids, who, instead of going out, see DoorDash as a personal splurge.
McKinsey concludes: “It’s not that today’s consumers are irrational; it’s that the old frameworks used to decipher their behavior no longer apply.”
But it’s not just AI that’s doing that. It’s the generational shifts that are happening in the midst of both a technological shift and massive economic uncertainty.
However, it helps to dig into that whole AI behavior thing a little more deeply, and Roger Dunn did just that, reviewing several studies on consumer AI-driven behavior. There are some gems in the piece, I could’ve quoted way more than a fare share, so you should read the whole thing (and even pick up some of the source material he links to).
Whittling down to my favorites:
“Traditional search rewarded brands that were famous enough to appear for broad terms. AI shopping rewards brands that are described well enough to match specific constraints. The consumer isn’t browsing. They’re briefing.”
“47% take their AI-generated shortlist to Google for reviews or pricing. 39% take it to Amazon. 40% complete the purchase somewhere other than the AI tool. Only 20% use AI from start to finish. […] AI curates. Search validates. And 77% of consumers use both together during the same purchase journey, with only 4% relying on AI alone.”
I like that quote because it shows how, while it is a revolutionary shift in behavior, there are still a lot of evolutionary impacts in the short and mid term. Search isn’t dead, but how consumers are using it in the shopping journey is certainly changing rapidly.
And finally, “The AI shortlist is becoming the most commercially powerful gatekeeper in commerce, but it’s also one of the most volatile. SparkToro showed us in January that AI tools almost never recommend the same brands twice in the same order. The shortlist shuffles constantly.”
He goes on to point out that consumers don’t think much about the order, they care more about the explanation that AI gives along with the recommendation, to see if it makes sense for them. Back to, consumers aren’t looking for search results. They’re looking for a brief on product selection options.
Compared to the economic disruption on our doorstep, consumer behavior disruption isn’t quite as extreme, but it’s still almost at pandemic level high, like a 7/10. But part of the reason why it’s not higher is because there are still a lot of Boomers and Gen X that are slow on the AI shopping uptake (in the case of Boomers, if they ever will). That is slowing the impact somewhat for now.
AI & Retail
Kiri Masters hosted Joanna Lambadjieva and a post on Google’s landing page patent. Joanna goes into the details, but the gist of it is, Google has filed a patent that, for merchants using their ad spend services, Google would basically have the right to create a completely new landing page for customers clicking through if the page doesn’t meet certain requirements. And the requirements were set low enough that if Google ever implements it, merchants’ deal with the Devil just got a lot closer to selling the whole soul, instead of just parts.
I’m still trying to think the implications through – I’m not a deep eCom expert so I would rely more heavily on Joanna’s take than mine. But as I read her explanation I kept thinking but doesn’t the retailer still get the sale?
Funny thing, this is the question that everyone is asking about platform LLM’s. Part of the answer is, it does matter if it means that you lose all that intent. If Google is sharing when they do rebuild the page, along with what path brought the customer to that page, then maybe it’s not so bad? They’re basically trying to make sure your page shows more what customers are expecting based on how they got there, which, if it doesn’t convert more would at least give a basis for pushing back on the practice.
More important to me, it goes back to a bigger question, one that AI is really putting pressure on. What value is your front end? Does it matter how much you invest in searchandising and category filters and lifestyle imagery if no one ever sees it? Or, excuse me, if only agents and crawler bots ever “see” it?
And it’s interesting how far we’ve come so fast that even general business articles are writing more about the future of agentic as something that is going to happen TO retailers vs something they will control (with maybe the exception of Amazon’s Rufus and Walmart’s Sparky).
But this quote from that article struck me: “AI assistants will favor brands with well-structured data and predictable pricing — not emotional resonance.” I’m not sure that I agree with the assessment that emotional resonance won’t matter. But the fact that retailers used to agonize over whether the online buy button should be blue or green – and that this had a measurable impact on conversion… I think those days are nearly over.
To round out the risk assessment, retailers are not yet as disrupted as they should be feeling. They’re at like a 4 out of 10. But they’ll be up there with consumers around 7 or 8 very quickly – it’s all moving that fast.
Gary Hawkins (Hey Gary! It’s been awhile! ) wrote a white paper about “Retail 5.0” which he defines as the age of Agentic Orchestration. He sums up the shift into overdrive that is coming for retail – the point is made in three steps:
80% of any data project is spent simply on cleaning and recreating content.
33% of business leaders report they cannot get meaningful insights from their data and 30% are overwhelmed by the volume of data they have.
Grocery retailers spent about $13 billion on tech in 2022, while Amazon alone spent over $72 billion in the same period.
Gary brings up a phrase I’ve heard more than once in the last few weeks: the “Field of Dreams Fallacy.” I’ve heard it more often in the discussion of OpenAI’s attempt at the cart, but Gary means it more like, complacency on the part of retailers that they can throw some agents out there and just go back to selling their stuff.
I agree, that time is done. Disruption in retail may be 4/10 today. But with economic troubles at an 8, and consumer behavior at 7 level of disruption, retailers have more pressure to make radical change, while simultaneously facing the most economic and consumer behavior disruption they may have ever faced at the same time.
It’s one thing to deal with shifting consumer behavior when the economy is booming. It’s one thing to deal with uncertain economic conditions when consumer behavior is predictable.
That’s not what’s happening right now.
What Have We Learned This Week?
Gary had some choice quotes:
“Agentic transformation marks a structural break from the last 30 years of enterprise change... It is a fundamental re-architecture of how organizations sense demand, interpret signals, make decisions, and act—often autonomously, continuously, and across organizational boundaries.”
“Retail is metamorphosizing into a technology business.” (It’s funny to have to say this in the Internet Age, but it’s a consistent challenge for retailers who think they exist to “sell stuff” when I don’t think that business model has stood on its own since the death of the big box retailer. It still needs saying.)
“The competitive frontier is no longer who has the most data—but who can turn intent into action fastest.”
It’s true that you can’t just throw some AI pilots out there and expect that to insulate you from what’s happening. But don’t lose that a retailer ultimately needs a vision – a vision of what they want to mean to consumers. The sooner you get on the learning curve of what is going to work in this tech-disrupted, economically shaky, consumer-challenged future, the sooner you have a chance to make it through.
Program note: I’m taking the next week off (let’s call that spring break, I guess), and may need the week after that too. I’m aiming for my next publish date as April 6, but don’t be surprised if it’s more like April 13.
Until then!
- Nikki
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