Retailers are more apt to tout their strengths than to wallow in their worries — at least publicly.
But there is one place where that’s the exception.
Each year, publicly traded U.S. companies have to file annual reports with the Securities and Exchange Commission that, in addition to detailing their performance, include explicit warnings to investors about risks to performance in the year ahead.
While the warnings are often kitchen-sink affairs, noting that a company’s strategic plan might not work or that customers might not show up to stores, changes in the regulatory filings can hint at just what’s really keeping retailers up at night.
Tariffs, of course, are back on the radar, as they were during President Donald Trump’s first term. But that’s not the only hot-button issue retailers are sweating.
Retailers are looking much closer at the potential benefits and risks of artificial intelligence on their businesses and mentioning the technology more frequently in their annual regulatory filings.
“AI creates business, legal and ethical challenges,” Macy’s Inc. warned in its annual report, filed Friday.
“AI tools assist us in areas such as customer service, supply chain, personalization, coding, human resources queries, security, marketing and advertising,” the retailer said. “Even with careful governance, use of AI can produce incorrect output, release private or confidential information, reflect biases, or violate intellectual property rights. These risks could have adverse business, legal or regulatory impact or harm our reputation.”
It’s a snippet of legalese that hints at how Macy’s and the rest of retail is using AI to rev up just about everything while at the same time navigating the eccentricities of the rapidly developing technology.
“It’s inevitable that companies have to embrace AI in some way, shape or form because the kind of leapfrogging technology that we now have gives folks that are embracing it some unique advantages,” said Darpan Seth, chief executive officer of Nextuple, an omnichannel order management advisory and technology firm.
“Those are both on the customer experience side where you could leverage a lot of AI agents to better serve customers,” he said. “And then on the operational side of things, too, there is tremendous advantage in terms of bringing in new levels of automation where there were a lot of manual steps involved, a lot of people involved and actually making decisions or acting on inventory imbalances across the network.”
While AI is still something of a frontier, Seth said it’s one that retailers have to explore.
“This technology is so new, so nascent and is developing at such an incredible pace that there is a lot of messiness associated with it in terms of not just what is real, but which option should I use, which models should I leverage? It’s all a little unclear,” he said. “However, because of the inevitability of this technology, I feel the risk of not moving on this is going to be far more harmful than the risk of actually moving on it and testing and learning as you go.”
Clearly there’s an AI fire lit under retail and companies are feeling they have to move ahead and fast.
In its annual report, Target Corp. said: “We may be unable to match or surpass the advances in technologies and capabilities — including artificial intelligence — that our competitors implement for consumer-facing platforms or for internal operations, which could adversely affect our competitive position.
“Furthermore, generative artificial intelligence presents emerging ethical issues and could negatively impact our guests and team members,” Target said.
Kohl’s Corp. and American Eagle Outfitters Inc. also warned that there were risks to falling behind on AI.
Meanwhile, American Eagle said new laws and regulations around AI, “including the use of algorithms and automated processing…could materially affect our business or significantly increase the cost of compliance.”
All of that has to do with how retailers themselves are using the technology.
But AI is also raising the stakes in the ongoing cybersecurity battle.
Macy’s, like other retailers, warned that “AI tools may provide hackers with more sophisticated methods of cyberattacks.”
As they charge forward, gear up and prepare to defend themselves, retailers are reaching into their wallets.
Annual reports detail plans for capital expenditures in the year ahead and despite economic worries and tariff uncertainties, retailers seem ready to spend money to make money.
- Kohl’s is boosting its capex to $400 million to $425 million from $266 million last year, including money to roll out more Sephora shops while “enhancing our omnichannel capabilities.”
- American Eagle’s capex is increasing to $300 million from $222.5 million with spending to “support of our expansion efforts, stores, information technology upgrades to support growth and investments in e-commerce, as well as to support and enhance our supply chain.”
- Walmart’s capex is set to range from $21 billion to $25 billion this year, up from $23.8 billion in 2024, with “a focus on technology, supply chain and customer-facing initiatives.”
- Gap is spending about $500 million this year, up from $447 million in 2024.
