SPEND SMART - How Smart Tech and AI are Closing the Inventory Visibility Gap for Specialty Retailers

Hey everybody, my name's Greg Buzek. Thanks for joining me today for our webinar, Spend Smart: How Smart Technology and AI Are Closing the Inventory Visibility Gap in Specialty Stores. Joining me today is Lee Holman, and then Mike Duncan from Epicor is going to be joining. Thank you to Epicor for being our distribution sponsor for this research. This is research that we did independently. The cut that you're gonna see today is focused on specialty stores and cosmetics and mass merchants. that are under $1 billion in sales. Hey, tell us where you're from. Football season started, man. I got my scarlet and gray. I'm ready for Ohio State-Texas this weekend. We had the Patriots and Seahawks last night. Who's your team? What's going on? If you're not into that, are you going to buy the new iPhone Duo that just came out? Let us know. Just, we want to make this engaging. Use the chat. Tell us where you're from. That is also where we do the, the Q&A. There's a Q&A down there as well as we go through the session. So please interact with us and make this a special day. Now, before we get started, I want to start with all the retailers that are here, just invite you to register for our Super Saturday event. Now, this is our standard slide and it basically says, you know, when every retailer that attends provides clean water for 500 people or education for 50, but I'm just going to make this real. So What Super Saturday is, is just an analyst day. And just by showing up, retailers help kids in need. But last Sunday, and I apologize to Epicor for the heaviness of this, when I'm normally going to Sunday brunch, instead I was in Honduras in a garbage dump. And we were providing meals for kids. I mean, 80 kids, about 100 people that live in the dump. That's where they live. Wow. And you want to talk about just being humbled. This is their only hot meal for the week. And if you register for Super Saturday as a retailer, you're going to provide 50 meals for these kids. That's practically— it's about $5,000 for every retailer that signed up before November 15th. And I cannot tell you the impact that it makes. Even if we can just use your name or your company name and title up to November 15th, the sponsorships that come through through the vendors, the support it's enough for $5,000, which would be 50 times that we can feed these people up there who are living in the dump. And it's— I, you know, coming back here, we call it coming back to the cruise ship, coming back to America. There's a level of poverty here that is hard to describe. But that's what we do. We use our skill sets, our companies to help orphans and vulnerable children around the world. Just by signing up, you help as a retailer. If you're a vendor, we love to You sponsor, that's how we pay for these programs. So, that is that part for Super Saturday. So now, let's move on to the economy. That's a tough switch. So, I always like to start wide and lean in. So, let's talk about inflation, what's really going on. If you've ever followed IHL before, we believe that Truflation is a far better indicator of what's really happening in the world than the US government, which data is about 45 days old. So we literally have inflation running at about 2.26% right now according to Truflation. This is like a Nielsen ratings view inflation. It's up to date daily. With that being said, we have the CPI coming out this weekend for August. The July numbers, everything is in fuel and energy costs and airline fares. That's what's driving inflation totally. It continues to grow. Gas prices They're up $0.17 in the last 2 days with some of the presidential comments that he doesn't see these prices going down until after the midterms. He views the current administration and Orion is going to hold out until after the midterms to try to influence our elections. The bigger issue here is the price of diesel that is at an all-time record price here at nearly $6 a gallon. That is a record high for diesel. And because of that, that flows through the entire economy. in product pricing. And if you extract that, the inflation is actually low. So my advice, as I've mentioned in previous webinars, whenever the government gives out money or talks about giving out money, you want to buy oil stocks. So here, the One Big Beautiful Bill Act, we have gas prices up 58% coming through that at the high. So these were second quarter profits for the oil companies as a result of that. But it's not just the oil companies that saw profits. Basically in the S&P 500, the earnings growth is 50%. So, what that tells us is these tariffs that have come through, people have just passed those tariffs on to consumers and have kept the results. And if you listen to IHL in the past, we told you the actual tariff impacts only about 25% of their cost. But if they raise the price, then the amount that's in the head of the consumer, they're able to do that at the president's expense and then pocket those results. And that's what we're seeing with 50% earnings growth. Now, some of this is AI growth, As well, the AI improvement in the organization. So earnings per share is up 35% year to date for the S&P 500. It's just astounding earnings growth from the largest companies. So the question is, it's very true in retail as well. The sales growth is about 5.4%. So if you say anywhere from 2.2% to 3.2% inflation, but the profit growth is 2.3 times the sales growth. So these retailers have done the same thing. They've raised the prices commensurate with what's in the news when their actual prices went up less. So they're actually raising the prices one time, making that big jump in the mind of the consumers, using the president as cover and the tariffs as cover for that in the mindshare. And they're pocketing those benefits right now. Now, that being said, these companies tend to also be the furthest ahead in AI growth as well. And they're starting to see those synergies. And that becomes— gets closer to what we're talking about today. Functionally unemployment. We've got about 25% of US workers that are functionally unemployed. New grads are— over 50% of new grads are either unemployed or working in jobs they're underemployed, and some are dropping out of jobs. My daughter just quit a job in her major to be a waitress because no tips on— or no taxes on tips. She's actually making twice as much as she made after a 4-year degree. By waiting tables right now as a result of that. So changes in the economy, things that we're looking at. We've got a big issue, particularly with new grads. If there is a bubble, it is not AI right now. The bubble is college education out there and the rise of college education and being unprepared for the jobs that are coming out right now. That's where the bubble is. We're seeing increases in delinquencies of all types, particularly in student loans from the consumer, very high. However, I think it was The Wells Fargo CEO came out this morning saying they're seeing a drop in delinquencies for the first time on some of their, some of their loans. I didn't get into details. I just had that this morning that popped up. That's good news if that's the case. But overall, we've seen this sharp spike, as you can see in this data, of delinquencies. So particularly student loans, we've got this huge problem with student loans being in default. And once again, if there is a bubble, it's related to college education. So the big debate among economists, are we in a K-shaped economy where it's top earners and bottom earners, or is it a C now where it's not split? There was no coming together, but there's actually a much wider split. And some are arguing it might be an E where the people in the middle are starting to do better. So, you have plumbers, electricians, et cetera. Those people who previously might have been lower on the wage scale are now actually 6 figures or higher. Now, as a result of data center buildouts, so either way, there is a huge separation from the top and the bottom that we have to take into consideration, and that's in fact impacting retail particularly. The top households, the top 10% of households, are basically 67% of all the wealth. So over two-thirds of the wealth for the country in the top 10% of income. What that means is if you have a home with a low interest and you have exposure in the stock market and you have a steady job. If you have a job, you're doing okay. It's an inconvenience with the inflation. If you don't have those things, you're really struggling. And that's what we're seeing in the economy, and that's being reflected. 2/3 of Americans live paycheck to paycheck. What surprises me about this is if you look on the left side, 26% of these people are living paycheck to paycheck as a choice. They're not struggling to pay the bills. They just They just spend whatever comes in. They're not saving. So we've got a total of 67% of the people are living paycheck to paycheck. So only 33% have a rainy day fund of more than $500. But you've got 26% that are doing that willingly. They're just spending everything that comes in, which is extremely dangerous. And then you have 41% that are really struggling, 41% of that 67%. So roughly two-thirds of that, those are people that are really struggling to make ends meet and making tough decisions now in the economy. That being said, retail sales are up regardless of what you think the inflation rate is, 5.15% year to year in July. We got a boost from the World Cup coming in. We got a boost in June from Prime Day being moved into June. This is a chart that just showed up. I was hoping to have the August data, but it looks like the August data from the CNBC is not going to be available for a couple more days. But this July data finally showed up on the website. And you see that there's some big differences and changes that are happening the last couple months when it comes to clothing. This is the GLP-1 effect. People are losing weight and they're buying new clothes. And then you've got back to school starting to hit in here. Really strong growth in clothing. We also saw strong growth happening in electronics and appliances, which was quite surprising. A lot of that is being driven by inflation and just the fact that concerns over tariffs coming forward. Food and drinking places outside got has gotten bumps from the World Cup and the international tourists for June and July. I expect this to go down once the August data is released. This is the first thing that gets cut when people are feeling squeezed is the eating out. We're already seeing it from table service restaurants down to fast food as, as we go forward here. And then the last piece is you saw a huge bump in June for sporting goods and music stores. That is a big, big issue related to the World Cup where people bought more and more jerseys and everything to support the World Cup. Very tough comparison month to month, but it dropped considerably in July. So a lot of that moved forward, a lot of that spend, huge growth. And then finally, I know we've got a lot of people from the building and gardening supplies side of things. It's been a tough year overall, honestly. I don't know, there's no way to get around it. High interest rates, near 7% mortgages right now. It becomes really tough for the remodels that people need to do. It's a great time to get a great deal if you want to remodel your house right now because of the toughness of that particular market as a whole. That being said, Deloitte today came out with their holiday retail sales growth plan, and they're showing an expectation of 4.8% growth this year. So if you strip out inflation, 2 to 3% inflation, that kind of gives you where you think it will be maybe 3 to 4% over inflation. That seems really strong. I think it's really going to be interesting is what happens with this iPhone refresh. Unless you're buying the Duo, I don't know if there was anything really compelling in the AI side of things that makes you want to upgrade your phone. That $2,000 Duo seems really interesting though. My phone's 2 years old. I even— I'm considering it. Just because of the older, my eyes are not as good anymore. That wider screen to be able to get more, more on the phone with it not being open and then being able to open it to have a larger screen to read might be compelling enough for me to make that upgrade as my phone is a 16. So as we look at the holidays, that may be the thing that drives growth and spend for holiday sales growth. Right now, I'm not aware of any toys or other things that are going to be the big drivers. I think it's going to be a It's going to be electronics and it's going to be things related to clothing and more practical items for the holidays right now, just because of those fuel prices. If we get these fuel prices down, if this war ends and the fuel prices drop, then I think you'll start seeing more consistent pattern with the retail and the Christmases of the past where the gift giving and the other side of it is more extravagant and not just needs. And then more into the desire side of things. AI is now starting to impact the retail economy and just overall, but it is being dominated by the larger companies. We've said this from day one with AI going back 3 years, 72% of all the AI gains are going to larger companies. If you are a smaller company, a smaller retailer that adapts to AI, you're way ahead of your competitors. And we are starting to see that If you're above $1 billion in sales, 42% are now doing— are not using agents. Excuse me, I'm sorry. Below $1 billion are not doing any agentic AI, whereas that's much lower when you get to above $1 billion. So right now we're starting to see the large retailers scaling AI across, and this becomes a literally a slope, an upward slope. And it's, it's a race that's out there. And you have to take the approach. You don't have to beat the big guys. You just can't be the last of the people in your market to leverage this technology. And that's what we're going to lead into today. And that brings us to our study today, Spend Smart: How Smart Technology and AI Are Closing the Inventory Visibility Gap in Specialty Retail. So some key findings. What we're finding is the retailers who prioritized AI into their existing applications were projecting 80% higher profit growth than their average leading into 2026. And those people that considered themselves early adopters of technology were seeing 85% higher profit growth, and they were growing their store-level IT 87% faster than average. And there seems to be a really big disconnect. The POS is such an important part of the data clarity for this market that getting to a single data lake or having up-to-date point of sale is highly correlated to the success of being able to leverage AI. The AI opportunity is real. Gosh, it's jumping even more every single week. And it's, it's astounding to watch and be, and to be a part of what's going on here. Overall level set, the plans were for 4.9% increase in store counts, store remodels increase in 3.9% in total IT spend and store IT spend of 5.2%. What is happening and what is creating a separation is the revenue per channel. The leading retailers have more ways to reach their customers and expanded their channels to be more in the BOPIS, ship from store, and local store delivery. Right now in this sector, by cutting it by specialty stores and cosmetics and mass merchants, only 44% of total sales now go through the traditional walk into the store and purchase process. Over 56% now comes through some sort of e-commerce method throughout the chain. So it starts online and works in the store. So you You have to have this cloud-native system that can have a single view of the truth of what's going on. And we're seeing that there is a massive shift in terms of how much of your revenue is happening per channel. So what you see here in blue is the percentage for those sales winners. So sales winners are defined as people that grew their sales in 2025 of 10% or more. Laggards were flat or negative. And you see that in this note. That the laggards are just 58% of them, 58% of their revenue comes from the store. So they're only relying on the store, whereas the sales winner, only 34% of their revenues come from the store. And they've got all these other channels that they're now able to get things through, and they're more than 100% higher in many of the cases. And say e-commerce from the warehouse, they're more than 3 times higher. You're literally more than 4 times or nearly 4 times higher on BOPIS and click and collect. So more of their revenue is in these other areas. And to be able to do that, you have to have clean data. You have to have a strong foundation. You have to have a store that supports things because we still see about 90% of all transactions come through the store from a fulfillment standpoint. So you need to make sure that everything is synchronized together. You've got clean data so that you can meet the needs of your consumers. And now I want to stop. Mike, were you able to get in? Oh, terrific.

Perfect.

There you are. All right.

Yeah, I just have a few, few points here on Epicor. For those of you who aren't familiar with Epicor, you know, we are a company that has been around a little while providing ERP and point-of-sale solutions in different industry verticals. Obviously, we're here to talk about retail. Just want to make sure that everybody understands we know the value chain. We look across it from the, from the time a product is made to from distributed to the time it's actually out the door for the retailers that are on the phone. You know, we look at working with customers of all kind of different size and scale. So from enterprise to, you know, down to small business, every customer matters. And we have solutions with our retail management systems and, you know, our cloud-native product Propello is kind of leading the forefront there with the capabilities to extend that in-store experience that Greg has been talking about and, you know, that 90% that's really critical and important In the retail economy, that's where we live and breathe, but understand that all the experiences across shoppers' choices today, right, mobile, online, et cetera, all need to kind of be centered around that system. And one of the things there that we, I think, is at everybody, you can't be in today's world without thinking about AI and how it's impacting it. We have a little bit of a philosophy here on kind of how we think about it. It's definitely people first, right? AI does not replace the person. It just kind of empowers the person and accelerates them to be able to grow within their job. And then, you know, ultimately when it comes down to Epicor's systems, we look at them from, you know, it's really being at the core because that's running your business. It's managing your inventory. It's capturing sales, accounting, and, you know, in certain aspects. So all of that has to, from an AI standpoint, AI has to be knowledgeable of what's happening in that. So our philosophy is really the person is still at the center and the controls need to be there. So as we approach and embed AI into our product, we look around how it can be, you know, it focuses on the industry vertical expertise that I talked about earlier and where, you know, we look at our core of working with the whether you're in manufacturing, obviously we're talking about retail, but so in the— it's very retail-centric within the industry, making sure that we can provide the context around the workflows for the user so that it makes sense and make sure that AI is kind of process-aware, all controlled and gated by the governance that is there and available, you know, in the ERP. So if you have a user and they are limited on permissions, they only get to do certain things, right? This is at the basis of what we do, and then ultimately taking action on the suggested workflows from, you know, from the AI, making sure that we have the ability to execute on those. So the advantage here is really just that Epicor has the data, it's governed by the way you run your system, and really throwing a, you know, throwing AI into the mix as everybody is and competing with the large brands, you know, Epicor as a large software provider can can give you the advantage and leverage as we add the AI into the mix of the overall solution. So that's a little bit on, I think, who Epicor is and kind of where we're going with respect to AI. And I just wanted to just kind of say a quick thank you to Greg and team for allowing us to pop in here real quick.

Terrific. Thanks, Mike. So here we are now diving deeper into the information regarding the study itself, and this is self-defined where people are, are early adopters, fast followers, careful evaluators when it comes to technology, or are they tech laggards? And what's so important about this is there are big differences that we see in performance based on how they self-defined as users here. So the early tech adopters are driving higher sales growth. I don't think we've ever seen a time where this has been more important. If you got to a single data lake and you've improved your store networks, in particular, you are set up for having clean data. You're set up for using AI and helping do the things like inventory visibility. So, you know, you've got the products in store that you can sell, particularly across all these different channels when you're using the store as a fulfillment channel. So the early tech adopters expect 15% sales growth for 2026. That's 85% higher than average. And literally almost 500% of that of the sales laggards in terms of sales growth. Just a massive growth advantage that's occurring. And it's that foundation that creates the ability to separate. And then the data infrastructure matters. The laggards are 4 times more likely not to have optimized their omnichannel different things. So there are different things. They're less, 4 times less likely to be optimized for BOPIS. For instance. And what we mean by that is BOPIS actually adds cost to what you're doing. So you've got staff that are picking items off of the store and everything's been optimized for a consumer to walk in the store to pick things off the shelf. And you've got to optimize that process using ways and other things to lower that as much as that incremental cost as much as possible so that you're able to optimize it and not lose as much. So the hope is that the sales growth covers the margin loss. That comes from using those channels and optimizing that. The laggards can't get around to doing that time because walking around looking for inventory because the system says it's in stock, but it's not. So all the margins on these orders are getting lost because people are walking around and spending all this labor trying to fulfill some of these items. So the leaders have optimized that to make sure that they are really effective in what they're doing and efficient when it comes to these omnichannel orders from the store. That single version of the truth is critical to Avoiding data chaos. 44% of the people that grew their profits 10% or more had a single data lake. Zero of the profit laggards, the people that were flat or negative sales, use a single version of the truth for their data. That is the single biggest separator that we see out there is clean data. AI budgets overall, this is an overall view, 4.7% of total revenue now being spent on in this sector. The IT budget, the AI spend as a part of that IT budget is now 16.2%. That's a growth of 34% year to year. That is going even higher. Once again, we talk about these foundational steps, the data layer first, the point of sale, getting to the single version of the truth, then your network, then you can start doing the AI stuff on top of that. If you do that out of order, you're just looking for a disaster. When you do it in order as a recipe, incredible growth that people are seeing in terms of backend performance. AI is the key to doing more with less. 325%, the profit winners are 325% more likely to have AI significantly impact their store staffing within the next 2 years. And in most cases, this is positive and adding people because they're adding stores. It's not necessarily, it's doing more with less in the sense that that you may not have as many people per store, but you're now able to open more stores because you're leveraging AI in those stores and making people more effective. I know from an IHL standpoint, and obviously we're an analyst firm, we are on average seeing about 15 times improvement on what's going on with AI versus doing things manually. You get that by re-looking at your processes with AI in the center of those processes. We have some that are over 400 times faster of what's going on. And that's over 3,500 different tasks that we've had AI do since April 1st of this year. We're seeing massive improvements. The same can be done in a retail environment when you scale this across stores. But once again, you have to have your data layers first, then your, your infrastructure layer in terms of operations. Then you can start enabling your team with these AI tools going through. So the, the people that are early adopters are racing ahead in investments in the store. They're not ignoring the store. They're investing in the store. But once again, investing in the store to support all of the channels, not just the walk-in channel. They're, they're spending 87% more. They're projecting 85% higher profit growth. And they're building their total IT investment 51% faster than the average in their particular market. So there's 3 phases of this investment. You've got to build the foundation, the data unification portion, the systems integration, the real-time inventory visibility. This is the prerequisite. You cannot skip this. This is the thing. So I always look at the, the, these concept of getting across New York City to LaGuardia Airport. Okay, there are a few retailers that are already through the city, through the tunnel, through the toll booth on the Long Island Expressway going to LaGuardia. They're speeding up because They've done everything and they're getting great benefits out of AI. The vast majority of retailers are still in phase 1 here. They're stuck between 8th and 9th on 42nd Street in bumper-to-bumper traffic. And they're just like, they get moving and they realize, oh crap, our data is bad here. It's bad here. It's bad here. You have to fix this data and get to clean data. And then existing workflows. When you augment existing workflows, you can get 20 to 30% improvement when you leverage AI. However, when you redesign the processes with AI at the, at the center with good data, you will see 20, 30, 40 times improvement when you do that. And it's really astounding. And we're going to talk about some layers of that that people are seeing. I talked about earlier the impact on number of people at the store, at the supply chain, and during delivery. There is a big disconnect between the people that work the stores And the people that work in headquarters. The people that work in headquarters have had to do more with less for more than five years due to COVID, not being able to get enough people to work in the stores. So they've been looking at this issue. They're expecting to have fewer people in their stores, not because of AI, but because they've been having to try to figure out how to do more with. However, that being said, particularly with all the narrative, the negative narrative about AI that's. In the news, the people that work the stores think any change in personnel, and particularly any reduction in personnel, is being completely driven by AI optimization. And that's simply not the case. But that being said, there is expectation for the change in the number of personnel per store. But what's happening is we're finding the leaders are actually adding people to the stores for these different functions, but they're adding stores overall. And they're growing. This brings me to the point that you, if you are a leader in this market and you want to deploy AI, you have to overcommunicate that this is not a labor savings or a labor removal process. But you also have to overcommunicate that the jobs that are being done have to change. Because when you add AI into this, you're now actually, everybody becomes a manager of agents potentially. And it's not just, it's an assistant. To somebody that might be at the store. But if you're a knowledge worker, you've got to come to grips with the fact that you're going to be managing a team of agents to do work through the systems that you would normally were doing this work previously. If you don't make that change, you're going to be the one that's left behind with things going forward. So there's a 325% gap between what the profit winners think and the profit laggards think in terms of the performance of— and what's happening in this data point is specifically the profit laggards they don't think it's going to have a big impact because they can't use it. Their data's not in a good enough situation to leverage AI to make a difference. They have to throw more people at the situation because they don't have the data that's clean enough to leverage AI to get the efficiencies that they need. It gets wider, though, from the winners and the laggards. So, this is a race that you talk about a slope that is going up. They call it the S-curve. And as you go, or the J-curve for that matter, it's an upward slope that's going directly up or Or what the AI people call singularity. Once you're on that curve, you're racing ahead. And this is the big danger for those that are, that are lagging behind on this. So the performance gap, the sales winners, 280% higher sales growth in '25, 1,800% higher profit growth. Their projected growth this year, 173% and 1,340% for increase in store footprint. And then they're 471% more physical store reinvestment. And once again, it's not that the footprint of the store gets larger. In many cases, it's getting smaller, but they're adding second sections for online orders to be more efficient in what they're doing and fulfilling those online orders that are going to be fulfilled from the stores. Location is still your advantage when it comes to physical stores and delivering. So this is being spent out with, with the overall IT spend, the sales leaders, the people that grew their sales, 10% or more are investing more in IT, 39% faster, and specifically store level, 73% faster than the laggards. They're investing in their stores, but they're investing in their stores for sales through all the channels that are— So the tech profile of tomorrow's retail winner is really a cloud-native architecture. So you can have one version of the truth of your data and the store empowered at the point of service and point of decision with AI tools to assist. That means if you're a hardware store, the associate has the tool in their hand to be an expert on what is that fitting, what is that screw, what are all the components of a project that somebody needs to consider to avoid the 4-time trip to the hardware store over the weekend just to do a, a standard home improvement project. We saw Home Depot just announced 3-hour delivery that they've added in. Amazon's doing 1-hour, Walmart 1-hour delivery. So if you're small DIY, you've got to have those more knowledgeable sales associates to be able to do the job right and get the right thing. So it's those relationships, but also having the right tools in place for that. The analytics and the reporting, that's what drives the action. You need to see what's happening, particularly as it comes to loss prevention and shrink. We are seeing dramatic increases, particularly as the economy is slowing since March and since the war. We're seeing a dramatic increase in organized retail crime. As well as theft through self-checkout is rising again. It was actually dropping coming into the year but has now spiked again as the economy has slowed. So, the ability to see what's happening and being able to react to things. We did a webinar in May on facial recognition technology. And the most fascinating thing that came out of that is an honest customer goes to 1 to 2 stores a month. A dishonest customer goes to 10, and and that is the way you figure out who's ripping you off—is is the people that are going to more stores than average. So if you recognize the same face, that's a way to now hone your security cameras down to what's going on. The only other person that goes to that many stores is your district manager, and hopefully they're not the ones that are stealing from you. But that loss prevention trends—we're seeing a shifts, a strong shift in loss prevention that's happening in the last quarter. As a result of things. So having the data, having good data, being able to follow those metrics regardless of whether it's shrink trend, vendor performance, are you getting the products that you, that you had in your POs? Is that happening? Is the product getting to the shelves? Are the consumers seeing it? We did our inventory distortion study last month, and it still sits at $1.7 trillion of impact worldwide. And That's despite going from 10% of same-store sales down to 6% of same-store sales, a drop of 4% of same-store sales and improvements. However, the increase in sales total and the increase of theft overcame that loss in America. So we actually are still sitting at the same $1.7 trillion worldwide as a result of that. So having the analytics, seeing what's going on, Is critical. And then it's just the fact that you've got depth and you've gotta be able to have, be able to deliver this omnichannel fulfillment footprint. You know, once again, the ability to have more ways to touch and fulfill to your customer is what is winning today in today's market. And you have to, all that comes down to the foundation of having clean data across all. So the practical roadmap is the visibility of the foundation, itself. Where are you? How is your inventory data? Is the data you have clean? Is it a single version of the truth? Got to go to phase 2, which is migrating to a single data lake, getting your infrastructure in place that allows you to do phase 3, which is the AI-powered automation. So this unified platform requirement, so literally everything's connected now. So you can't have these silos of data all over the place. As we've had in the past because so much of the purchasing is coming online now. And even though the store is critical for fulfillment, the order and the touchpoints are coming from so many different directions that you have to have one single version of the truth of your inventory of what's going on. And with that, that's the key parts of the core study. I did want to go in and just take this one step further with the AI because this is kind of where the bleeding edge of things are with the frontier labs of things going on with AI. And most people in retail, and unfortunately most people, you know, in knowledge work positions, are not getting access to the best AI tools. And most people are at this level 0, which is the chat tab, where you're not getting reusable stuff. You might respond to an email, etc., and you might be able to get to level 1 The assistant level, you're now starting to use your files and it's using your email. It might be your Google Drive or your OneDrive that's getting the information. That is a big jump. If you can get from level 0 to level 1, you're in good shape. Very few retailers are now getting to level 2, which is actually where you're managing agents to do what your previous job was, where you're orchestrating the AI to do 80% of that work and you're doing the final 20%. of that work. That's the level 2, which you're able to assign several jobs. We are using GrokBot tremendously within IHL, previously Cowork as well as Codex for ChatGPT on a second brain of IHL research and other things. And that's what gets us our average of 15 times return or 15 times faster than a human can do these jobs. In, in doing that. But Grokbot has now taken that to another level where I have a chief of staff, and now I have 15 to 20 agents that are doing the work that I was doing previously. And things like, you know, spinning up websites, social media, getting things posted, all that stuff— now I have separate agents that are doing all of that work. So where I am personally is probably at a level 3 at this point type of thing. And but there's another level beyond that where you're literally setting the direction. So basically, it seems about every 2 to 3 weeks since February, we've had this step up in our level of work and how we're looking at improving our stuff. So it's it's almost like an analogy where you've got some kind of guy comes in as a sales intern in month one, and by month six he's VP of operations. And you think of what is the level of skills that have to be upskilled to do that. That's what we're seeing with these AI tools, and we are literally seeing a straight-up curve that's occurring. The new models, Fable 5.1, Astra that just came out, and the stuff coming out after Astra— it's a whole other way you interact with these, with these new models and their knowledge base. You know, you want to be sure that you're not training those models and your data is secure, etc. But the capability of these models are incredible now. And with these harnesses like GrokBot, I can just tell my chief of staff, hey, we've got a new product that's coming out on October 13th, put the entire plan together, here's what it is, and it goes out and it just splits it out. I've got product managers that go out and plan the product, the build, the website, the social media plan, the graphics, all that sort of stuff just gets spun out to all these different agents to do this work, just like you had a full physical team. So you want to start thinking in the mindset of your job is going to be more managing AI to do that job rather than the core things that you've been doing. So that's the challenge. You're going to have people on your team that are great salespeople, They're not good sales managers. They're good individual contributors. They're not good managers. And you're going to have to decide which of those people are the best to be promoted. And you yourself, make sure you start to learn these tools. If you haven't set up a second brain or you want to learn, reach out to me. I'm happy to walk you through how to do it. And that is 100 times improvement over what most people are doing today for AI. So with that, There are these level, different levels. I'll keep this in the deck here that just shows the level of autonomy and how much you give to that. And with that, we're ready for questions. So Mike and Lee, if you guys want to come back on camera, we can go to Q&A. Guys, let us know your questions. If you're watching on LinkedIn, put those questions in. Beth, if you could throw those to Lee through the chat here on Zoom, if we can. This is our contact information as well. If you haven't put in the chat yet, Carl or Beth, can you drop in that link to where people can get the slides and the research reports? Those are now available. You can download those right now.

All right. Start with you, Greg. Corporate earnings just posted the biggest upside surprise on record, up 50% year over year. Yet nearly a quarter of the workforce is functionally unemployed and 2/3 of consumers live paycheck to paycheck.

Yeah.

How do retailers reconcile the gap between corporate strength and stress in consumers in their planning?

It's a balance. It really is a balance. The good news for them is the higher prices are expected for folks. Generally, the consumers overall are still not fully stretched out, except unless you're in low-end stuff. I think most of the people that are on this call The retailers are on this call, they're dealing with homeowners in most cases, and the homeowners tend to be the better off of the group for things, and they're not as stretched. If, if you've got a job, you've got a home with a sub-4% mortgage, these higher prices are an inconvenience. You may or may not support what's going on that's causing this, but everybody's dealing with the reality of it right now. And the good news of that is it seems like it's not forever thing. It's something that has a definitive lifespan. So as long as the employment stays in place, then things can tread water. And if interest rates come down, then things start to boom because there's a lot of these home improvement projects that are built up and pent up that we saw a big boom in 2022 for the home improvement group. Here we are in '26. That's the last time. So we're going to see a big demand increase if we see interest rates drop.

Yeah. Mike, you seeing the same thing?

Yeah. I mean, generally speaking, where and where the crossroads are, I think, is within our business and the impact of them as an industry goes. I think that I would concur with everything.

Yep. Okay. Next question, Greg. The top 20% of earners now account for close to almost 60% of consumer spending. That K-shape keeps widening. How are retailers responding to this? Are they heading towards premiumization? Are they heading towards value? Are they trying to find that middle ground without diluting either end?

Yeah. You know, what's interesting right now, luxury is no longer cool at the moment. It was for a while. You've got this technology boom and the people that are part of the data center stuff and part of the hyperscalers, Part of these new IPOs, et cetera, this amazing wealth at that end that is driving up things. But there's this pushback on wealth and we've got this rise of socialism that's happening politically as well. And I think the most concerning thing politically is our young people are being left behind. This is the first time we've got a technology shift where it's not being driven by the young people, it's being driven by the generation above. The youngest people and from an acceptance standpoint. And so you've got all this data center pushback and all this other stuff that's happening, but it's affecting them because they go to college, they spend $200,000, they have loans and all this stuff, and they can't get a job in their field. And, and that's creating a great deal of angst. I didn't put this in, but we've had such a dramatic drop in the marriage rate that has happened in America since the 1950s. We had a chart In the last webinar that 93% of women under age 30 in their 20s in the '50s, that's dropped to 26% now. That's a big deal when it comes to home improvement because that's— marriages drive home improvement spend. And that is an increasing crisis that is occurring demographically in the market that's having an impact on retail. So all that to say, it's convoluted out there. You know, if I see the positive of AI and they're able to adjust and be a part of it, it's extraordinary. Most, the most extraordinary technology of all time, I think. But a lot of people are more afraid of it and, and don't like change. And those are the people that get hurt during this time. So that's my big concern.

This is for both of you. Could you speak to the use cases deployed Greg, you want to?

Yeah, no, I think right now it is very early, certainly for a lot of the retailers that we engage with. So what we're seeing is the early adoption of what Greg was talking about earlier, utilizing kind of the chat externally from the system. And what we're trying to do is converge the AI into kind of the daily operation. Where we see those use cases coming into play would be, smarter ordering, smarter pricing kind of immediately, because I think if they can leverage AI in that way, it helps them kind of maximize the workforce to be more in front of the customers, which is always one of the challenges. So as labor increasing is, you know, it's been going on over the several years, AI is an accelerator to our retailers to be able to kind of like offload even more. So it's— we're still— we're dealing with traditional problems and we have a new tool to be able to deploy it. So I think we're looking at traditional use cases like what I just described, then you have to start considering like pricing activities, being smarter pricing, and then as well as beyond that consumer engagement, which I think would be kind of a tertiary priority because of how, and I think some of the things Greg was speaking to about kind of the shift in kind of society and where the focus is around the age of marriage and all those things have an influence of how A retailer will need to engage with them. So I think they're gonna first, from my standpoint of priorities, would be manage the inventory, manage the people first within the business and price smarter for your consumers that you're kind of maximizing what you can do. And then ultimately figure out how to engage with them and then using AI to kind of leverage across each one of those elements.

Is inventory accuracy and visibility, the cross-channel and loss prevention, those are the 2 areas that are seeing the biggest AI impacts. Pricing and promotion is a big one that people are playing with. It's a little disconnect at times. It's a lot of hit or miss for things, but the ability to quickly react to pricing, and usually that includes electronic shelf labels, that is one of the things that is driving efficiencies to a great degree.

Yeah. Greg, this one's for you. The difference in sales between the winners and laggards in BOPIS. Yeah. It's a 3-to-1 kind of deal. Is that a technology gap, an execution gap, or is it a customer expectation gap that the laggards simply haven't caught on to yet?

It's the first 2. I almost just answered yes. It's a mindset for the retailer to say, You know, this is an important channel for us. And obviously, it got driven a lot through COVID that was in place and that they were losing their shirt as they were doing it. And they got the benefit of the government giving out a lot of money that, you know, covered the increased sales, covered a lot of sins and execution. But as people got used to it, making that more efficient is even more important. And let's face it, consumers are tired time, you know, stretch and the ability to do doing it at Sam's. I mean, I love scan and go at Sam's going in there, but if I've got big bulky stuff in there, man, I just set a time and I just say, hey, I'll meet you at the car and you can load it all up. Like, I've got 5-gallon water jugs here at the office and it's like, I don't want to be loading those suckers up in the cart in the place and I'm just going to meet you there. And so that BOPIS is, or delivery is ideal. Yeah.

This is for both of you. Who do you see as the leaders in— I mean, they use the term omnichannel and what makes them so efficient? I mean, it kind of goes back to the slide you had of the top 12 retailers. Yeah, those guys are there. What makes them so efficient?

I think depending on— yeah, if leaders across the board, I would probably go to Greg's list. If you look at it as far as like a hardlines industry, I mean, your big guys, their challenges are just going to be their ability to service the consumer. My experiences at big boxes and pickups in the hardlines industry, so speaking about kind of the Depots and the Lowe's, those guys, hasn't been great. My experience at, for say, Walmart has been exceptional, right? So I think they know how to service and cater to their clientele. And so depend— So for me, I think it's going to depend on kind of the industry, but that's my perspective from personal experience. Greg, I don't know.

Yeah, I think it's been investment. It's been focus and investment of that area. And what makes Walmart so exceptional is their scale and their ability to do it and their investment in looking at it. And they're also looking at Amazon as a competitor driving that. Most of the people that are on this webinar here don't have that. That benefit, so to speak, of having that scale, etc. So they've got to compete on convenience and they've got to compete on expertise. And that is a key part of that and that local service, that local demand. And in many cases for the home goods, it's delivery and the setup. It's the relationships with the best contractors in the area, etc. All of those things that make it so I wouldn't necessarily say You know, focus on BOPIS as your core unless BOPIS is the thing that can help differentiate you in your area. I would focus on those things that can really differentiate you.

Okay. Excuse me. The, the difference in POS software, unified data lake between profit winners and laggards, it's 44% of profit winners have that stuff in place already. And 0% for the profit laggards. Is that too clean a number to be coincidental? Does it confirm the data foundation really is the prerequisite for the study?

There has never been a time where clean data was more important than it is now. Having a unified single version of the truth that is clean version of what's going on because it impacts everything. You can't be profitable with a BOPIS or ship and ship transaction if your associate is spending 10 minutes, 20 minutes walking around trying to find the item in the store. It says it's here, but it's not, but it's not here. The problem is with so much theft that we've had, things, the accuracy at the store level is only about 75% for a lot of retailers. The data says it's in stock. It may be in stock, but it's in the back. It's not on the floor and nobody can find it. That is deadly when you start to go to a BOPIS or click and collect order. It's deadly for the walk-in customer who can't find it. I've left, I've left multi-thousand dollar item sales with some retailers because it says it's in stock, but they can't find it. As a result, I just whip up my phone and I said, I just ordered it from Amazon instead. That inventory accuracy, knowing where it's at. So technology like computer vision and RFID are absolutely crucial to understanding what you have in stock, where it is.

Okay. So last question here. This is for both of you. Most organizations never get past that one-off chat tab in terms of AI. What's actually stopping, what's actually stopping them? The budget, trust, something else?

Well, what's stopping most people is the fact that they just don't have clean data. You know, AI on bad data is just faster bad data. So more than anything else, it's not the budget, although that is a limiting factor. It's the fact that the underlying data from which you're using is not good data. And you also have, you know, some limitations in the systems. If you're not pointing that to your specific data, the AI is a yes man. It's just going to make data up.

Yeah.

And so that's why I have a confidence rating on anything that I use with AI. 100 confidence of 100 is you got it directly from my data, my source. 80 is you inferred it from that source. 70, you found a source that's reputable. Anything below that gets cut, can't be used. So there's some things you got to do from a structure standpoint, but the quality of the underlying data is, is the key factor. And that is the limiting, limiting factor. That's why we have our ClearSight AI offering.

Mm-hmm.

That helps retailers go through and figure out what parts of their business have the cleanest data so you can start deploying AI in those areas. And if you fix things, how much business value is unleashed by fixing that area of the corporate data so you can do that. It's not an all or none. And I want to be careful in saying that it's not an all or one when it comes to AI. You don't have to have all your data right to do and get the benefits of AI. You need to structure it so that you focus on the things that are the biggest wins so that you can get that.

Yeah, and I agree that I think that's a barrier, I think, from a technical standpoint. All of those are truths to be able to use it effectively. I think a barrier from a retailer's perspective might be priority and knowledge, right? Not knowing where to begin. I think there was even a question maybe in the chat thrown here today, how do I get some information about securing protecting my data. So I think there's a knowledge, but then there's the conscious effort, like with any technology, whether that was like, hey, do I, where do I invest in my technology? AI is another investment. Actually, it's probably one that requires a low amount of, require a high degree of people time. So if they're strapped for people or somebody who can drive it and focus on it, if they don't have those, that's probably going to be The, the, the, the point where they stop right now. Once they make the decision, I think, Greg, your points of like, okay, now do I have clean data? How do I access it? Become the next barrier.

Right. And just to, to, to reiterate, you are going to have a J curve when it comes to AI. You are going to be slower at first before you see the upswing. But once you're on that upswing, it is huge. It is, is a huge improvement. So, and what slows you down is that data piece and just your willingness to endure the pain of being slower for a period to get to that, to get to that upswing. It's like the workouts. You have to endure the soreness of getting through that before you can start seeing the benefits. So.

We're past the top of the hour.

All right. Well, guys, thank you so much for joining us. Mike, Epicor, thank you guys for sponsoring and making this content available. It's all available right now on the website. You can get that through the links that were dropped in the chat. You can get that. We will send out to everybody a link to the recording as well as to those individual reports as well as those things. And once again, we just thank you for spending part of your day with us this week. Enjoy the games this week. Go Bucs! And look forward to seeing you on the next one. Thank you, guys. Thank you.

Bye.